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Alternative Investments: Why?

What do investment industry experts when they add the adjective alternative to their investments?  According to CEO of the Chartered Alternative Investment Analyst Association (CAIAA) William J. Kelly, regular investments are those made in cash, bonds and stocks etc. Alternative investments are ones in intellectual property, land, private equity and real estate. 

Toward the end of 2018, India’s Securities and Exchange Board (SEBI) changed one of its policies.  This resulted in a lifting of the ban on Alternative Investment Funds operating from the International Finance Services Center Gift City.  This was implemented to help bring the Alternative Investment Fund sector out from offshore regions such as Singapore and Maritius.  Kelly believes this is making “Venture Capital Funds even more attractive…for AIFs.”

Alternative investments can be very beneficial as a diversification potential, guard against inflation, provision of new opportunities and more.

GDP and Public Wealth

According to a recent article put out in the IMF Blog

“advanced economies have larger balance sheets compared to emerging markets and low-income developing countries. This reflects the size of their public sectors, which generally provide more infrastructure and services. But advanced economies also have larger liabilities and, on average, lower net worth.”

So what does that mean?  Almost 40 countries has a total of public sector assets (infrastructure, financial assets and natural resource reserves) worth $103 trillion. That comprises 216% of GDP.

It has been found “that having large assets does not necessarily reduce how vulnerable a country is to large debts; this will depend on the nature of the assets.” How can this situation change?  Possibly with better management. According to the Blog:

“Better management of government assets could earn 3 percent of GDP in extra revenues each year—that is more than the interest payments advanced countries pay to cover their debt.”

Some countries are already doing this.  Examples include: Australia, the UK and New Zealand which are all engaging in a review of their balance sheet. Jersey is making waves toward greater transparency such that by 2023 the law will really be forcing the issue.  A joint Guernsey, Jersey and the Isle of Man statement included the intention to:

“bring public company registry legislation to their respective parliaments within 12 months of the EU publishing a review in 2022 outlining how their members states have created their own public registers.”

GDP can be a good indicator of wealth.  When it is codified correctly it has the power to give us information about consumption levels and when GDP depletes it can be a useful red flag for new policies.

Equity Investment Firms: Recent Awards

John K. Castle, CEO, Castle Harlan, Inc.
John K. Castle, CEO, Castle Harlan, Inc.

Awards presented to private equity investment firms are given for a variety of reasons, including recognition of excellence in the establishment, growth and management of a new or existing acquisition, a testament to consistent performance and a high chance of continued stability.   They are selected via senior, experienced members of the industry.  Here we take a look at a few recent ones.

Earlier this year, Castle Harlan Inc. received the “Deal of the Year” award from the Association for Corporate Growth Houston.  This was for the acquisition of Exterran Corporation’s production equipment assets, since renamed Titan Production Equipment.  CEO of Castle Harlan, John K. Castle said:

“The business is an important part of its community. It employs about 200 people today, and we plan to add more.  Titan’s leadership starts with its skilled and knowledgeable team in Columbus.”  

The Canadian Venture Capital & Private Equity Association handed out its Deal of the Year Awards earlier this month. The two recipients were TVM Capital Life Science (in the venture capital category) and the Caisse de Dépôt et Placement du Québec – CDPQ (in the private equity category).  TVM’s award was for its sale last year of Aurka Pharma (a $575m deal which generated a 348 percent IRR) and CDPQ for its 2018 sale of Camso (a transaction valued at $1.45billion).

Hedge Fund Fluctuations

Hedge funds are a very fluid industry.  As Alan Greenspan once said: “One of the problems with hedge funds is that they are changing so rapidly. If you have the balance sheet that closed business last night, by 11 A.M. this morning, that won’t tell you very much about what they’re doing.” In this article we take a look at fluctuations within two firms and one industry:  Atlas Impact Partners, Elliot Management and the oil industry.

