Education is Key in the World of Alternative Investments

There are more opportunities than ever before in alternative investing and education is of paramount importance in this arena.  JP Dahdah, CEO of Vantage Self-Directed Retirement Plans, says they always stress the importance of financial literacy.  As an investor, there’s always a level of education that’s required before you have the confidence to place dollars in any type of investment.  Dahdah also believes that in the advisory world, there are thousands of investment advisors with vast experience and knowledge. 

Years ago, an advisor may have put 5% of a client’s overall portfolio into alternative investments and that number has increased to about 20% today.  There is still a level of education that advisors need to go thru, Dahdah says, to understand how alternative investments can play a role in an overall portfolio.  He also believes the definition of alternative investments is changing.  Before, hedge funds and private equity were equated with alternative investing and today, real estate is now considered alternative investing.  The fact that you can say real estate is a direct investment into an alternative shows how we’ve all been raised into believing that anything outside of the stock market is alternative.  Companies like Vantage are producing a lot of education for the market so there’s more comfort and less of a myth as it relates to investing in these asset classes.   

JP Dahdah  CEO, Vantage Self-Directed Retirement Plans  Source: linkedin.com

JP Dahdah

CEO, Vantage Self-Directed Retirement Plans

Source: linkedin.com

Dahdah believes that historically, alternative investing has gotten a bad rap in that they’re very risky because they’re not regulated.  However, anyone who has actually invested in an alternative asset understands that you’re actually a lot closer to the dealmakers and that you have the “value of a handshake” many times.  You have access to information that you can analyze, he adds.  Using real estate as an example, you can actually drive by the property, identify who the tenants will be and get a broader amount of information that will have a direct impact on the rate of return.  From the client’s perspective, this is a tremendous benefit and it’s viewed as a safer way of investing because they feel more comfortable, as they have direct access to the information, Dahdah explains.

This is a very exciting time for alternative investments, believes Dahdah and in five years from now, he sees a completely different way of buying these assets, with digital being the way of the future.  He sees the many different levels of a real estate transaction becoming as seamless as clicking a button in ten years.  With the popularity of E-signatures, he already sees this happening.  As well, the shopping experience with these portals will make the access to opportunities and deals that much easier, even from the comfort of your own home.  “This is the genesis of a huge shift in the financial industry,” Dahdah says.

JP Dahdah is the ‎CEO at Vantage Self-Directed Retirement Plans and spoke with Alternative Investing News providing online alternative investing video news content.  Alternative Investing News is a featured network of Sequence Media Group.  This video was brought to you by Vantage Self-Directed Retirement Plans.

Growth and Opportunities in Alternative Investing

Traditionally, when speaking of alternatives, hedge funds come up.  Today, however, there is the least amount of movement in this vertical.  Todd Ryden, CEO of FNEX, says the most interesting space is in real estate, which can be direct investment from an equity standpoint or yield-based interest.  Ryden is also seeing a lot of interest in secondaries, which is a marketplace where stock and large market companies trade.  For example, before Facebook and LinkedIn went public, there was a robust marketplace for the trading of those private shares.  There are quite a bit of companies that have some traction in that secondary space, Ryden says.  

Todd Ryden  CEO, FNEX  Source: hedgethink.com

Todd Ryden

CEO, FNEX

Source: hedgethink.com

Education is something that FNEX focuses on because there's so much lacking the space, explains Ryden and for even for the most educated people, they don't know what alternatives mean for an investment strategy.  How you access a true alternative investment to lower your volatility and give you a longer-term investment horizon is becoming harder to find and harder to educate yourself about them in terms of making a good investment strategy decision, he adds.  One of the strategies used at FNEX is to partner with people who bring education to the table and to that end, utilize blogging, speaking publicly, webinars, white papers and collaborating and re-purposing other educational materials.

For Ryden, it would be hard to convince him that equities are highly volatile, given the tremendous boom this area has seen.  When you're in a structure that's locked in, that a lot of hedge funds and private equity funds have, "it takes the emotion out of it and so you can't sell at the bottom," says Ryden and takes the flight scenario away.  What he's seen as of late is the advent of liquid alternatives, which are alternative strategies that trade on an exchange, which he doesn't think will playout as intended because the attraction of some alternatives is that they are a liquid and takes the emotion out and takes into account the investment strategy over a longer period of time.  

Todd Ryden is the CEO of FNEX, the first alternative investment marketplace providing a broad platform for investors to source a variety of private investments, such as private shares in companies, secondaries in well-known companies, hedge funds and basically everything that doesn't change on an exchange.  Ryden spoke with Alternative Investing News providing online alternative investing video news content.  Alternative Investing News is a featured network of Sequence Media Group.  This video was brought to you by Vantage Self-Directed Retirement Plans.


Alternative Assets Make Up Majority of Endowments

A recent study on endowments shows that the allocations of alternative assets between 2002-2012 has grown dramatically.  Troy Vanderburg, CEO of the Alternative Investment Store, says that this shift cannot be ignored, in moving from traditional asset classes towards alternative investments.  The largest asset manager, Black Rock, was founded on alternative investments and they're still seeing growth today.  This study reflects much the same, where 835 different endowments were studied in an ongoing watch of how institutions are using endowments specifically for allocating assets.

The report showed that in 2002, for example, equities made up about 50% of endowments, with that number dropping to 31% in 2012.  Fixed income investments followed suit, dropping more than half from 23% to 11%.  What stunned Vanderburg was that traditional asset classes shifted directly to alternatives and alternative investments in the average endowment portfolio shifted from 24% to to 54%, now comprising the majority of any endowment's portfolio.

