Innovating the alternative.
In these times of great uncertainty, the world is turning to the experts for answers. One problem, though-- they do not have all of them. "Honestly, I do not understand anything that is happening around the world today," said Ryan Lamont, CEO of ADS Securities. "I have a PhD in financial markets correlation and contagion effects, and to be honest, nothing makes sense anymore. If you look at the macroeconomic models, nothing works."
But even as markets are harder to predict than ever before, some fundamentals stand as ways to invest innovatively, even in the current climate. Venture capitalists and angel investors are finding returns by focusing on the early stages of promising businesses. "Technology startups create value, and venture capital captures that value," said Chantalle Dumonceaux, Co-founder of WOMENA. From there it's a matter of identifying the right start ups early on, rather than trying to come in once they've already gone public.
"There are many opportunities to invest, but we have to change the way we invest. If you're a top down investor, you'll probably be clueless and pull out. It's the age of stock picking, technology, and trend-following. Technology, SMEs and start ups are the sectors that create value today. If you look at the very simple macroeconomic formula of aggregate demand, none of these work today because consumers are not spending, investors are not investing in big projects, and governments are not spending though they should, so the story is really an aggregate supply growth story. And in that, it is innovation that creates growth. And who creates innovation? Start ups, technology, SMEs," explained Lamont.
But finding the right SMEs is a difficult process. For Dumonceaux at WOMENA, it takes a long time to find a company worth investing in. "We allow HNWIs to look at deals on a deal-to- deal basis. Since we launched, we've seen 900 inbound submissions from start ups. From there, we have pitch meetings.
We've had 36 companies present. To date, we've done six investments," said Dumonceaux.
But angel investment is also high risk, though fun. According to Dumonceaux, about half of investors have a great return and the other half have a negative return--though overall the numbers are still positive. "We recommend that someone allocates no more than 10- 15 per cent of their portfolio to angel investing," said Dumonceaux.
Alternative investment is also an innovative space which investors should look at, said Paul Gyra, Chief Operating Officer and Head of Wealth Management, Global Investment Bank. Filling the credit gap could prove lucrative for GCC investors. "Alternative strategies are driven by what geography you're in. In the GCC, hedge funds are not as advanced as they are in other markets. In this region, a lot of investors have not been satisfied with their experiences with hedge funds, which gave a bad reputation to the business. But there are evolving strategies toward alternative credit. Using private vehicles, like they do in the US, you can generate very attractive returns in alternative finance and commodity finance. The regulatory environment is causing a pulling back of credit towards SMEs in the region. Some are targeting 18-20 per cent with minimal risk, and if that continues, you will see US investors coming out here trying to exploit the credit arbitrage."
According to Marios Tannousis, Deputy Director General, Invest in Cyprus, his nation has only survived its most recent crisis because of innovative investment. "After the crisis we faced in 2013, the banking system went down on its knees, and we had to recapitalise banks. This recapitalisation happened mostly through investment funds. The country at the same time went through reforms, which caused big sacrifices in both the private and public sectors. It was very difficult, but for the last year and a half, we are on a path of positive growth. This happened from strategically positioning the country into sectors that proved to be competitive and in which we had a competitive advantage."
Innovative investment schemes are a great way to get a country back on track. According to Alande Safi, head of the Paragon Premium Investment Fund, Australia's current scheme focused on foreign direct investment is reaping great returns while also providing huge benefits to the community. Investors, too, find huge benefits in investing in countries such as Cyprus and Australia.
"The main focus of the investment that Paragon promotes to its clients is that Australia wants to build its nation.
It's a big island, and Australia wants to build with foreign investment. It's a big land, but the population is only about 24 million. The Australian banking sector has traditionally always used foreign assistance. With that, Australia is eager for foreign investment to drive its vehicle. To do that, the Australian Government is allowing its land to be sold not at retail price, but at the Government price, for us to plan and build residential, commercial, hospital, etc, with benefits coming to the investors mainly from the price at which we purchased the land. We then deliver high principle-backed returns. We look at six to eight per cent returns per annum," said Safi.
While some are telling investors they cannot find the returns they want, that isn't the whole story. Though there is risk involved, there is always more value to find.
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