PCMA: What role does the private capital market have to play in the modern investment landscape?
LAFERRIERE: 25 years ago, mutual funds were in their infancy and today the mutual fund industry is a mature industry where a great many Canadians have mutual funds. I believe that from a retail perspective, the private capital markets are where mutual funds were 25 years ago.
The private capital markets are essential to Canada’s prosperity because this is where the initial capital formation for issuers who have great and innovative ideas takes place. This is where investors put their capital to work to create wealth; this is what builds the nation and individual wealth. The private capital markets drive job creation, innovation, productivity and creativity in the Canadian economy. It is important that the private capital markets are embraced, nurtured and enabled by all stakeholders.
As the significance of the private capital markets continues to be realized and becomes more mainstream, like mutual funds, I believe we are on the cusp of a significant change which will see retail investors incorporate private investments into their portfolios.
Likewise, from the issuer’s perspective, more and more, we need to be putting people seeking capital together with people who have the capital to invest. The initial funding for projects and ideas needs this.
PCMA: How would you describe the performance of the private markets in Canada this past year?
LAFERRIERE: I am not sure how widely known this may be, but the size of the private capital markets is much larger than the public markets.
While there is capital raising activity that takes place, what concerns me is the challenge faced by issuers in raising capital and the less than favorable bias against retail investors investing in the private capital markets.
These headwinds lead to a flight of capital, with issuers going to jurisdictions where the requirements and sentiments are more favorable to private capital market activity. These situations do not build Canada’s prosperity and they do not create wealth for individuals.
PCMA: What would you say are the main aims and ambitions of the PCMA in late 2018 and beyond?
LAFERRIERE: The goals of the PCMA are to broaden industry awareness to all stakeholders and to be the national voice for the private capital market participants to the public, government and securities regulators.
The impact of government and regulatory policy on the private capital markets has an immense impact upon the wellbeing of Canadians.
The PCMA and its predecessor organizations have done a great job delivering on those goals, but it is very important to continue the effort.
PCMA: Why is getting in front of government and securities commission so crucial?
LAFERRIERE: The PCMA has an enormous responsibility to educate and inform all stakeholders, but none more so than government and regulators. The private capital markets play a critical role, as it is private industry that creates wealth, drives innovation and builds the nation – not government. Building government and regulatory awareness of the private capital markets is crucial to the short/medium/long term wellbeing of Canada.
Government and regulators have a role to play, specifically government and regulators should facilitate and enable wealth creation, while at the same time foster fair, efficient and competitive practices supported by adequate cost-benefit analysis.
The PCMA, through its advocacy activities, including its comment submissions to various levels of governmental and regulatory bodies, does a great job in this instance. How are governments or regulators to facilitate and enable wealth creation if they do not understand how wealth is created? It is up to us to educate and inform them and suggest a balanced policy that benefits Canada and Canadians.
Additionally, I believe that we as an industry need to take responsibility for what happens in our industry. The misdeeds of one participant have an impact upon all-good intentioned professionals that work every day to improve their clients’ circumstances. This is why I am so proud of the PCMA. The PCMA developed the proficiency exam that an individual is required to pass in order to become a Dealing Representative. The PCMA sponsors the Chief Financial Officer and the Chief Compliance Officer courses. These activities greatly increase the professionalism of the industry and I would like to see more in this area.
In the absence of the industry being responsible, government and regulators will feel compelled to do something. Our industry must ensure that we deal honestly, fairly and in good faith, including with transparency, to our clients. As gatekeepers, each of us must act with integrity and act with other stakeholders who have also demonstrated that they too have integrity. We must not let a few bad apples spoil the basket.
PCMA: As well as building relationships with regulators and growing awareness of the private markets there has been a real push from the PCMA to engage its members. Why has this been so important?
LAFERRIERE: An organization is the sum of its constituents, and it exists for the benefit of its members and society. I am very glad to hear that the PCMA Chapters are so successful. This is a key channel through which we engage our members, and I plan to go out to the Chapters to hear their ideas and suggestions first hand.
Additionally, I am looking forward to our spring national conference in Toronto on Thursday, June 6th, 2019. By interacting and networking with each other, we are able to share ideas, facts, and concepts that enable us to leverage our strengths and build members’ businesses.
Membership engagement is vital to the ongoing success of the PCMA. It brings with it a discipline of listening to the “customer” and always challenging our value proposition to the membership. Each day we must earn the continued support of our members and that means being relevant, providing real value and being an advocate for them. You cannot do this from an ivory tower, and you cannot do this if you are out of touch and not engaged with your members.
PCMA: In what is an increasingly competitive industry what piece of advice would you give to exempt market dealers firms and industry professionals?
LAFERRIERE: This is something that we at Portland obsess about every day and our Chairman Michael Lee-Chin consistently reinforces. The organizational life cycle follows a predictable pattern: launch, growth, shakeout, maturity, and either life cycle extension or decline. What we find is that the person or business that is able to go the distance through to life cycle extension has a couple of traits:
- They have “IIP” (integrity, intelligence, and passion) and you need all three of these; and
- Every day, in every way they: (1) truly address clients’ needs; (2) differentiate their business/practice from the crowd; and (3) build their reputation.
Finally, the successful business or person has the following: (1) a framework for decision-making; (2) the ability to control emotions by referring to the framework; and (3) access to capital, human capital, intellectual capital and creativity.
If you have these characteristics, you will build an everlasting business/practice!