Algonquin Capital's Raj Tandon on Fixed Income Investments & his Journey from Mathematician to Entrepreneur

Join us in today's Snippets episode as Raj Tandon shares his unexpected leap from the world of philosophy and mathematics to the banking industry and the founding of Algonquin Capital. Raj also provides insights into the intricacies of fixed-income investing and their role in diversification and wealth preservation. Beyond his professional endeavors, Raj discusses his active involvement in philanthropic initiatives, particularly in victim services. He shares his experiences as a volunteer crisis counselor and emphasizes the importance of giving back to the community.

If you’re interested in our Snippets podcasts or The Way Forward live webcasts, please take a moment and visit us at peo-leadership.com. Guests have included Morgan Housel, Professor Janice Stein, Harvard's Rosabeth Kanter, Michael Beer, Rob Chesnut, and Dr. Greg Wells. We’ve covered such topics as growth, uncertainty, mental health, leadership, the new world, and a host of others. 

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Transcript

 Special thanks to E and Y for helping bring you today’s PEO Leadership’s Snippets Podcast. Welcome to our Snippets Podcast. I'm Leon Goren, CEO and president of PEO Leadership, North America's premier peer-to-peer networking and leadership advisory firm. Today, I'm very excited to welcome Raj Tandon, founding partner at Algonquin Capital. Founded in 2014, Algonquin Capital is a boutique investment firm specializing in fixed income solutions for high net worth investors and institutional clients.

Now, I've been very fortunate, Raj, since the early days of Algonquin Capital, both as a friend and a member of our presidential advisory team, our PAC. So on that note, Raj, it's great to have you with us today. Thank you for having me. So I thought we'd start off maybe a little bit about the journey in terms of the, it's really an entrepreneurial journey.

I know you started in the banking industry and then you leaped into become a little bit of an entrepreneur, but maybe walk us through this and, and also a little bit of your background on the mathematics. I don't get to meet so many mathematicians and you're one of the few that I have gotten to know over the years.

My background educationally, I did my undergraduate in philosophy and mathematics. And then a master's in pure mathematics and then kind of had no idea of what the hell to do with a master's in pure mathematics. And people said to me that the banks might be willing to hire me. And I kind of fell ass backwards into a trading role with TD securities in London, England, after kind of feeling like that wasn't really fulfilling me completely.

I left the bank to go volunteer in South America for a couple of years. and kind of determined that my goal was help. But that may be the best way to do so would be to come home and start an investment company, which could then get involved with other projects and fund various charitable projects.

So that was kind of the impetus to leave the banks and start my own firm. Okay, I got to ask you this because in your class in the mathematicians, all the mathematicians graduate in your class. I mean, how many of them actually salsa dance? Breakdance sort of are out there all the time. You got two personalities here, right?

You got the mathematician that does all the work. You got the business guy. And then there's the night guy. That's Raj. And which is really tied a little bit to the philanthropy. I can't imagine many of those mathematicians were like that.

Let's just say what I'm doing. My master is a pyramid. I didn't have very many friends in the math department other than study groups. I didn't really tend to socialize with the other mathematicians too much. Oh, no, that well, thanks for sharing that. I asked you that question starting as a founder and starting the business.

The #1 question I always ask founders is. Yeah, I mean, you're 10 years into this. Would you do it again? It's a very good question. I think we like to joke, my co founders and I, that if we knew how difficult it would be when we started, we may never have started. So, with the knowledge you have now of how, exactly how hard the journey is going to be, would I have, I would still do it again.

Yeah. I'm a glutton for punishment and pain and I like working hard. Yeah. I would do it over again. If you asked me at the end of year two, if I would do it again, I might've said hell no, but after year 10, yeah, I would do it again. Well, that's something I've learned about you too. Like you're so persistent and driven.

That's your personality, right? You, there was no way you were to stop in year two. You're going, yeah. You guys have done an incredible job. I mean, in this business, you start with zero and today you're running a couple of different products. I mean, can you share with us the AAUM that you guys are managing today?

We're about managing around 650 million. And your point started at 3 million, almost zero, almost zero on that scale. So maybe giving people just an idea of really what you do. And I mentioned it was fixed income, but let's start at the basics for those that don't even understand fixed income. How would you describe it to them?

