Alternative Asset Investment Conference Interview with Ausbiz
Alternative Asset Investment Conference Interview with Ausbiz
iPartners Alternative Investments Conference - Mark Sherwood interview with Ausbiz. (By Harwin Ramos, 25th October 2022)
00:00:00:00 - 00:00:17:04
Speaker 1
Our next guest. And I am going to bring in Mark Sherwood from iPartners today to discuss alternative investments and the Alternative Investment Conference. Mark, thank you so much for your time today. Now tell us a little bit about the IPOs and Alternative Investment Conference.
00:00:18:12 - 00:00:46:01
Speaker 2
Yes we hosted it last week and it was really an inaugural conference because we sort of view that it could become the go to conference for all alternatives in Australia. And I think the vast number of people that we had register and attend really speaks to the increased interest in alternatives, particularly from, from, from private, private, high net worth investors and privately advised investors.
00:00:46:02 - 00:01:16:08
Speaker 2
So the conference spanned right across all the subsectors of alternatives, be it private credit, private equity, venture capital, agriculture and global funds as well. So it sort of went right across the different areas that we specialize in and concentrate in. And we tried to cover a cross-section of each one of those areas to give to give the audience a really sound understanding of the themes that are that are currently going on.
00:01:18:00 - 00:01:35:18
Speaker 1
Just a question. And it might be a little bit left field, but we've had a little bit like you said before, they just kind of really accelerate, accelerate drive to two alternatives, I think because of the market backdrop. And there is this rapid re-education of investors going on right now to sort of get them across what it all means.
00:01:36:06 - 00:01:49:23
Speaker 1
If there's perhaps some misconceived options or some common misunderstandings from investors when they're exposed to this space. What are they and what sort of lessons do you think that particularly out of this conference, were learned by prospective investors?
00:01:51:03 - 00:02:25:11
Speaker 2
Yeah, Carl, I think I think there's a bit of a misconception that the term alternatives is something very exotic and it doesn't necessarily have to be at all. In fact, most of the transactions that we that we look at or consider for and for investment can be simple corporate loans. You know, they can be considered simple debt instruments in the private credit arena, or they can be simply an equity stake in a in a in a in a property asset, for instance, in that kind of private equity type arena or an equity stake in it, you know, in a in a business in that lot.
00:02:25:19 - 00:02:54:10
Speaker 2
So I think there is a bit of misconception sometimes that, you know, alternatives fit outside the stocks and bonds part of your portfolio, but they aren't necessarily anything exotic. A lot of the time, the deals that we look at very correlated to people's normal daily life. For instance, one of the themes that came out of last week's conference, I would say, is there's a there's an increasing demand from private investors for agricultural assets.
00:02:54:24 - 00:03:22:15
Speaker 2
Most of the agricultural assets that we that we look at are involved with people's daily food intake in some way. So, so yeah, I think that's a, that's a real misconception that, that people kind of see the and see the term alternatives and think we're talking about something that's exotic or perhaps something that's really risky. And, and one of the deals that we do, particularly, I would say in the private debt arena, you know, can be very much on the on the conservative side of investing.
00:03:23:06 - 00:03:43:15
Speaker 1
So if we were to sort of paint a word picture and it's one that I've asked other folks in this space because I myself, as a as a humble retail stockbroking alum, alumni learning, as well. But, you know, if you were to visualize the risk curve, you know, we associate, you know, government bonds down the bottom with maybe some corporate credit and you get your equities and you smallcaps, etc.,
00:03:43:24 - 00:03:53:07
Speaker 1
When you look at different types of alternatives, where would they be laid into that curve? Again, for those folks at home who might be interested in getting this sort of, I guess, diversification tool that can come with alternatives?
00:03:54:06 - 00:04:15:13
Speaker 2
Yeah, it's a great question. Look, I would say right across that that spectrum on the upward risk reward proposition. So again, it really depends on what part of the alternatives sector or subsectors that the current deal that you're looking at sits. So if we're talking private equity, we're talking, you know, a fair way out that that that risk reward spectrum.
