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Alternative investment vehicles - less commercial

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againsthegrain

againsthegrain

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Was just posting on fmg thread how it is worth more to hold shares for the dividend rather then miserable bank interest, so conclusion is holding cash is worthless in the current market.

As the saying goes don't hold all your eggs in 1 basket so looking at alternative places to stash cash that are better then the bank.

Less commercial because I am sure we all have money in stocks re pm or crypto.

Looking for ideas, wild ideas and interesting stories for alternative markets/vehicles (might not take them all too serious but like a good read)

I am mostly in cash, then pm, shares and some crypto. Keen to increase my position but in something new and diverse, of course nothing too crazy (If I didn't have crypto those digital race horses I have been reading about on the crypto thread here would be borderline for me)

On my list what I have is:

- Art/antiques (know 0 about them, don't know how liquid it is to store money)

- car spaces (burn that with Covid and lockdowns)

- Diamonds (had a laugh when I read VC mention it in some thread as opposed to pm which will beep on a metal detector at the airport, but maybe there is a fair market for it?

- Antique cars - This I would be interested in if I had the storage space, stamp duty also is a put off

- Usd?

Anybody got some left field investments (physical is fine) that have decent liquidity and better then cash?
 
You're already pretty diverse.

If we're talking rich men's hobbies, way out of any league I'll likely ever be in, you could possibly add to that list: first edition classic books, certain watches, old coins/notes etc. (They kind of all fit in antiques, arguably.)
 
If your bullish gold long term, you be a gold nugget buyer, buying off the amateur prospectors and fossickers...

Would need to learn all the dirty tricks of the trade, so as to not get caught out with au coated lead etc
Gold is never 100% pure though, eg; so can be 30% silver and will be a lemon colour.
 
againsthegrain said:
Was just posting on fmg thread how it is worth more to hold shares for the dividend rather then miserable bank interest, so conclusion is holding cash is worthless in the current market.

As the saying goes don't hold all your eggs in 1 basket so looking at alternative places to stash cash that are better then the bank.

Less commercial because I am sure we all have money in stocks re pm or crypto.

Looking for ideas, wild ideas and interesting stories for alternative markets/vehicles (might not take them all too serious but like a good read)

I am mostly in cash, then pm, shares and some crypto. Keen to increase my position but in something new and diverse, of course nothing too crazy (If I didn't have crypto those digital race horses I have been reading about on the crypto thread here would be borderline for me)

On my list what I have is:

- Art/antiques (know 0 about them, don't know how liquid it is to store money)

- car spaces (burn that with Covid and lockdowns)

- Diamonds (had a laugh when I read VC mention it in some thread as opposed to pm which will beep on a metal detector at the airport, but maybe there is a fair market for it?

- Antique cars - This I would be interested in if I had the storage space, stamp duty also is a put off

- Usd?

Anybody got some left field investments (physical is fine) that have decent liquidity and better then cash?
Click to expand...
Have you looked into unlisted property Trusts.

I have an investment in charter hall Diversified Industrial Fund 4 (Dif4).

Charter Hall it’s self is listed on the stock market, and and pays a steadily growing dividend, but it manages various property portfolios investors can buy units in, so of them unlisted.

this is the one I invest in, it pays a 5.9% return, and due to its long leases with built in annual increases, the dividend grows each year, the value of the properties should grow over time to, pushing up the price of the units.

 
againsthegrain said:
Some peer to peer lending? I have read some of those threads a while back... yeah forgot about that actually +1 there
Click to expand...
The one I use for peer to peer is called Plenti.

the interest rates are lower than some of the others but they have what is called a provision fund that the borrowers pay into that is used to cover losses when a borrowers fails to pay.

