The 2021 Indextravaganza!

“Departure of a year welcomes so many new memories” -Munia Khan

Over the past two weeks, I’ve realized that the first anniversary of Alt Blend blew right past us (it was officially October 14, 2020). So, happy anniversary-ish to us! Yes, it’s already been over a year of this mindnumbing blast of Alts goodness. Don’t worry, “meh” is the correct reaction. Moving on…

As we’re about to put 2021 in the record books, today’s edition of Alt Blend is an index (loosely speaking) intended to a) archive all of the posts-to-date to help you free up some precious space in your brain for the new memories you’ll be making in 2022, b) briefly recap everything we’ve talked about over the past year (ish) for easy future reference, and/or c) bring to light topics that you may want to pull from the archives to re-read (or read for the first time, in the case of newer readers). I’ll try to be concise and break it into palatable blocks of information. And it may very well be the boringest Alt Blend yet, so my apologies in advance. Here we go!

Intro Series: Alt Blend Editions 1-5 (10/14/20 thru 12/14/2020)

For newcomers to alternative investments or just a good refresher on what Alts are and why we use them.

1. A Primer: What Alts are, why they’re used, and some examples.
2. Fund-amentals: The logic of why Alt fund structures exist and some basic liquidity considerations, using real estate as a (hopefully) relatable example.
3. Framing the Solution: Fund structure fundamentals. Open-end vs. closed-end funds. What does “hedge fund” really mean? Lockups, gates, and drawdown structures.
4. Feesibility: Renaissance Technologies, why funds (and Alt funds) have fees, and how these align with investors’ interests. The “2 and 20” fee structure, high watermarks, preferred returns, and the distribution waterfall.
5. Long Time Comin: a perspective on venture capital (VC) using mRNA technology development as a case study for both risks and rewards of VC investing.

Portfolio Longevity: Alt Blend Editions 6-10 (1/12/21 thru 3/10/21)

With people continuing to live longer and interest rates at or near all-time lows, we face significant challenges from both financial planning and asset allocation perspectives.

6. Portfolio Longevity Part 1: Weight? There’s More..: Changes in life expectancy and factors that contribute to or detract from portfolio longevity, including amount of wealth (your nest egg & tax structure), management (rebalancing & monitoring), lifestyle/tendencies (committed expenses and panic selling), and composition (asset allocation and discretionary spending).
7. Portfolio Longevity Part 2: Farewell to the A-Team: Bonds (the A-Team) aren’t what they used to be. Investments that help to increase portfolio longevity, such as Dividend Growth (on the traditional side). The democratization of Alts and how this plays into the portfolio longevity discussion
8. Portfolio Longevity Part 3: Marky (to) Market & the Unfree Lunch: More color on the past efficacy of traditional bonds and differences between treasuries (what we at TBG call “boring bonds”) and credit in times of extreme market stress. Concept of “mark to market” pricing and a walkthrough of the downward price spiral related to panic and exacerbated by margin calls. Differences between private vs. public credit investments, and a reminder that “there’s no free lunch” (clearly the inspiration for David Bahnsen’s new book of the same name).
9. Portfolio Longevity Part 4: Introducing the B-Squad: Characteristics and strategies that can play an increased role in core fixed income allocations of the future (yet still come in liquid wrappers). The notion of less interest-rate sensitivity and increased credit risk. Short duration funds, structured credit – including mortgage-backed and asset-backed securities (RMBS, ABS, CMBS) – and credit arbitrage.
10. Portfolio Longevity Part 5: The B-Squad Continued: Private credit – what it is and attributes. Comparison of credit hedge funds across the liquidity spectrum and how that affects yields and portfolio construction. Peer-to-peer lending, middle-market lending, and private real estate (as an income source).

Hedgefund Blowups: Alt Blend Editions 11 & 12 (3/25/21 thru 4/8/21)

A fun review of some infamous capital destruction and demise of some formerly successful strategies. When things seem too good to be true (i.e., a lot of return for not much risk), they often are, which is again a reminder of the “no free lunch” mantra (it’s amazing how prevalent that idea is).

