“Our strategies provide flexibility and surgical precision that traditional products can’t match”
Brian D’Costa, Algonquin Capital
“One of the key engineered advantages we’ve developed is the ability to offer an enhanced yield and return profile without sacrificing quality, liquidity, or transparency”
Raj Tandon,
Algonquin Capital
In Partnership with
Democratizing access to institutional-grade strategies
Algonquin Capital founders Raj Tandon and Brian D’Costa discuss how the firm offers strategies to optimize returns and manage risks in the changing fixed-income landscape
Read on
Brian D’Costa
Algonquin Capital
Raj Tandon
Algonquin Capital
Industry experts
FOR DECADES , a significant divide separated the investment options available to institutional investors from those accessible to retail investors. The former, with greater resources and fewer regulatory constraints, have traditionally employed more sophisticated strategies, achieving superior risk-adjusted returns.
However, recent changes in the market are starting to close this gap. Raj Tandon and Brian D’Costa, founding partners of Algonquin Capital, speak with WP about how this shift has opened the door for firms like theirs to bring institutional-grade strategies to retail investors.
“Over the past twenty years, we’ve seen more and more institutional portfolio managers and bank traders opening up alternative asset management firms and creating offering memorandum products,” says Tandon. “The success of these products showed investors and regulators the benefits of having alternatives in a portfolio. This led to an evolution in regulation, which has seen retail investors gain greater access to alternative investment strategies, with the biggest game-changer being the introduction of alternative mutual funds, more commonly known as liquid alternatives.”
As a firm, Algonquin is well-positioned to capitalize on these regulatory changes, with deep expertise in executing institutional quality strategies. Tandon notes, “As former bank traders and institutional portfolio managers, we’ve been using these strategies and tools for decades.”
D’Costa adds that these tools can be categorized into three broad groups. “First, there's the ability to use leverage. Second, the ability to short-sell securities. And thirdly, there is the flexibility to employ derivatives.”
These tools have the advantage of allowing managers to isolate and enhance the exposures they believe have significant value while also minimizing or eliminating unwanted risks.
“They provide flexibility and surgical precision that traditional products simply can't match,” D’Costa maintains.
A prime example of this advantage was seen in 2022. Many people who held traditional fixed-income investments in mutual
This ability to outperform stems from the flexibility of alternative fixed-income strategies, which can employ a broader set of strategies to navigate market conditions more effectively than traditional approaches. One key advantage is the ability to separate credit and interest rate exposures, allowing for more precise risk management and optimization across the yield curve.
D’Costa points to a scenario where their analysis might
conclude that three-year corporate credit spreads are attractive, while 10-year interest rates offer the best value in duration terms. It is impossible for a traditional manager to construct a portfolio that takes full advantage of this situation, but as an alternatives manager , Algonquin can build a portfolio with exposure to three-year corporate bonds while shorting three-year government bonds to isolate the credit exposure and minimize the interest rate risk. He adds, “We can then use derivatives to gain exposure to the ten-year interest rate, optimizing our positions across the yield curve.”
Unlike long-only managers who must seek higher yields in lower-quality securities, Algonquin is focused on generating yield by leveraging high-quality, investment-grade credit. The firm’s thesis, supported by extensive historical data, is that applying leverage to something like a Canadian bank bond is more secure than buying high-yield or emerging-market bonds. The risk of a Canadian bank or large-cap company going bankrupt is minimal, whereas default rates on high-yield companies average around three to five percent per year.
As Tandon noted, “One of the key engineered advantages we’ve developed is the ability to offer an enhanced yield and return profile without sacrificing quality, liquidity, or transparency.”
In addition to performance benefits, alternative strategies can offer significant tax advantages. As D’Costa explains, “The structure of a fund, such as a limited partnership, can provide tax efficiencies that traditional mutual fund trusts do not offer.”
For example, the Algonquin Debt Strategies Fund, structured as a Canadian limited partnership, generates returns that are classified as active business income, potentially offering tax benefits, depending on an investor’s tax status.
These various advantages help Algonquin Capital to achieve its mission. As Tandon says, “Our purpose is to help Canadians get more out of their fixed-income investments. To achieve this, we’re applying our expertise to engineer built-in advantages into our products, which are then enhanced through our active management.”
Algonquin Capital is a boutique investment firm with a simple purpose: helping Canadians get more from their fixed income. We do this by designing better products, sharing our insights, and helping investors navigate the ever-changing bond markets.
Find out more
Before starting Algonquin Capital, Brian was the global head of fixed income and rates for CIBC, where he was responsible for the bank’s entire bond and rate trading business, overseeing forty traders globally. Before that, Brian spent eleven years with TD Securities, where he was the global ahead of vanilla interest rate derivatives, managing trading teams in Toronto, London, Tokyo, and Sydney. Before building a career in trading, Brian spent seven years in the Canadian Armed Forces, where he served as a captain in the Airborne Regiment and participated in a peacekeeping tour in Iraq.
founding partner, president, Algonquin Capital
Brian D’Costa
In his previous lives, Raj studied mathematics, traded multi-billion-dollar credit portfolios, and volunteered for numerous charitable organizations. After completing a Master’s in pure mathematics at Columbia University, Raj joined TD Securities in London, where he managed and traded credit portfolios across international markets. Outside of work, Raj has a passion for community service. He is currently a volunteer crisis counsellor for Victim Services Toronto, and in 2022 received the Toronto Police Services’ VST Volunteer of the Year Award.