I like Plenti because each loan you make pays principle and interest payments back to monthly, which makes it a good place to store my spending money,

eg I currently have a few $100 thousand in 5 year loans there set aside for my living expenses, and I have it set up so as the loan re payments come in and build up in my holding account, every Tuesday that holding account automatically empties into my normal bank account, so it’s like a regular wage coming in.
 
againsthegrain said:
Looking for ideas, wild ideas and interesting stories for alternative markets/vehicles (might not take them all too serious but like a good read)

I am mostly in cash, then pm, shares and some crypto. Keen to increase my position but in something new and diverse,..........

Anybody got some left field investments (physical is fine) that have decent liquidity and better then cash?
Click to expand...
Liquidity implies listed, in my opinion, and that can be ASX listed or on international markets.

You use the word alternative ; there is an class technically called Alternative Assets, because they do not fit into the easily definable sectors. Liquidity is a major definer, as illiquid assets can carry a premium but thi is because your cash is not readily available. From Investopia:
Conventional categories include stocks, bonds, and cash. Alternative investments include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment.
Click to expand...

Better than cash brings higher risk. I have exposure to a selection of bonds, but not the standard ones, I have one Inflation Linked Bond (ILB) and a selection of Indexed Annuity Bonds (IAB), through a specialist (FIIG Securities). Risk is managed in that there is diversification of assets, most although leveraged have govt PPPs with long leases behind them, and the IABs return capital quarterly as well as a coupon such that on maturity - usually in the next decade - each will be reduced to $0.

I would include Infrastructure as an Alternative, because of the long term nature of the assets, the leverage embedded because of the relative predictability of future income streams, which are often monopolistic and frequently regulated. In the current low interest rate environment, these are sought after (by Pension providers) because future liabilites can be matched by income, to some extent. Included are Airports, pipelines, electricity and gas distributors and etc, Think SYD, APA, SKI, etc. I hold a diversified fund Argo Listed Infrastructure ALI which gives international exposure as well.

There are other listed Alternatives. Three across my radar, and there are many others, are Pengana Private Equity PE1, WAM Alternative Assets WMA and Global Value Fund GVF. Please familarise yourself with the offerings if interested. As listed assets, their pricing can vary away from NTA depending on investor demand.
 
againsthegrain said:
Was just posting on fmg thread how it is worth more to hold shares for the dividend rather then miserable bank interest, so conclusion is holding cash is worthless in the current market.

As the saying goes don't hold all your eggs in 1 basket so looking at alternative places to stash cash that are better then the bank.

Less commercial because I am sure we all have money in stocks re pm or crypto.

Looking for ideas, wild ideas and interesting stories for alternative markets/vehicles (might not take them all too serious but like a good read)

I am mostly in cash, then pm, shares and some crypto. Keen to increase my position but in something new and diverse, of course nothing too crazy (If I didn't have crypto those digital race horses I have been reading about on the crypto thread here would be borderline for me)

On my list what I have is:

- Art/antiques (know 0 about them, don't know how liquid it is to store money)

- car spaces (burn that with Covid and lockdowns)

- Diamonds (had a laugh when I read VC mention it in some thread as opposed to pm which will beep on a metal detector at the airport, but maybe there is a fair market for it?

- Antique cars - This I would be interested in if I had the storage space, stamp duty also is a put off

- Usd?

Anybody got some left field investments (physical is fine) that have decent liquidity and better then cash?
Click to expand...

the best alternative investments are those YOU understand well , at the top end you will be dealing with like-minded fanatics probably directly , what hobby are you passionate about , i have seen collectors of guitars ( and other musical instruments ), books ( and manuscripts ) stamps and coins , cigarette ( and bubble gum ) cards even child's toys ( including dolls ) , it is probably better you start with what you already have ( or will have) , say Grandads medals and coin collection and STUDY all about them

normally such items are better swap value than cash value since money is now created at the touch of a keyboard
 
Business investments.
as in private equity.

I have a 40% share in 2 associated
to my industry. Not only do you get
a return on your investment but it
grows as the business grows and you
increase profitability.

your 40% also grows as the value of the business grows.
 
