TD acquired Regina-based Greystone Capital Management to form the largest money manager in Canada. Bruce Cooper, CEO & CIO of TD Asset Management and Robert Vanderhooft, CEO & CIO of TD Greystone Asset Management discuss the opportunities and challenges in the alternative investment space.
- Hello, and welcome to the show. It is great to have you with us. TD in a $792 million deal late last year acquired Regina-based Greystone Capital Management to form the largest money manager in Canada. I sat down with Bruce Cooper, CEO and CIO of TD Asset Management, and Robert Vanderhooft. He is CEO and CIO of TD Greystone Asset Management. And I asked Bruce about the strategic reasoning behind that acquisition.
- Yeah, I think there were, really, three things I thought about. One is the introduction of some of the capabilities that Greystone has, particularly in the area of alternatives. So think about real estate, infrastructure, mortgages, but also things like China equities, international equities, so lots of great capabilities. Certainly the cultural fit, we thought, was exceptionally strong. Rob and I spent a lot of time together, and we really thought the teams would come together well.
And I think the last piece is really around growth opportunities. And we thought this would give us an opportunity to accelerate the growth of both firms. We think about, for example, introducing some of the capabilities that Greystone has offered into institutional clients. We can offer that into our high-net worth clients and also bring new products to market. And global real estate, for example, is one that we've really highlighted there. So really, lots of growth engines as we think about bringing the two companies together.
- OK, what you really-- what I've heard you both talk about, too, is you've really brought the broadest product capability set in Canada into one place. And I heard you talk about, this is just a really-- was a good deal for both sides.
- Yeah, and for us, it made a lot of sense in terms of we were quite good at manufacturing products, so investment products. Distribution, though, we weren't in as many channels as TD is, and so we were open to a partner that would help us to leverage growth. And for us, that meant increased distribution of products. And in terms of product line, a little overlap in product line, and again, brought us product line in Canada, so we're quite happy with that outcome.
- Bruce, you talked about the capabilities with Greystone. And Rob, I'd like to talk a bit more about that and give us a bit more detail behind them. First, I want to start with the fact, we call it alternative, but it's pretty mainstream. I mean, it's something that I know you're a big believer that people really should have in their investments.
- Yeah, it is. I mean, what we talk about as alternatives, in terms of real estate, we've got about a $17 billion portfolio, really, all across Canada. So it's geographically diversified. It's diversified by property type too-- office, industrial, retail, and some multi-unit residential.
Examples of that would be, about two years ago, we bought Constitution Square in Ottawa. And that was the largest transaction in Ottawa's history at about $480 million for that office building-- office buildings. So that's an example of a real estate investment in the portfolio.
Mortgages, as well, would be similar in terms of the type of geographic distribution. And also by property type. And so we'll lend on commercial real estate projects in Canada. So Bay Adelaide Centre-- we have a component. We have part of the mortgage on the Bay Adelaide Centre, for example, with Brookfield and partner as the borrower. So that's an example of a mortgage that we would have in Canada.
- Now, In infrastructure, same thing-- if you could tell me a bit about just what-- describe what the asset class is and, again, some examples that might be in there.
- Yeah, infrastructure would be, really, long-term cash flow generating assets-- for example, power utility generation and power utility distribution, those types of assets. In the US, we have a solar facility which really generates power both for corporate users, but also for utilities. In Ireland, we've got wind farms. Those are a couple of the examples of assets that are in the infrastructure area. Again, really focused on long duration assets generating significant cash flows.
- And the third international and Chinese equity products, one of the more interesting things I know is that you have people on the ground in Hong Kong. And you're accessing a market a lot people don't have access to.
- Right. In terms of China income and growth, yeah, we've had a team there now in Hong Kong for just over four years about product for over four years, as well. And what that is is a lower volatility type of product in high-volatility market. And what we've found is there is a significant ability to generate excess return in China, given that it is still, in terms of the capital markets, more in the development stage than the fully-developed markets such as the US. And so we've had an opportunity to use our abilities to manage equities, to add significant value in those areas.
- Bruce, I know that there's been a lot of excitement about the Greystone capabilities. When are they going to be available to people?
- Yeah. Well, some are available now, and some more are coming. On the institutional side, we've already had some wins where capabilities from both TD Greystone and TD Asset Management have been brought together to provide a solution for clients. So that's very exciting for us.
In our high net worth channels, we've already launched a product that embeds TD Greystone's mortgage capabilities. And we're looking forward to launching a product that will embed the real estate infrastructure as we look into the second half of this year. And global real estate, which I mentioned off the top, we're also really excited about bringing that in the second half of this year. And so lots coming down the pipe.
Also, China equities is something we're looking at bringing into our mutual fund lineup later on this year. And international equities is already something that TD Greystone is managing one of the international equity funds for us already. So lots of stuff's already happened.
- Right. And I should mention, with the Chinese equities, I mean, these are also people on the ground in Hong Kong.
- Yes. Yeah. Yeah, we've had the team in Hong Kong for about four or five years now. Originally, we put the office in Beijing. We've moved it to Hong Kong, and we've managed a Chinese equity product for over four years there.