A new hedge fund has been launched by Atlas Impact Partners.  The firm – set up last year, uses “a long-short absolute return strategy designed to capture investment opportunity at the nexus of innovation, disruption, and impact.” It has just now opened its first fund geared toward investing in firms that are focused on coming up with creative ideas for enhancement in environmental and social spheres.  At the same time, it bets against business stocks that are potentially damaging in these areas.  Company founders are: a former Generation Investment Management partner (David Lowish); former research head at Just Capital (Rob Brown); David Castricone and Richad Billing.

Now we look at a hedge fund quite the opposite to Atlas, at least in its age.  Elliot Management Corporation has been around since 1977.  After a year of talks it has now acquired Barnes & Noble for a price of approximately $638 million.  Last year the hedge fund also bought Waterstones.

Between Brent, NYMEX, ICE West Texas Intermediate, US gasoline and US heating oil, 122 million barrels have been sold in the week ending May 28.  This marked the largest amount of barrels sold in the timeframe since October 2018.

Hedge Funds: Current Trends

Trading trends

There are various fluctuations among the hedge fund industry vis-à-vis trends in their investment.  These are often not publicized but we do get some clue as to swings and inclinations via SEC quarterly documentation.  Recent SEC 13F forms show the following:

  1. An increase in S&P 500 of 15 percent in the first quarter; an average return for equity hedge funds of 8% in the first quarter.
  2. Q1 2019: a drop of net exposure by 4%
  3. Top 10 positions have an average of 69% in hedge fund holding.

In general, hedge fund favorites included (in alphabetical order) Alibaba Group, Alphabet, Amazon, Celgene, Facebook, Iqvia Holdings, Microsoft and Worldpay.  Favorites in short-interest list (in alphabetical order): AT&T, Chevron, Exxon, Mobil, Nvidia and Qualcomm.

The health industry (more specifically the biotech branch) is becoming more popular among hedge fund investors while energy, industry and materials is decreasing in its popularity.

Traders have been moving into the crypto sector over the last few years as well.  Traditionally this has been the home of those in the retail industry but there has been a definite increase in interest from institutional traders as well.

HFA Global Board of Directors

Each year the Hedge Fund Association (HFA) elects new board members.  This worldwide “not-for-profit industry trade and nonpartisan lobbying organization devoted to advancing transparency, development and trust in alternative investments” was created in 1996 and has representation in over 5 continents and 14 countries.

Earlier this month, the HFA elected the following new individuals to its board. they will all serve a three-year term:

  1. Rajpal Arulpragasam, 
  2. Suzanne Currie, 
  3. Amy Lawrence 
  4. Gary Markham

James Steadman has also been elected to be the co-director for New York and Latin America. 

Investing Tips

Before starting any project it’s often worth checking in with the experts.  People who have already done the background work; have had successes and failures; know what works and doesn’t work and are now efficiently engaged in the project upon which you are about to embark.

Here we look at quotes from people in the investment world:

“We have never shied away from making investments.  Even during downcycles we never stopped our investments.” 

-Anand Mahindra, a Harvard University graduate, Chairman of Mahindra Group (Mumbai based business conglomerate), estimated net worth of $1.55billion; featured in Fortune Magazine’s World’s 50 Greatest Leaders.

“When making an investment, the people are more important than the product.” 

-Theo Paphitis, retail magnate and entrepreneur, estimated wealth of £280 million, Boux Avenue lingerie chain founder, owner of Ryman stationery chain, owner of hardware retailer Robert Dyas.  

Of the latter investment, Paphitis said:

 “It is a business which fits well with my investment criteria.“I’m not emotional about investments.  Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.”

-Bill Ackman, hedge fund manager and investor.

“In investing, we intuitively think we should make a number of small bets.  A blockbuster strategy is the opposite. It means making fewer huge investments. But it turns out to be safer.

-Anita Elberse, Harvard Business School business administration professor.

Take heed.  Read and listen a lot.  And then start investing…conservatively.