Vanderburg believes people assume hedge funds when talking about alternative investments, however the asset classes go far beyond that, to include royalties, energy, real estate, auto finance and very liquid paper marketplaces.  Due to the many disruptions in the credit markets over the past decade, there has been a great deal of credit opportunities in the alternative world.  "It's important that when people look at alternative investments, they view that just as they would traditional portfolio management," Vanderburg says, adding that the "world is waking up to the fact that alternative assets classes have grown exponentially and as an asset class itself, it can be broadly diversified and really adds stability to a portfolio."  

Hedge funds were originally introduced to hedge risks and as the markets become volatile, they will continue to produce strong results.  Alternative investments are perceived to have more risk, Vanderburg notes, and at the Alternative Investment Store, they define an alternative investment simply as one not correlated to a stock, bond or cash markets and is primarily driven by the skill set of a manager, to include a hedge or real estate fund.  They are looking to provide a positive, on-going return with the growth individuals need going forward.

Troy Vanderburg is CEO of the Alternative Investment Store and spoke with Alternative Investing News, providing online alternative investing video news content.  Alternative Investing News is a featured network of Sequence Media Group.  This video was brought to you by Vantage Self-Directed Retirement Plans

Crowdfunding, With James Jones, Crowdnetic

With the passage of Title II of the Jobs Act last September, the 80-year ban on general solicitation has been lifted.  Companies that are looking to raise can now do so under 506-C and advertise their offerings on crowdfunding portals and platforms.  There has also been an increase in the peer to peer loan market, or marketplace lending, for consumers and businesses to raise capital for debt.

James Jones, Director of Business Development at Crowdnetic, says that real estate is one of the fastest-growing asset categories in crowdfunding because, as opposed to start-up operating companies, real estate is a real, secured asset that is the most popular asset category among millionaires and wealthy credit investors.  Real estate is also popular in marketplace lending, so investors are immediately receiving interest income of 8-12%.  When done in a Self-Directed IRA, they're able to do that in a tax-efficient manner, such as in a tax-deferred traditional IRA or ultimately, a tax-free Roth IRA.

James Jones  Crowdnetic  Source: crowdfundinsider.com

James Jones

Crowdnetic

Source: crowdfundinsider.com

There is an advantage to the borrower in that they have the opportunity to access the "crowds."  In real estate, where the average deals are in the $1-$25 million range, that range is considered the "sweet spot," because it allows the crowd to collectively pool their monies in order to make the investment, Jones says.   As such, the borrower doesn't have to chase one or two wealthy investors and it doesn't have to chase the bank, where that amount is normally considered too small.  The accredited investor is considered the typical investor at this point, Jones adds.

After real estate, operating, or start-up, companies would be considered the second largest asset class but Jones says we're also seeing traditional asset classes in the alternative space, such as mining, mining rights, oil, oil exploration and some other alternative categories that were traditionally reserved for wealthy individuals.

With a Republican congress now in effect, Jones doesn't see this affecting crowdfunding but just in the hold up in the SEC.  There has been a two-year wait for the continuation of Title III and he's still hoping for Title IV, which would be regulation A or Reg A Plus.  

Jones believes the most common misconception about crowdfunding is that it's still rife with fraud.  He says there's a difference between a company failing and fraud and to a great degree, there's been very little fraud because many of these companies raising are debted by the actual portal or platform.  The crowd is also able to do their own due diligence through social media.  Jones says it remains to be seen how successful some of these start-up companies will be.   

James Jones is the Director of Business Development at Crowdnetic and spoke with Alternative Investing News, providing online alternative investing video news content.  Alternative Investing News is a featured network of Sequence Media Group.  This video was brought to you by Vantage Self-Directed Retirement Plans

Private Lending Sector Growing

There continues to be a lot of opportunity in the private lending space, according to Matt Burk, CEO of Fairway Americaand that underwriting standards are loosening, which he thinks will not be beneficial to some private lenders in the long run.  The pendulum has swung hard from money being hard to come by to lots of people being in the business and they are accepting less return for more risk, with underwriting standards deteriorating.  Burk sees this trend continuing through the next year.  

With so many private lenders, it's working against them, says Burk, because so many are jumping back into the space so aggressively.  The credit facilities are also coming back, providing more access to capital than there has been for quite some time, a trend which he sees continuing as well for the next year.  

Matt Burk  CEO, Fairway America  Source: linkedin.com

Matt Burk

CEO, Fairway America

Source: linkedin.com

Burk believes alternative investments will continue to grow rapidly and sees an increase of private money coming into all types of deals, not just private lending.  He also thinks that a lot of people don't know what they're doing and don't how to look at them and assess risk very well, so there will be some "lambs slaughtered" as people make money.  It's going to be a "bull market in the small balance real estate space and private lending space" for the next few years, Burk says.  

Burk sees opportunity right now in small balance real estate funds.  These funds, that for years could not advertise or solicit and as such, a vast majority of credit investors don't know they exist, will come significantly to the forefront in the next few years.  Overall, he believes the investors will be winners if they are smart enough to pick the good from the bad.  

Fairway America is an advisory and consulting practice helping small balance real estate people, including private lenders, note buyers and distressed debt acquisition people, in setting up their own proprietary fund.  In doing so, they help them architect, structure, create and launch the fund, which Fairway America administers.

Matt Burk, CEO of Fairway America spoke with Alternative Investing News, providing online alternative investing video news content.  Alternative Investing News is a featured network of Sequence Media Group.  This video was brought to you by Vantage Self-Directed Retirement Plans