- You've also announced-- and this acquisition, of course, happened a number of months ago-- but Rob is going to be taking over the position of Chief Investment Officer for TD Asset Management. And you'll be taking on a full-time role as CEO, and not CIO. Why? Why did you make that pivot?
- Yeah. Well, a couple of reasons-- the business continues to grow. And I think, for me, being able to dedicate my time to the CEO responsibilities is going to be very important. It's a big business, and it's a big job. And I'm very excited about being able to focus 100% on that.
Likewise, exceptionally excited to have Rob, who brings 20 years of experience as a chief investment officer into the role with TDAM. And I think, really, think about the continuity, Rob's focus on investment excellence. We're here for our clients. We're here to deliver great outcomes to our clients, probably just in that performance, but also in the way we bring products together to form solutions. I think there's really a very similar way we've always looked at it from both of TDAM and the TD Greystone side.
- We have been overweight equities for a considerable period of time. And we've brought some of that back closer to benchmark. Again, equities, long-term offer, reasonably competitive returns. But we are getting along in the cycle at this point, so we've taken some of the risks back. So we've dialed that back as we've seen more volatility in the markets overall.
And again, trade tensions seem to overwhelm what is happening in the market right now and generating a lot of volatility. We are getting a bit of a dichotomy between the equity market right now in terms of that view versus the fixed income market. And that, in itself, creates a lot of volatility, as well.
- Yeah. And, I mean, I guess, that's the hard part, I think, from what he was talking about, getting the noise out of what we actually do here. But the noise is increasing. I mean, we've got tariffs being threatened. They're almost in place for Mexico. And you've got the fed actually talking about now having further rate cuts, which I thought, years ago, we were talking about getting out of this low-rate environment.
- Yeah. So a couple of things. I guess, on the trade front, really, the day after Donald Trump was elected president, we wrote a piece where we actually said, there's three things the market's going to like about Donald Trump and two things they're not going to like. And the things we thought they'd like would be, of course, tax cuts, deregulation, and infrastructure. We actually haven't seen very much of the infrastructure, but tax cuts and--
- Lots of talk of an infrastructure.
- --deregulation have been important drivers in the market. And the two things we thought they wouldn't like would be his approach to trade and what we sometimes call erratic decision-making. And I think we've seen some of that.
So I don't think this is new. It's deeply embedded in the way Donald Trump governs. It does create volatility, as Rob said. I think we're still hopeful that a deal between China and the US will be struck. Trade is a serious issue. And to some extent, it's become a bipartisan issue in the US with people on both the Democratic and Republican side worried about some elements of the way China approaches growth.
- One thing I think that's fascinating, too, is that we all have visibility in terms of what's happened with the equity markets. We watched them up and down. And in terms of what's happening with the headlines, we don't have that same kind of-- or at least I don't have that same kind of visibility into some of the private markets and the infrastructure and those types of things. So I'm assuming this is exactly why some of these things are so-- that those types of investments are so interesting is because they provide that stability.
- It is. And underlying all of those is a significant component of income.
- And so you would tend to have lower volatility in that long-term income component. You do have some variability in the valuation over time, but it's certainly less than the equity markets. And so that's one of the advantages, as well. If you look at real estate, you look at infrastructure, and certainly mortgages, most of that returned-- 80% of the return in real estate has come from income over the last 15 or 20 years.
And again, so that, we see very little variability in. We're seeing probably 4.5%, 4.4%. And that operating income yield on real estate, so it's a pretty good yield. We're also seeing that yield growing at about 3.3% per year. So again, because of that, you would tend to see lower volatility, as well.
- How are you feeling about the commercial real estate market moving ahead? I mean, obviously, it's important to understand what the economics are in terms-- or I should say economies are doing-- like a Canadian, let's say, urban real estate. I mean, how strong is that? What kind of things do you look at to evaluate?
- Again, given the net operating income yields are pretty attractive still at this point in the growth and the income. And we're also not seeing overbuilding in markets across Canada. If you look at Ontario, for example, Toronto area, the industrial market, very, very low vacancy. And as a result, we're seeing rents continue to move up.
There is some new development taking place, but it is a challenge finding undeveloped land to be able to do industrial around Toronto because of the green belt component. So vacancy is very, very low. And generally, we're seeing vacancy across Canada at pretty low levels, Alberta being the exception. But again, Alberta is very oil-dominated.
- Last question for you, Bruce. If you think about future offerings that are coming from this combination-- you talked about international realtors, global real estate fund, any other things you're thinking about later on you can tell us about?
- Well, no, I think our plate is actually pretty full here for the next 12 months. And our objective is not to come up with 100 little bits and pieces. Our objective is to come up with a handful of really, really exciting products that we think can play an important role in client portfolios.
And you think about global real estate, we don't think there's that many compelling offerings in Canada around global real estate. So we're excited to bring something that that the clients can use, likewise something like China equities. There's not dozens of offerings in this area, so we want to bring things that are interesting, that can play a role in client portfolios, and can really make an impact.
- Bruce, Rob, thank you very much.
- Great to be here.
- Thank you.