07/05/2012 02:01 EDT | Updated 09/04/2012 05:12 EDT

Retail investors can emulate investment shift by pension fund managers: experts

MONTREAL - The average individual investor can't make the kind of blockbuster private deals in real-estate, pipelines and toll roads that large Canadian pension funds use to offset the negative impact of volatile public stock markets.

But financial experts say retail investors can learn from the strategies adopted by funds like the Canada Pension Plan Investment Board, Caisse de depot et placement du Quebec and other professional asset managers.

The professional money managers have plowed billions into infrastructure deals at home and abroad, looking for steady streams of returns that match the needs of the pension plans' members.

Adrian Mastracci, portfolio manager of KCM Wealth Management Inc., says most retail investors don't have the access to such investment opportunities but they can still replicate the idea by pursuing alternative investments.

"I guess the pension plans have started sort of a wave," Mastracci says

He says wealthy individuals with millions to invest have also taken similar steps.

The Institute for Private Investors, which surveyed 345 ultra-high net worth families with at least US$30 million in investable assets, have decreased their investments in hedge and mutual funds.

In contrast, the poll found 45 per cent of the respondents increased their allocation of commodities, 31 per cent grew the portion in real estate and 22 per cent put a bigger share of their money into private equity.

"This year’s data reinforced the investment trends we have been seeing among the ultra affluent as far as the rise in allocation to commodities and real estate, and the continuing popularity of direct investment in private companies," stated Mindy Rosenthal, IPI executive director.

Mastracci says ordinary investors can diversify their holdings beyond stocks and bonds through ETFs (exchange-traded funds) that focus on global infrastructure, real estate, commodities, emerging markets and other alternative investments.

But he says investors also need to have long-term investment horizons and enough risk tolerance for investments that have other challenges.

"Private equity is hard to value, it doesn't trade the same way that the stocks do so you've got to understand a few other things about that particular part of the portfolio," Mastracci said from Vancouver.

Financial author Gordon Pape said average investors can take a lesson from large investors by looking at their asset mix among equities, fixed income, real estate and infrastructure.

REITs can add real estate holdings while mutual funds and ETFs can give infrastructure exposure.

"They won't be the same projects but you could emulate the asset mix," Pape said in an interview.

Adopting this strategy depends on the individual investor's goals and situation, Pape said.

"It certainly might be appropriate for someone in an RRSP or retirement savings plans of some kind to take a look at that and at least have some idea of what the professional pension plan managers are doing," he said.

But it would not be appropriate for someone who is more aggressive in their investing and wants to maximize their capital gains potential outside an RRSP, Pape added.

Caisse CEO Michael Sabia recently said its gradual shift to private placements from publicly traded equities offers an opportunity to generate long-term returns.

"These investments reflect a strategy based on intrinsic value in the real economy — not on financial illusions," Sabia said in a speech last month to the Canadian Club of Montreal.