Some great replies so far, thank you everybody

1. Have signed up for Plenti - won't invest yet but have a ready account to hit the ground running
2. Added Chatter hall + Dona Ferente's content to digest/research more closely
3. Very interesting what Tech/a said about the business, I am assuming being in the industry those opportunities arise from contacts/ right place right time? It is probably not a thing you do going around businesses asking if they need a silent investor? (I have considered this in the past if I knew somebody with a decent business model and good working ethic but I don't have those connections)
4. For the hobby markets strictly as a hobby I do know old figurines or old vintage computer hardware all have gained value but from what I see there is not much liquidity or volume there. As a hobby I do have some items like that but that is all, just a hobby
 
If you are interested in learning a bit more about Charter Halls Unlisted funds, this video might help. it gives some insights into how they think about property and their management style, the opening shots of the video also shows off some of the properties they have in various funds, to give you an idea of the style of properties you can invest in depending on which fund you buy in to.

 
A few other niche listed stocks
Duxton Water Limited (D2O) owns and manages a portfolio of water entitlements, providing the irrigation community with a range of water supply solutions. D2O acquire and manage a portfolio of Australian water entitlements primarily focused on the southern Murray Darling Basin.
Rural Funds Group (RFF) is a real estate property trust which owns a diversified portfolio of Australian agricultural assets. RFF is a lessor of agricultural property with revenue derived from leasing almond orchards, macadamia orchards, poultry property and infrastructure, vineyards, cattle properties, cropping properties, agricultural plant and equipment, cattle and water rights.
Goodman Group (GMG) is a global integrated property group with operations throughout Australia, New Zealand, Asia, Europe, the United Kingdom, North America and Brazil. GMG comprised of the stapled entities Goodman Limited, Goodman Industrial Trust and Goodman Logistics (HK) Limited. GMG operates four divisions namely Property Investment, Fund Management, Property Services and Property Development
 
yep , RFF and D2O have been doing OK for me

RFF up 60% for me since buying in April 2016

D2O up slightly since buying in December 2019

but for me it is all about the income

DYOR

i chose various GMG rivals for my REIT exposure
 
getting back to the asset class known as Alternative Investments , here's a primer from a US manager.
.
.

When Absolute Returns Are Not Absolute—By David Bahnsen​

Last week we focused on the philosophy behind our inclusion of alternative investments in a portfolio. Contrary to much of the wishful thinking that permeated alternatives at the beginning of the century, and despite the assurances of the marketing departments at many “absolute return” strategies, we do not view alternative investments as a magic potion whereby risk is replaced with certainty and performance becomes one-directional. The asymmetry of risk and reward that many spend their investing careers looking for is quite elusive; prudence and diligence, on the other hand, are valuable tools in getting to the right outcome.

The outcome we are after with alternative investments is to reduce the exposure we have to traditional beta in other aspects of the portfolio, which inevitably means replacing that risk with a different risk (unless we are looking for a risk- and return-free strategy). The risk we consciously inject into a client portfolio with alternatives is idiosyncratic, with market risk being lower, yet “manager” risk being higher. Execution, talent, skill, and other bottom-up factors matter more with alternatives. This process is necessarily labor-intensive, and all attempts I have seen to mix passivity with alternative/idiosyncratic risk and reward have been, shall we say, sub-optimal.

The case I have made presents a large burden for asset allocators. On one hand, I have stated that the return thesis embedded in alternative investing is primarily one of manager skill and selection; and on the other hand, the asset allocator is responsible for such selection. I should add that the burden of alternative investment selection goes beyond “picking managers that do well”—as important as that may be—but invites other risks that more conventional investing may not. One may have to worry about public equities going up or down, or in our case, whether or not dividend cuts are avoided, or targeted dividend growth achieved, etc., but in traditional investments one has far less worry about leverage being taken, trading efficiency, regulatory compliance, manager compensation, personnel retention, institutional health, and overall organizational due diligence. Traditional assets garner their return from the asset class, but if alternative investments present a risk/reward paradigm around these idiosyncratic circumstances, then a significant amount of new research and diligence is required. It is not for the faint of heart.

