Conversations about Alternative Investments continue to grow, as does the size of and depth of different types of alternative investments. No matter how many articles are written or coffee shop conversations with your friends, it’s hard to get a grip on which alternatives are the real deal and which ones are just the latest fad.
What better way for investors to discover the landscape of alternatives, then putting five alternative investments managers, in the Chicago area, in the same room, for investors to hear direct from those who make a career out of doing things outside the usual stock and bond portfolio.
Yesterdays’ Beyond the Stock Market: Investing 2.0 event included founders from these five different “non stock market” investment styles:
Hedge Funds / Managed Futures – RCM Alternatives
Angel Investing – Hyde Park Angels
Peer to Peer Lending/Private offering Marketplace – CFX Markets
Venture Capital – Nin Ventures
Distressed Debt – American Homeowner Preservation
Here are some key points discussed and a few of our takeaways:
1. We’re in the area of “Democratization of Markets and Investing.” Juan Hernandez of CFX markets, (a real estate Peer2Peer group) says with each day, investors are realizing the status quo of typical investing is in the past. Investors want to make the choices of where their money goes, and deciding between which bond or stock index doesn’t cut it.
2. Disruption is bad for entrenched institutions and great for startups and those approaching a problem differently. Market disruption is likewise bad for entrenched strategies (like buy and hold) and great for different strategies like alternative investments, which can seek out value and prosper in disrupted markets.
3. Moderator Garrett Baldwin of The Alpha Pages notes that the 60/40 portfolio style isn’t sustainable with stocks near all-time highs, and bond yields at all-time lows. There’s hardly any room for error, and people are taking alternative investments seriously.
4. Bobby Schwartz of RCM shared that investors now have more access to investment styles than ever before, and are no longer just the realm of the uber wealthy and institutional investors. Of course, it all depends on how long you want to be invested in said alternative, and how much return and risk you’re looking for. Finding a trusted resource to help you navigate these waters is a must.
5. Doug Monieson of Hyde Park Angels says companies are waiting much longer to go public, and many investors get in and out of ideas and companies long before a ticker symbol is created, leading to a 7 to 10-year investment horizon (and cash lockup) for many Angel Investing deals. Additionally – in response to how Brexit may have affected different investments – Doug said in contrast to futures prices updated every second, his investments are priced when he gets in, and then again maybe 4 years later – meaning not a lot of angst watching the quote screen in that business.
6. Nin of Nin Ventures says endowments are increasing their allocation to Venture Capital. In 2008, Yale’s asset allocation in Private Equity was 20.2%. In 2014, it has increased to 33.0% out of which 16.3% was Venture Capital.
7. George Newbury of AHP Fund started as a non-profit in the aftermath of the 2008 mortgage crisis. George says the Big Banks could have actually made yield and left people stay in their homes but they weren’t interested. He said that despite all we’ve learned from 2008, the big banks and large hedge funds continue to buy up mortgages, good and bad. No one knows if this could lead to the same result, but as that saying goes.. “fool me once, shame on you…. Fool me twice…”
8. Some alternative Investments seek to provide a social service of helping new ideas and entrepreneurs change the world. Venture Capital, Angel Investing, and Distressed Debt all seek to provide investors with alpha while at the same time help society out in some way.
9. Peer2Peer Lending is growing, big time. Juan Hernandez of CFX Markets says that Real Estate Crowdfunding is a $34 Billion industry on the way to $300 Billion.
10. Regarding LendingTree’s problems – it was noted that they are mainly a loan originator, versus other crowdfunding/peer to peer sites which actually own the loans. Most of the panelists were more comfortable with the latter type.
11. Managed Futures can provide you with protection to Brexit types of events. Managed Futures doesn’t prepare for these types of events, but can react to them.
12. You don’t need to be in Silicon Valley anymore to launch a great idea. The startup, fintech, space is exploding in Chicago and other areas of the country. Doug says that of all the companies he prospects, 80% are in the Chicagoland area. He said 40% of the business ventures are dedicated to companies seeking to improve society.
13. The event space 1871 in the Merchandise Mart is one of a kind space, where people come together to discuss, debate, and promote new ideas and new technology that seeks to change the way people live in this world. Whether that be a new app, technology that helps the medical field, or an investment style that hasn’t been offered to others before, 1871 is helping the people of Chicago create a community of change.
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