The Canadian Wheat Board wants to borrow your money.
To get it, the board is offering the equivalent of about a one percent per year interest rate, and a chance to be part of a managed futures fund, which could bring higher returns.
“We’re trying to diversify and not put all of our eggs in one basket,” said board spokesperson Rheal Cenerini about why the board would offer to sell medium-term notes to small investors in Canada.
The board hopes to raise about $150 million with the note issue. The CWB uses debt to cover its cash advance program, grain sales made on credit and long-term credit it has issued to countries like Russia and Poland.
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Usually the wheat board raises debt capital from major investors, but these new notes allow people to begin investing at $2,000, far below the minimum amount for most debt instruments.
The low entry level represents the board’s attempts to attract small retail investors such as farmers.
These medium-term notes have a fixed term and a guaranteed rate of principal return.
For every $100 invested in the wheat board notes, the wheat board will return $108 eight years later. That’s only about one percent interest per year.
But by buying the notes, investors also have their money invested in a managed futures fund run by Tricycle Asset Management. The investor will receive any gains in that fund.
A managed futures fund is like a mutual fund, except that instead of holding equities and bonds, the fund will hold positions in a large array of futures markets, from currency exchange rates to energy to commodities.
Rob Bourgeois of Tricycle said his company specializes in “non-traditional investments.” This note is unusual because it offers the full principal protection of the wheat board’s government-backed financing, making it safer than most bonds, but also allows investors to invest in the futures market, he said.
“It’s really a diversification strategy.”
Adding a managed futures fund to a portfolio that contains equities and bonds will tend to even out returns and add stability, he said.
“It adds a third asset class.”
The interest that accumulates and whatever gains the managed futures fund makes are paid only at the end of the note’s eight-year term.
The wheat board is using these notes to raise money at an overall lower cost than it has been paying for debt raised from other notes and bonds, said wheat board chief executive officer Adrian Measner.
The notes must be bought through brokers and financial advisers and are available until early 2004.