Well, I guess you start by describing by what it's not. So it's not equities or stocks. It's usually the other major component of an investor's portfolio. You know, you hear. The typical 6040 and it's can be comprised of different things. It can be just comprised of even things such simple as GICs or what we would call money market cash ask instruments.

And then you've got, you know, regular government bonds corporate bonds. So these are the debt of all the various companies, and then you can go into high yield, private credits, people use mortgages, even they call that fixed income. So really, I guess the all encompassing idea is, is it's the debt. So when you buy a stock, you're actually buying shares or equity into the company.

When you're on the fixed income side, you're actually buying the debt. Of the companies of the governments or in some cases of individuals for your average investor Why is it important that they should even be considering this stuff? Like, when they, when they look at the different types of assets that they want to hold and perhaps just, they're not really creating their wealth, they're, they're almost preserving all the hard income that they're making in their other businesses or their careers.

Why look at fixed income as part of the allocation? What you alluded to there is like, what we say, you know, concentrated risk creates wealth, businesses, or even in your career, like, somebody who's a doctor or a lawyer. You know, they've concentrated all their focus into their career and that's what's creating their wealth.

And then to preserve wealth, it's about diversification. So, you know, concentration to create it and diversification to preserve it. And I think the reality is, is that it doesn't matter what you're investing in, what asset class you invest in, whether it's equities, real estate, commodities, whatever different types of investments people make through someone's lifetime, they're probably going to see a pretty significant drop in each one, you know, maybe 50%.

So that's where you need to have a diversified portfolio. To withstand those kinds of shocks. So fixed income is often considered as that kind of diversifier against the stock market or against your stock portfolio. And to your point, it's the part that is typically seen as the ballast of the portfolio and potentially the protection part.

And then for a lot of clients, it becomes a source of their income. You know, for older clients, it becomes a nice way to generate an income for themselves. Because you described the various different types of fixed income, but where do you guys fall in this? Like, I can go buy a GIC today, let's say at 3. 5%, 4%, depending on the term, right?

Or maybe as high as 5%. Totally risk free, doesn't necessarily, I guess it could drop in value if interest rates were to go down. It's nominal and people don't think about it that way. But where do you play on the spectrum? So we have two products. We have one, which would be more of that core fixed income product.

And it's like a mutual fund product has daily trading. It, you know, pays out quarterly income to the clients. So that would be part of that core fixed income, a little bit vanilla, a little bit more on the conservative side. Where today that type of product would be giving, yields of call it 6 to 7 percent and it has some of that interest rate exposure that can act as a hedge or diversifier.

Then we have an offering memorandum product, which would be in the more high yield. Part of a fixed income portfolio where people would have junk bonds, private credit securities or preferred shares. And that's kind of today yielding investors in the high single digits, call it 8 to 10%. So we have 1 product that I would sleeve into that high income bucket and then 1 into the core bucket.

Okay, and obviously the risk being different in both products as you described them just there. Yeah, so one is has a higher return, higher income and slightly higher risk profile than one is a bit lower. But for us, the kind of our shtick in a way is to get that higher income. Usually investors are going into lower quality securities in order to get that extra.

Yield and income and our alternative is to leverage high quality. So we would take something like RBCs, TDs, like the bank debts. And apply modest leverage to them to get that higher income, and we feel that this is a much more safe, secure and transparent way to get that higher return potential, rather than going and buying the debt of a highly levered company or private debt where there's a lack of transparency.

Okay, and you mentioned to me, there was also 1 other advantage and probably more related to entrepreneurs, right? That have holding companies or active companies themselves where. When we're generating excess cash or holding cash, putting it into 1 of your funds is actually still considered active business income versus passive income, which.

Everything's changed now in terms of the tax rules, how much passive income we can earn in a whole coat. Maybe just touch on that a little bit because I think it was 1 of the differentiators. Yeah, so in the product, the 1 with the higher yield and higher return potential, the returns, the entire net return, the investor takes home.

