Canadian investors are ‘underserved’ in alternative investments and private capital

There’s very little alternative investment adoption in the individual investor space despite the fact some of the largest and most sophisticated institutional investors are in Canada, one expert says

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Blue Owl Capital Inc., a New York-based leading alternative asset manager and provider of capital to private markets, sees great opportunity for its Owl Rock Core Income Corp. (ORCIC) in Canada now that Canadians can invest in the direct lending income fund.

“It’s a massive market that has very little penetration” with alternative investments and private capital, says Sean Connor, managing director at Blue Owl Capital and president of Blue Owl Securities.

The firm had US$132.1-billion in assets under management at the end of September and has 10 offices around the globe.

He describes the Canadian market as “underserved,” which presents “a really unique opportunity to build a business.”

Globe Advisor spoke with Mr. Connor about how the company’s products are different from what’s already available to investors here and where they see the opportunity for growth.

Why did you decide to expand your business into Canada?

Canada is a top 10 economy with lots of savers who want their investments to provide income, which is the vast majority of our products.

In January, Blue Owl began allowing Canadian accredited investors, through their advisors, to buy the institutional share class (class I) in ORCIC and receive distributions from the income earned by the fund. These shares are eligible for registered accounts such as registered retirement savings plans or tax-free savings accounts.

What’s been the reception among Canadian investors so far?

There is some real appetite for the fund among Canadians and it has brought in more than $100-million in capital in six months.

There’s very little alternative investment adoption in the individual investor space as far as we can tell despite the fact some of the largest and most sophisticated institutional investors are in Canada.

Canadians are viewing [the fund] as the way we designed it, which is as a differentiator in your portfolio. It’s designed to be less volatile, have meaningful downside protection and generate high current income.

Blue Owl wants to fill the gap in alternative investment investing in Canada and sees investors wanting to learn more about these options, and that’s the long-term trend we’re excited about.

How should investors use ORCIC in their portfolios?

I equate it to the fixed-income portion of a portfolio. The first close of the fund was in March. There’s an option to buy into the fund monthly, but liquidity is limited to 5 per cent of the fund per quarter.

As of Sept. 30, the Canadian fund’s annualized distribution rate was 8.85 per cent, and it has a total year-to-date return of 2.12 per cent at a time when most fixed-income assets have fallen sharply. ORCIC invests in mainly mid-size U.S. companies with annual revenue of between US$50-million and US$2.5-billion. Credit investments are diversified by industry and region and have a maturity between three and 10 years.

Blue Owl also has real estate and general partner capital solutions divisions for institutional and private wealth clients that it would also like to bring to Canada in the future.

This interview has been edited and condensed.

– Gillian Livingston, special to The Globe and Mail.

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