Trends Watch: Investing in Overlooked Markets

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 with Frank Turner, Senior Managing Partner, Celeres Capital.

What is your outlook for alternative investments?

Alternative investments generally offer more tailored risk-return opportunities than traditional investment products. Most traditional asset classes currently trade at valuations that provide little to no true “alpha,” making a robust case for alternatives right now. Moreover, alternatives are not immune to the prevailing valuation environment, but we believe there are opportunities in the investment universe where relative value exists. Underserved markets, companies owned by and serving diverse populations, securitize-able assets that have not yet been securitized, which have the potential to grow substantially, all present idiosyncratic opportunities. However, these market areas are not large enough (yet) to attract the most prominent managers, and therein lies the opportunity for investors to work with smaller and more agile managers.

What are the greatest opportunities you see and why?

Underappreciated, under-invested financial assets that are not yet benefitting from the lowest available financing rates. Innovative and/or non-traditional financial products that have yet to see mass adoption but are poised for significant growth and a de-risking of their model can move down the cost of the financing curve with proper guidance and true capital partnership. Investors in these assets can capture the early-stage risk-adjusted returns and potentially also participate in the equity of the originator benefitting from the increase in equity value as their cost of funds declines.

What are the greatest challenges you face and why?

In the case of this type of opportunity, often, the assets do not have the same demonstrable history of investment results – either in time or volume – to show and give investors comfort. The challenge is to use data to create the due diligence path that tells the true story of the underlying asset. This dynamic is precisely why the opportunity exists and is available to smaller, more agile managers to make these investments. It is a classic information arbitrage.

What keeps you up at night?

All investors face significant macro issues like monetary and fiscal policy and their impact on the economy. None of us can control these factors, and yet they will impact all investors. So “keeping us up” may not be the most productive use of energy, but all of us need to be thoughtful about these issues to give our investors comfort they are being considered. Also, the backdrop of the pandemic and its knock-on effects (some intuitive and some counter-intuitive) have us working extra hard to view all the optionality and map it to protect our investors.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.