What becomes the default selection criteria for most private clients (and often, institutional clients!) when it comes to alternative investments? You guessed it—performance history. Compliance departments can slap those famous words all over every document in the world, it is not going to stop many people from believing that “past performance DOES guarantee future results.” With many alternative managers, nothing could be further from the truth.​

So principle number one in alternative selection: look at the process, philosophy, point-of-view, and personnel first; look at the performance second. The number of hedge funds that got famous with a certain call (and oh, by the way, with a certain level of leverage!) and that have sucked wind (the academic term) ever since is unfathomable. A reliable organization with impressive people who have a consistent process, a competitive spirit, and a serious discipline in achieving results—that is an entirely different animal than just picking the hot manager of last year (or last decade!). The fact that this is true of individual stocks and long-only managers, too, should just reiterate the principle. This isn’t supposed to be easy.

Many of the largest hedge funds—the “name brand” institutions we often think of when we think of hedge funds—are entirely different organizations and models than they once were. From Steve Cohen whose S.A.C. Capital is now his family office, Point72, to Israel Englander’s Millennium, to Ken Griffin’s Citadel, some of the best-performing and well-known strategies on the Street are now behemoths of “pods”—which is to say, dozens upon dozens (hundreds in many cases) of different portfolio managers and traders representing different asset classes from fixed income to equities to currencies all blended together in a way meant to hold very little beta risk, and very little directional risk. The idea is that with a couple hundred brilliant people trading in a very tiny bandwidth of up and down movement, enough micro-moves properly captured will aggregate to a good high-single-digit return with minimal downside volatility. Two things are true at once in this new hedge fund evolution: (1) It has so far worked pretty well, and (2) These return objectives are half (or less) of what made these shops rich and famous. A couple things caused this shift in the industry, starting with the passage of Dodd-Frank after the financial crisis. The forced disintermediation of Wall Street firms from their own proprietary trading desks flooded the Street with talent—serious talent—and the only institutions that had the capital and infrastructure to take them on were these mega hedge funds. That necessitated a change in business model, and change they did.

The other piece to this was the huge swelling of assets under management. Fundamental alpha and various niche arbitrage profits are a lot easier to come by with $1 billion than they are with $25 billion. Size is the enemy of performance when niche is your value. Capacity can be nearly unlimited when you are adding infinite numbers of traders, each simply trying to squeeze out basis points of return, all blended to a computerized risk management. By the time fixed income, global currencies, and even commodities are added to the menu, these “pods of pods” hedge funds can deploy tens of billions of capital, no problem.

I would not be critical of the above evolution and acknowledge it has largely worked thus far. I would, however, point out that 2 and 20 is a lot to pay for a 6‒8% return aspiration that is half of what they previously pursued. These funds were built on the unique talent and skill of megalomaniac geniuses; now, they are essentially one massive HR operation. The value-added has gone from finding a mispriced security and placing a trade (few people did that better in their day than Steve Cohen, for example) to recruiting, hiring, compensating, and retaining hot shot traders. It’s as bureaucratic and institutional as it comes, and that is fine—it just isn’t what it used to be. Color me nostalgic.

This “mega-pod” multi-strategy hedge fund model may have a place in the alternatives component of a portfolio. Risks would include the possibility that there is an increasing zero-sum dynamic at play, where traders are just sharing basis points with each other, and that over time the real value gets harder to find. Less likely but more significant is the risk that the boat capsizes if these “pods” are all too heavy in one space or another. I am less worried about that but acknowledge we are dealing with new territory here.

