Trends Watch: Commodities and Natural Resources

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks to Russell Fryer, Chief Investment Officer, Baobab Asset Management and Baobab Physical Commodities.

What is your outlook for alternatives?

My outlook for alternatives is mixed. The smaller and newer funds will always struggle for capital allocation unless they are spun out of a much larger fund. There can only be so many alternative funds in a particular sector like retail, financial or tech. Funds in our space, commodities and natural resources, are niche and lack the attention from institutional investors due to the inability to scale. Recently, newer themes like crypto and cannabis are attracting new capital allocations on a smaller scale. These niche sectors are competing against the commodities and natural resources sectors for the traditional capital allocations.

What is your outlook for the economy?

Our outlook for the domestic economy is one of consistency. By consistency, we are referring to historical trend growth with low inflation and stable interest rates. Access to capital for the retail and small business owner market is still difficult to obtain, while increasing automation, immigration and artificial intelligence will keep wage pressures in check.

Globally, we see most countries having decelerating but positive growth profiles. We do see increasing global risk as the financial pressures increase due to uncertain social funding programs along with the social upheavals in the E.U., Latin America, Africa and Asia. Indeed, these social upheaval characteristics are slowly starting to emerge in both Canada and the U.S. Should this aggressive social change contagion become a larger junction in the U.S., we see capital constraining further, businesses de-risking their balance sheets and U.S. growth trending toward 1-1.5% while the world growing closer to 2.5%.

What keeps you up at night?

We are invested in developed and developing countries that produce minerals or commodities used in everyday life. Recent presidential elections in some of the developing countries where we have invested, changes in provincial governors and a seemingly unendingly fluid taxation regime is often a tricky investment environment. Furthermore, we are seeing an increasing amount of executives that are on face value the driver of a company when in reality they are lifestyle harvesting. The serial 'over-promise but under-deliver' reality of our investing universe is sometimes hard to risk-adjust. Often when this happens, the exit is never as quickly as we would like.