00:04:15:18 - 00:04:39:21
Speaker 2
Venture capital obviously very much out that risk reward spectrum. But if we're talking conservatively exposed private debt to a to a very strong balance sheet company, albeit the company happens to be a private company or a state private perhaps for a long time and just has to decide not to become a public company. That can be right down the bottom end of that sort of risk reward spectrum.
00:04:39:21 - 00:04:58:17
Speaker 2
And obviously, that would come with a with a low yield, but that would come with, you know, with a lower risk spectrum as well. So interestingly to your question, the sector of alternatives goes right across the sort of risk reward curve, really, depending on what type of particular deal that you're looking at.
00:04:59:15 - 00:05:20:13
Speaker 1
So I think one thing that most people I would imagine are aware of is that there's that kind of illiquidity premium that's baked into a lot of these prices. Among that, perhaps you can expand on it, but is there anything else that you might say is potential shortcomings or not even shortcomings but, you know, risks that you might have to consider when parking some of your wealth in in alternatives.
00:05:21:18 - 00:05:47:16
Speaker 2
Yeah. Touching on your comment about liquidity or illiquidity in alternatives is a really good one. I mean, I think, you know, I think in the past a lack of liquidity in alternatives and particularly even before that, a lack of access was the biggest problem for private investors, particularly the institutional investors of the world. The largest the largest players have always had the best access to alternatives.
00:05:48:04 - 00:06:21:13
Speaker 2
What we've been trying to change over the last few years is that access mechanism, particularly for the high net worth, private, private investors. In terms of that illiquidity premium, it's actually a real strength in in the alternatives spec spectrum, particularly in in in private credit, which we've spoken about here today in that that getting paid, that additional premium in terms of you return, as long as it's well negotiated, it can really make the risk reward proposition of any individual investment much, much stronger.
00:06:22:04 - 00:06:45:04
Speaker 2
And that really suits the top end investor that says, well, I don't really need to sell this asset before it's, you know, before its defined maturity date. Anyway, I don't need liquidity. I'm happy to hold that asset for too long term if it's a two year note, for instance. So I think that's a real, actual, real strength of the of the alternatives arena being able to negotiate those, those premiums for illiquidity.
00:06:45:11 - 00:06:45:19
Speaker 2
MM.
00:06:46:14 - 00:07:07:22
Speaker 1
What about almost as an extension to that, I guess you could call exit liquidity, you know, a sort of use of that concept when, you know, people are trying to find it in stress markets and might try and drum up some interest for a stock to be able to offload what they've got. But in the alternative investments by, say, for retail or private investors, what's the role of institutions potentially in providing that eventual exit liquidity?
00:07:07:22 - 00:07:10:14
Speaker 1
When you do find that you want to sell that asset?
00:07:11:02 - 00:07:48:02
Speaker 2
Yeah, institutions, the large institutions are actually very valuable to the kind of private investor in alternatives. And the reason why I say that is, is because often you large institutions can be a source of exit. So if you know, if you have been providing debt to an emerging, growing company and it's in its sort of earliest stages of growth, chances are that company was probably too small to get institutional funding when, you know, when we started to provide them a corporate debt facility, the investors have obviously been benefiting from those huge returns that come with that.
00:07:48:09 - 00:08:18:24
Speaker 2
But then the company's grown in size and in essentially the deal market refinanced out by a much larger institution. So the large institution becomes the finance or refinancing angle that pays out those earlier investors. And the exact same thing can happen in private equity as well. So it's so similar to private debt if you're been taking early stage exposure at the equity level to a growing emerging company, know often as it as it grows, it needs larger volumes of equity.
00:08:19:03 - 00:08:25:18
Speaker 2
It goes to much larger investors and perhaps the early adopter might choose to utilize that as their exit point.