Is categorized as active business income. So it's taxed at the active business rate, which is in Ontario, 26 and a half percent and plus or minus 25 percent across the country. And if it's an active business, it's still the same tax. It won't impact the small business deduction and that's virtually basically a product of the fact that we're.

A Canadian limited partnership. So, as an investor, you become a limited partner and the partnership is viewed as being in the business of trading. So, because we trade and turn over our portfolio quite a bit, we get this kind of unique tax treatment, which is. A big benefit for any corporate investors, people can reach out to you on this on any of these investment questions that you're easily accessible.

And I know people can either come through myself or directly to you. So, let me move it off a little bit because I have gotten to know you. And like I said, there's a lot more to Raj than just the business size. You're a huge believer in philanthropy and, and really not just from a financial perspective, but from an active involvement perspective.

And a couple of things you've been doing a bunch of the victim services stuff in 2022. Toronto Police Service Volunteer of the Year Award for some of the work you've done. I know you've been involved with Unity in the past. I think you're probably still involved with Unity as well. And I, and I listened to what you say within our group and how focused you are on really making a difference.

To different people, where's that drive come from and I know you're still very much involved in the victim services side. Maybe even just tell us a little bit about it. Yeah. So with victim services, I'm a volunteer crisis counselor. So victim services, Toronto. Basically, is there to support victims of crime or sudden tragedy and where we are getting most of our client referrals through Toronto police services.

So if, you know, somebody is a victim of a, a crime or a sudden tragedy, often, you know, sudden death, you know, the police, after they've done their part, kind of call us or refer the client into us to kind of follow up and provide kind of immediate support for them. And I have been doing that for a few years now.

Currently, I'm actually working on training new volunteers to help kind of support the professional  social workers and crisis counselors. What, what's one of those calls like, like, I don't, somebody has gone through this, Toronto Police Services is. Suggesting they talk with you. Oh, like you're not a psychologist and training or anything like that.

How, how are you actually helping these individuals? With my math skills. Excellent. Just confused the hell right out of them. No, well, they do give you a lot of training. First thing was, was there was like an application process, interview process, and then there was a few months of evenings of training.

Victim services does train you, they do ongoing training. So they do kind of prepare you for that. But a lot of it is, you know, providing immediate emotional support, you know, going through the type of impacts and effects trauma can have. Making sure that the clients are kind of supported and making, making sure that they're tapping into their networks of support, often encouraging them to that.

And the big thing there is also walking them through. I mean, it's always very client led. It's driven by them and their needs, but then listening to that and seeing if there's. Resources available to them, you know, is there something in their community? Is there, you know, sometimes it could be something like legal aid or financial resources or counseling and psychological resources.

So that's where we have databases of these kind of resources within Toronto. To kind of help direct them to garage. That's an amazing thing that you're doing. And I know like all of us, how busy you are. I know you travel a lot and just to be able to contribute those hours. That's huge. It really, I'm certain you're making a difference to a lot of people in the community.

Thank you. It's also very rewarding. Often gives a lot of perspective. Right. I think sometimes when we get stressed out in all of us as entrepreneurs and with our day to day stresses in life, and then you go in after a shift like that, you walk out and say, I don't have any real stress in my life. Yeah.

It's almost, you're leaning into your attitude in a sense, right? You realize what you got. It's not just entrepreneurs as anybody, all are hired guns. The same thing. They live the same stress. Yep. Yeah, exactly. Just puts it in perspective. Well, Raj, thank you so much for giving us some time today and really just covering, not just Algonquin capital, but some of the products reason why think stigma exists a little bit and also sharing some of your philanthropic efforts.

It's been great to be able to interview you here. If you're interested in our live webcast, the WayForward live and or any other snippets, please take a moment and visit us at peo-leadership.com. You'll find on our site, various previous recorded webcasts, which include guests, such as Morgan Housel, Professor Janice Stein, Harvard's Rosabeth Kanter and Michael Beer, Rob Chesnut, Dr. Greg Wells. The list goes on as we cover such topics as mental health leadership, the new world and a host of others. I want to thank you again for joining us today, and I look forward to hopefully seeing you in person in one of our upcoming events or having you enjoy one of our snippets around our WayForward podcasts in the future.

Talk to you soon.