Ultra-high-net-worth (UHNW) investors are in a league of their own when it comes to financial success. To grow their wealth and ensure their legacy is preserved and carried forward to future generations, UHNW investors often require highly specialized investment programs and financial planning. Wealth preservation, asset appreciation and income generation are key pillars of any successful UHNW investment strategy.
There are many investment programs tailored to Canada’s growing UHNW investor population. A growing percentage of wealthy investors are tapping into alternative assets to generate higher returns in an age where traditional portfolio construction methods have proven insufficient.
A Profile of Wealthy Investors in Canada
In the wealth management industry, investors are classified based on the size of their investable assets. High-net-worth investors or households have at least $1 million in liquid financial assets. In Canada, there are roughly 760,000 such households, according to government estimates. The upper end of the HNW range is around $5 million, at which point investors are referred to as very high-net-worth (VHNW). To be considered ultra-high-net-worth, investors generally need to have $30 million or more in investable assets. Roughly 10,000 individuals or households meet that threshold in Canada.
With real estate accounting for the overwhelming majority of the average total household assets in Canada, it’s reasonable to assume that many wealthy investors own or have owned real estate. Beyond their exposure to real estate, however, wealthy investors come from diverse backgrounds. Many are entrepreneurs, corporate executives or highly skilled professionals. It’s estimated that inheritors account for less than 20% of HNW individuals.
UHNW Investor Programs in Canada
For wealth managers, most classifications of net worth exclude an individual or household’s primary residence. HNW, VHNW or UHNW status is mainly measured by liquid financial assets such as cash, stocks, bonds, mutual funds, exchange-traded funds, Guaranteed Investment Certificates (GICs), investment property and private equity. Therefore, the investment strategies employed by wealthy investors are typically geared toward maximizing the value of financial assets.
Banks and financial advisors specialize in wealth management services for UHNW investors. These services are usually curated to the investment goals of each individual, offering comprehensive tax planning, wealth transfer and investment solutions, including identifying alternative investment opportunities not available to the general public. These services are also offered by private wealth management firms and family offices, which promise a more personalized and comprehensive wealth management experience that isn’t constrained by institutional mandates. Family offices also offer financial planning, estate planning, charitable giving advice, concierge services and other specialized services.
UHNW investors are also served by portfolio managers who offer discretionary investment management services. Under a discretionary investment management approach, the investor delegates all their investment decisions to a portfolio manager, who is solely responsible for buying and selling assets that align with the investor’s goals and risk tolerance.
Perhaps the most striking difference between UHNW investors and the general investing public is exposure to private markets. Whereas most investors allocate 100% of their assets to public stocks and bonds, UHNW investors have significant exposure to private markets, such as private equity and private debt. On average, UHNW investors allocate 20% of their portfolio to private equity – and they plan on increasing that exposure in the coming years, according to industry research. UHNW individuals also heavily invest in alternative assets, allocating half of their portfolios to these investments on average, according to global real estate consultancy Knight Frank.
Since the 2008 financial crisis, private debt markets have provided a source of predictable income for UHNW investors regardless of broader market conditions. Hampered by post-crisis regulations, banks and other traditional lenders were unable to extend flexible credit terms to middle-market businesses and mortgage borrowers who needed capital to fund growth initiatives and real estate purchases. A new wave of regulations following the Covid-19 pandemic further restricted access to capital among these cohorts. Through private debt investing, UHNW investors continue to fill the gap by providing attractive lending options to consumers and businesses. In exchange, they can generate above-market returns by charging higher interest rates.
Mortgage Investing as a UHNW Investment Strategy
Private mortgages are a multi-billion-dollar market in Canada and account for 11% of total residential mortgages in Ontario, which is home to the country’s largest housing market. According to The Globe and Mail, private lending channels are expected to grow significantly due to liquidity and regulatory restraints impacting traditional lenders. For UHNW investors, private mortgage investing provides a predictable income stream with lower expected volatility than other fixed-income assets and public markets.
Private mortgages are suitable for UHNW investors who prioritize defensive cash flow investments. In exchange for lending their capital, mortgage investors receive regular distributions in the form of interest and fees charged to the borrower. Historically, private mortgage portfolios have produced much higher yields than traditional fixed-income securities while offering diversification benefits and exposure to residential real estate without the risks of homeownership or title transfer. Despite rising interest rates, yields on private mortgages are still highly competitive compared to traditional bonds and GICs. In the case of CMI Mortgage Investments, mortgage portfolios have returned between 6% and 16% for years.
Leading mortgage investment programs require a minimum investment of between $500,000 $1,000,000, which is well within the purview of most UHNW investors seeking broader exposure to alternative markets. Investor funds are immediately put to work funding mortgages in major urban centres and other strong, stable regional real estate markets across Canada. Mortgage investment programs accessible to UHNW investors are managed by full-service wholesale lenders responsible for sourcing, underwriting and managing mortgage portfolios on behalf of the investor.
Become a UHNW Private Lender with CMI
CMI Mortgage Investments is one of Canada’s fastest-growing non-bank financial services providers. With nearly $2 billion in successful mortgage placements, we serve the unique needs of UHNW investors across Canada. Whether your goal is capital preservation, cash flow maximization or portfolio growth, our mortgage investment programs provide tailor-made solutions. We offer a full-service mortgage investment program rooted in transparency, professionalism and industry-leading due diligence practices. As an investor, the management of your portfolio is handled in-house by our team of mortgage specialists and adjudicators. Each mortgage you invest in meets CMI’s rigorous lending standards and risk profile. Are you interested in putting your capital to work as a private lender? Contact us today to request a free consultation and see why CMI is the preferred private mortgage partner of UHNW investors across Canada.