founding partner, Algonquin Capital MA, pure mathematics, Columbia University BSc, philosophy and mathematics, London School of Economics
Raj Tandon
In Partnership with
Democratizing access to institutional-grade strategies
Algonquin Capital founders Raj Tandon and Brian D’Costa discuss how the firm offers strategies to optimize returns and manage risks in the changing fixed-income landscape
Read on
Brian D’Costa
Algonquin Capital
Raj Tandon
Algonquin Capital
Industry experts
In his previous lives, Raj studied mathematics, traded multi-billion-dollar credit portfolios, and volunteered for numerous charitable organizations. After completing a Master’s in pure mathematics at Columbia University, Raj joined TD Securities in London, where he managed and traded credit portfolios across international markets. Outside of work, Raj has a passion for community service. He is currently a volunteer crisis counsellor for Victim Services Toronto, and in 2022 received the Toronto Police Services’ VST Volunteer of the Year Award
founding partner, Algonquin Capital
Raj Tandon
Before starting Algonquin Capital, Brian was the global head of fixed income and rates for CIBC, where he was responsible for the bank’s entire bond and rate trading business, overseeing forty traders globally. Before that, Brian spent eleven years with TD Securities, where he was the global ahead of vanilla interest rate derivatives, managing trading teams in Toronto, London, Tokyo, and Sydney. Before building a career in trading, Brian spent seven years in the Canadian Armed Forces, where he served as a captain in the Airborne Regiment and participated in a peacekeeping tour in Iraq.
founding partner, president, Algonquin Capital
Brian D’Costa
In Partnership with
Democratizing access to institutional-grade strategies
Algonquin Capital founders Raj Tandon and Brian D’Costa discuss how the firm offers strategies to optimize returns and manage risks in the changing fixed-income landscape
Read on
Brian D’Costa
Algonquin Capital
Raj Tandon
Algonquin Capital
Industry experts
Before starting Algonquin Capital, Brian was the global head of fixed income and rates for CIBC, where he was responsible for the bank’s entire bond and rate trading business, overseeing forty traders globally. Before that, Brian spent eleven years with TD Securities, where he was the global ahead of vanilla interest rate derivatives, managing trading teams in Toronto, London, Tokyo, and Sydney. Before building a career in trading, Brian spent seven years in the Canadian Armed Forces, where he served as a captain in the Airborne Regiment and participated in a peacekeeping tour in Iraq.
founding partner, president, Algonquin Capital
Brian D’Costa
Share
Share
In his previous lives, Raj studied mathematics, traded multi-billion-dollar credit portfolios, and volunteered for numerous charitable organizations. After completing a Master’s in pure mathematics at Columbia University, Raj joined TD Securities in London, where he managed and traded credit portfolios across international markets. Outside of work, Raj has a passion for community service. He is currently a volunteer crisis counsellor for Victim Services Toronto, and in 2022 received the Toronto Police Services’ VST Volunteer of the Year Award
founding partner, Algonquin Capital
Raj Tandon
Separating credit and interest rate exposures
Published October 7, 2024
Interest rate duration
Algonquin Fixed Income 2.0*
2.6y
1-year return (F Class)
10.93%
Portfolio yield
5.5%-6.5%
Average rating
A-
* As of August 30, 2024
* As of August 30, 2024
Interest rate duration
0.47y
Average rating
BBB+
Portfolio yield
6.5%-7.5%
1-year return (F Class)
11.67%
Algonquin Debt Strategies Fund*
Advanced tools for modern portfolios
funds or ETFs were shocked to find that a conservative investment like a bond fund could experience a double-digit loss. This was due to interest rates rising quickly as central banks hiked rates. However, in that same year, most alternative fixed-income funds outperformed by significant margins and, in some cases, even delivered positive results.
Long-only managers also face more limited options for generating excess returns. Tandon says the traditional manager has three main options when it comes to generating higher yields and returns.
“First, they can move down the credit spectrum – for example, investing in high-yield or emerging-market bonds, which forces them to take on the risks associated with lower-quality borrowers or less-liquid securities,” says Tandon. “Second, they can extend duration by buying longer-dated securities, which come with additional volatility and risk. Finally, they can make large macroeconomic bets.”
Leveraging high-quality credit for superior returns
Alternatives managers also have a greater ability to manage portfolio risks and adapt exposures to changing market conditions. With access to more hedging tools, they can eliminate or minimize unwanted risks. And by using derivatives, exposures can be quickly and efficiently adapted without the need to buy or sell large quantities of securities.
Algonquin uses these advantages to actively manage their credit and interest rate exposures to extract the most value from fixed-income markets.
The other benefit
D’Costa says, “We aim to position our funds in the best parts of the bond market based on where we are in the economic cycle. This flexibility, combined with our deep expertise, allows us to offer superior risk-adjusted returns.”
Risk management and adapting portfolios
Companies
About us
Privacy
Terms of Use
RSS
People
Newsletter
Authors
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.
Contact us
News
Your Practice
iNVESTMENTS
bEST IN WEALTH
Resources
Subscribe
Companies
About us
Privacy Policy
Terms of Use
RSS
People
Newsletter
Authors
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.
Contact us
News
Your Practice
Investments
Resources
Best in Wealth
Subscribe
News
Your Practice
Investments
Resources
Best in Wealth
Subscribe
Companies
About us
Privacy
Terms of Use
RSS
People
Newsletter
Authors
Contact us
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.
Share