Introducing the Lynx Equity Income Trust

September 8, 2022

To the average person, the concept of investing can be daunting. You have to think about the type of institution through which you want to invest, the amount you’re willing to invest up front and at which frequency, whether to invest in an individual stock or a mutual fund, and so much more. Lynx Equity Income Trust (the “Trust”) removes some of the mental barriers to investing – especially for folks who might be new to this area of finance.

This summer, we had the pleasure of sitting down with Michael Denny, Managing Director of the Trust, to discuss its origin, its dynamics, and how it is differentiated from other investment opportunities in Canada.

Origin Story

In 2013, Michael Denny founded Temperance Capital Income Trust with his partners, Robert Wilson and Alex Baluta. The trio were previously investment bankers on Bay Street. They started Temperance Capital Income Trust to service small business, particularly those that, in Michael’s words, “struggled to attract a large sum of capital to grow their business or transition ownership.” This observation led the trio to develop an investment strategy that “provided financing for these small businesses through building a diversified portfolio with strength and longevity”, commented Michael.

Soon after this idea came to fruition, Michael tapped into his network to discuss this new business venture and he was met with several similar reactions – from people who did not know each other. The common response was, “have you spoken with Brad Nathan? He buys small companies and it sounds like he could be the perfect person to partner with.” After a quick Google search, Michael realized that he had already met Brad, but not in the most conventional sense: “I was at a charity boxing event,” began Michael, “the last boxer was carried out in a coffin. Brad jumped out of it with a cape on, it was very memorable.” When Michael realized the two had already crossed paths, he immediately contacted him to set up a meeting.

Integrating with Lynx Equity Limited

Following Brad and Michael’s first meeting, the pair learned that they’d like to work together. “We started raising money for Lynx and clicked immediately,” said Michael. “Shortly thereafter, we realized that Lynx was the only company we wanted to finance. So, about three years ago, we approached Brad and asked if he’d be interested in buying the Trust so that we’d be exclusively a feeder fund for Lynx and he accepted.”

Defining Lynx Equity Income Trust

What separates Lynx Equity Income Trust from other investment firms is its subsidiary portfolio. The Trust invests in Lynx Equity Limited’s (“Lynx”) US subsidiary portfolio which is unique for a Canadian firm. According to Michael, “sophisticated investors know they should diversify their portfolio outside of the country in which they live. However, people tend to invest in familiarity and we’re dealing with middle market investors. So, investing in American assets via a Canadian team that operates in Toronto feels more comfortable for our Canadian investors.” When people invest in the Trust, they can use their RRSPs and TFSAs. Since 2016, the Trust has grown to having about 1,100 investors which indicates its consistent growth.

Investing Strategically

The Trust works with various financial advisors across Canada. “Generally,” began Michael, “when someone seeks financial advice, the financial advisor will build a diversified portfolio which matches their financial objectives and often, the Trust is one of the assets they invest in.”

The Trust invests in Succession Capital which is a Lynx US subsidiary; the investments are then sent wherever is most useful – typically for buying more businesses. “Brad invites me to the investment committee meetings to look at new opportunities we’re going to pursue because they’ll become part of the Trust’s investments” explained Michael.

Adapting Business Amidst a Global Pandemic

Michael expressed the difficulties he encountered while he was adapting to the conditions introduced by COVID-19. “Prior to the pandemic, I was spending most of my time traveling across Canada to have meetings with financial advisors and their clients,” explained Michael. “With Zoom, you can increase your number of meetings per day, but your interactions are richer when they’re face-to-face. COVID shut that all down. The financial advisors and their clients didn’t want to have coffee or lunch during COVID so all of our discussions moved over to Zoom.”

Despite the shift in how we interact, Michael explained that “the majority of financial advisors have become quite comfortable on Zoom. With Zoom, they can see six clients a day as they’re not factoring in travel time. When doing face-to-face meetings, they can see only two – three clients per day.” Although the benefits of face-to-face interactions between financial advisors and clients have vanished, Michael recognizes the efficiency and speed with which financial advisors can contact their clients and assist with their investments.

The Future of “The Trust”

The Trust’s investment portfolio continues to grow which has a positive effect on Lynx. Lynx has every intention to continue offering investors a stable return on their investments with the Trust, through an ever growing and diverse portfolio.