Ard the good old days of celebrity hedge fund managers who are alpha-generating machines fully gone? Have large hiring bureaucracies replaced the hot shot managers who knew how to work a trading desk? Not entirely. Some talent continues to focus on strong conviction value—often with hedges, often with an activist bent, often with a short component—but fundamentally driven by the point of view of the leadership talent whose hands are on the steering wheel. Bill Ackman and David Tepper are good examples here. Again, this is a classic case of investing in the talent and track record of a person, and many of the alternative investing world’s best and brightest are susceptible to cold streaks or even significant reversals of fortune. Dan Loeb’s performance looks very different since his asset base went parabolic versus the prior decade. Others like John Paulson and Jim Chanos have just been caught on the wrong side of a given call (or multiple calls). But all this leads me to one of the most important principles I can share in selecting alternative investment strategies:

Famous people who are worth many billions of dollars personally have a different psychology and pathology and investment objective than you likely have with yours. A smart person who made $10 billion but is now down to $7 billion has a huge incentive psychologically to take a big risk to get that $3 billion back. They will still be worth $4 billion if they fail, but their ego and pathos want that $10 billion high watermark again. You, on the other hand, may not be looking for a 40% swing of luck one way or the other.

To summarize, we believe there are three good reasons to keep exposure to name-brand managers and media darlings to a minimum:
  • Change in the business model of many name-brand hedge funds,
  • Uncertainty of a given manager’s sustainability of good calls, and
  • Competing pathologies between famous multi-billionaires and our clients.
While the temptation to invest “alternative” capital in the most famous and sizable of strategies may be high, the optimal path for investors is to try something different. We prefer to take an approach that looks something like this: size and scale as a value proposition for those strategies that require such, but nimbleness and flexibility for the rest. This barbell approach has served us very well.

A classic case of an alternative strategy that benefits from size and scale is private credit. Coupons are coupons, yields are yields, yet not all underwriting is the same. Not all deal flow is the same. Not all capacity for workouts is the same. A small, boutique manager in private credit is not getting the first looks or the best deals, and yet is ending up with a portfolio of loans that target the same yield as a larger institutional manager who has the resources to properly underwrite, to partner with sponsors who can work strategically through an impairment, and who have vast experience and intellectual capital throughout the organization. In our opinion, large institutional managers who have built an infrastructure around private credit, who have significant talent on the other side of the wall in private equity, who have the strategic and financial resources to get first looks at good deals, represent a better way to achieve private credit returns without the risk of a lesser-known operator who may very well find the same yields, but is unlikely to have the gravitas needed in a bad cycle.

Outside of private credit (direct lending, middle markets, providing credit at a first lien, senior-secured level that is floating rate to sponsors doing leveraged buyouts, etc.), we also believe structured credit provides a non-correlated return stream that can be very opportunistic. Unlike private credit that is generally backed by cash flows, structured credit is usually asset-backed, can involve various interest rate and credit hedges, and can go up and down different levels of the capital structure to find value. Whether the assets involved are commercial mortgages, residential mortgages, or something as bespoke as aviation assets (tied to cash flows), the specific skills involved in niches of these markets and overall inefficiencies provide great opportunity for talented managers.

We have been heavily invested in various arbitrage strategies over the years (merger arbitrage, convertible arbitrage, relative value arbitrage, etc.). The investment into mispriced securities or leveraged plays on “reversion to the mean” has seen a very diminished opportunity set over the years and is less tactically attractive now as the space has become more efficient.

Private equity is, of course, a play on operating businesses, and yet like private credit, requires gifted operators, financiers, and strategists. It is a long play on capitalism, and that is a never a bad idea, but fundamentally the return advantage needs to come, to some degree, from either a distress entry that presents opportunity for value-added, or else a financial restructuring that is itself additive. We favor larger operators and sponsors for the same reason mentioned in private credit—there are too many things that can go wrong to take a risk with less seasoned players.

At the end of the day, there are a lot of asset managers out there who can be classified as alternatives. Bespoke opportunities exist but require extensive diligence and research. The philosophical summary we would offer is to focus on people and process, to avoid the allure of celebrity and hype, to not mistake leverage for talent, and to maintain a respect for markets in terms of what can go wrong. Alternative managers must have a culture of risk management. Too many alternative managers are psychopaths in suits.

And even though many traded away their suits for a Patagonia vest, the psychopath part still needs to be avoided.

END
 

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