Venture capital has always been a hard-to-access asset class for advisors and their clients. The funds tend to have high minimums and long lock-up periods with extremely low liquidity. That said, returns are historically strong, and VC can often be an un-correlated asset class whose returns are differentiated in scope and timing from publicly-traded markets. Because of the lack of liquidity and easy access it has been an asset class that has largely been overlooked by advisors and high net worth individuals. However, there are some ways to access venture capital through liquid funds which are likely worth a look.
FINSUM: Not only can returns because excellent and uncorrelated, but VC is likely to become a more important asset class in the next few years. Why? Because more and more large companies are staying private for longer, which means investors need to ways to access the asset class in order to participate in the total return of the market.
Residential real estate is one of the most popular alternative investments for Americans…see the full story on our partner Magnifi’s site
Financial advisors often wonder about the best way to get client money into private equity. The industry has long had very high hurdles for investing directly in funds, and publicly traded funds that try to replicate private equity returns are still nascent. However, there is another good way to get PE like returns by proxy—buy publicly traded private equity company stocks. KKR is a very well known firm that is currently trading very cheaply and seems like a good buy. The stock rose 50% last year but badly trailed its rivals in a year that saw many PE companies double in value as they shifted from partnerships to corporations.
FINSUM: The market seems to be underpricing KKR’s ability to create management fees based on its dry powder, which is causing the weaker valuation.
Sometimes we just have to run a story for fun that has no relevance to markets or investing. This is one of them. Evidently, last week a plane flowing over Siberia (Yakutia to be exact) had its cargo hatch break open. When it did, $368m worth of gold bars, silver, and diamonds fell from the sky down onto the frozen landscape. The “drop” happened right near the airport and the company who owned the goods had to get trusted staff to recover the bounty, but not before going through metal detectors before they went home. Now locals think that not all the gold has been recovered and flights to the area are sold out all over Russia as treasure seekers come to the frozen region.
FINSUM: Sorry for the irrelevance of the story, but treasure falling from the sky and oversold flights full of treasure hunters was too much not to share.
Some may like it, some may not, but there is no changing the fact that ESG, or the acronym used to describe various social, governance, and environmental considerations when investing, is now part of the mainstream. Asset managers large and small, recently led by BlackRock, are now using ESG as a key factor in their investing. One asset manager comments that “In general, companies with the strongest records on employee relations and environmental sustainability, for example, often have better financial performance over the long run than those with the weakest records … Do you really want to hold a carbon-intensive company that’s not thinking about [the risks?”.
FINSUM: The big news here is that ESG and other “responsible” funds have had better returns in recent years than conventional funds, so the old mode of thinking this area has poor returns needs to shift.
Despite the rise of ETFs over the last few years and the weak performance of hedge funds, on average, one of the astounding things in asset management has been the staying power of the latter. Hedge funds long had a “2% and 20%” fee structure as standard, and while most discount a bit from there nowadays, fees are still very high—hundreds of times low-priced ETFs and mutual funds. Bloomberg explains that a big part of that fee goes into paying the brokers that recommend the funds. The payments go by all sorts of names, such as placement fees, payment for shelf space, and retrocessions, but the fact is they boost costs to investors.
FINSUM: Bloomberg tries to make this look dirty, but the reality is that referral fees are standard in many industries. The big question in this area is where this type of arrangement falls when the SEC debuts its new fiduciary rule?