11. The Rub: Part 1: The Texas power grid, short volatility, Amaranth, and Long-Term Capital Management.
12. The Rub: Part 2: Archegos melting down in real-time, Carlyle Corp, and LJM Partners.

The Spring into Summer Mash-up: Alt Blend Editions 13-17 (4/21/21 thru 6/23/21)

It’s got a little bit of something for everyone: financial planning meets Alts, past performance implications for future success, a real manager meeting, and investor qualifications!

13. Universal Financial Truth: Is financial planning the unified theory of investment management? Physics meets black swans and due diligence.
14. The Ruse: Part 1: Applying performance persistence and mean reversion to manager selection.
15. The Ruse: Part 2: Autocorrelation and how it may skew performance persistence. Past performance may be more useful in selecting Venture Capital and Private Equity managers.
16. Special Edition: Credit Arbitrage Analyst Field Trip: An inside look at a manager meeting. Audio-only conversation with Greg Loprete – a portfolio manager at Water Island Capital – and my Hightower colleague Jeremiah Riethmiller (CIO of The Sarian Group) about credit strategies and credit arb more specifically.
17. Nouveau Accredited: Typical investor qualifications that apply to Alts (accredited investors, qualified clients, and qualified purchasers), recent updates, and perspective on some of the drawbacks of this framework.

A Historic Blogpost Series: Alt Blend Editions 18-23 (7/7/21 thru 9/22/21)

A brief history of alternative investments and my personal experience with Alts, strategy by strategy.

18. A Historic Blogpost: Brief history of alternative investments, how/why we started using Alts for clients, and my issue with people saying “an”
19. A Historic Blogpost – Part 2: My discovery of the CAIA program, and a summary of private equity, private credit, and other Alts investments I’ve implemented on behalf of clients (setting the stage for a deeper dive into each of these in the remainder of the series).
20. A Historic Blogpost – Part 3: Interval fund strategies – true Alts but no investor qualification required. Private real estate, direct lending, and reinsurance.
21. A Historic Blogpost – Part 4: For accredited investors: Net lease real estate, “recession resilient” real estate, and real estate credit.
22. A Historic Blogpost – Part 5: Continuing with the accredited investors strategies: Private credit BDCs, private equity roll-ups, and life settlements.
23. A Historic Blogpost – Part 6: For qualified clients: Diversified private equity/credit and small business lending (lower-middle market). For qualified purchasers: private equity real estate and alternative energy lending with a focus on distressed municipal structures (a real mouthful!).

Fall Potpourri: Alt Blend Editions 24-28 (10/5/21 thru 12/1/21)

A true (alt) Blend of topics: The cap stack, how shorting affects stock prices, due diligence, core alts, and GP stakes.

24. Meat Me in the Middle: Chewing our way through the capital stack (i.e., how companies can structure financing) using a probably terrible sandwich analogy. And the importance of the Italian hoagie in Pittsburgh.
25. The Little Shorts: the meme-stock culture and my findings on how short-selling affects stock prices (providing an answer to a real client question).
26. Dili Dally: an overview of the due diligence process – particularly operational due diligence (ODD).
27. Special Edition: Inside Due Diligence: audio-only discussion with Chris Hughes – COO of Axonic Capital (a structured credit fund manager) – for a perspective on the due-diligence process from inside a hedge fund.
28. Edie McClurg: the importance of supporting roles and attributes of solid “core” alternative holdings (like infrastructure) within portfolios. GP stakes and why such lucrative and successful private equity businesses would share a piece of the pie.

Thank you for sticking around through the first full calendar year of Alt Blend! Please let me know of any feedback, how this blog can be more useful for you, and any future topics you may want to learn more about.

Until next year, this is the end of Alt Blend. Happy holidays and see you in 2022!

Steve