Innovation In Private Equity Using Structured Financial Products

EMS: I wanted to start and would love to hear more about your firm.
CM: Vivaris Capital was started about 20 years ago as a hybrid private equity hedge fund, after spending a decade as an investment banker. During my tenure as an investment banker, one of the things that I was most passionate about was interacting with successful entrepreneurs. Now, Vivaris Capital acquires middle market businesses, and a broad range of industries that are leaders in their market niches. Firm-wide about half our businesses are in healthcare and life sciences, 15% or 20% are in real estate, and the balance are in technology and early stage companies. The most exciting and impactful offering that we've created is the VICAN, a structured financial product, which we are using to finance buyouts and technology businesses while offering investors principle security and risk protection.
EMS:Speaking of structured products, Chris, please tell us more about why you feel they're attractive investment opportunities.
CM: Structured financial products are an emerging asset class for US investors that gives them access to institutional quality, growth equity investments, while securing the principle. This can be done in a myriad of ways, and one way is to combine a private equity investment with investment grade securities that return the face amount of the investment, regardless of the performance of the portfolio company. Structured financial products comprise two forms of investment. The first is investment in the common or preferred equity of middle market acquisitions. And the second is invested in zero coupon bonds, bank and insurance products that allow for the return of the principal amount invested at the end of the term.

For investors seeking principal security, risk reduction, and the opportunity to invest in high growth investments across companies and multiple industries, structured financial products are the perfect choice. Structured financial products are also ideal for investors who are building toward retirement since they provide current income and capital appreciation. Recently, the CEO of Blackstone, Stephen Schwarzman spoke about a deal he made in 1989 that went south. The company started underperforming and then started losing money and lost increasingly large amounts of money totaling 330 million in losses. This led them to not being able to make their principal and interest payments. This is where structured financial products such as the VICAN could come in and offer the principal protection investors are looking for.
EMS:And Chris, could you tell us how you're leveraging structured products currently?
CM: Sure. We are using them to sponsor various transactions, including United Cancer Centers or UCC. United Cancer Centers is the first institutional healthcare system in the United States offering integrative care for advanced stage cancer patients and their families. UCC offers various types of care, including traditional and advanced clinical treatments that include right-to-try and compassionate use programs. Right-to-try gives patients access to potentially lifesaving therapies that have cleared a phase one clinical trial for safety, but have not yet been fully approved by the FDA.
EMS: Can you share with us the approach of United Cancer Centers?
CM: The mission of UCC is to create an integrative approach to cancer treatment. This includes access to potentially lifesaving medicines through the Right-to-Try Act and Expand Access Programs. Thousands of cancer patients travel to international specialty cancer hospitals every week because they've exhausted the standard of care options in the US. Meanwhile, the pharmaceutical and biotech industries continue to create new therapies that may become the standard of care over time, but are not yet otherwise available.

Now, patients will be able to remain in the US and still receive every available treatment options. UCC will provide an integrative approach to healthcare, including leading edge, personalized immunotherapies, genetic and genomic testing, nutrition and psychological counseling, in combination with FDA approved treatments, such as chemotherapy, checkpoint inhibitors, among others, that we will be combining with right-to-try medications. Treatments will be curated based on the most likely response to therapy based on the genetic tumor markers.

UCC plans on opening five locations in the first three years. The first clinic, which will be in greater Nashville is slated to be operational during the fourth quarter of 2020. The second will be in Las Vegas, which is slated to open during the first quarter of 2021. The three other UCC locations are yet to be determined, but will likely be in the Northeast, Florida, and Texas. We hope to bring novel treatments to patients who desperately need them and give hope to patients and their families. At the same time, investors can support this meaningful work while providing the potential for capital appreciation and principal security.
EMS:Chris, what other areas do you think will generate alpha going forward?
CM: We think that real estate will be a great opportunity. As things shake out from the pandemic and recession, we see tremendous opportunities to add value in real estate, but it's very opportunistic.
EMS:And further, Chris, why do you feel that alternative investments in general present attractive investment opportunities?
CM: Elana, right now, there are tremendous amounts of opportunity to invest in alternative assets. Most investors are under invested in technology, private equity and real estate, but these investments provide better valuations and typically better growth. With low interest rates, now is a good time to allocate in general and specifically structured financial products are a good way to do it while achieving superior risk adjusted returns.
EMS:The COVID-19 pandemic has impacted everyone in one way or another. How did you have to adapt your business, Chris, during this time and how has it impacted your business both in the short term and long term?
CM: At Vivaris Capital, we have taken this time to invest in marketing resources and expand our network of investors. For our operating companies, each one has its own set of issues. With all of the employees working from home, naturally we had to shift the ways we collaborate with them. We secured PPP funding to ensure that we can retain our valuable employees. We hope for the best, but plan for the worst and put plans in place if the pandemic lasts longer or we have an even deeper recession. Fortunately, all of our companies are doing okay, but we are taking a wait and see approach, preparing the best that we can.
EMS: Chris, what are your future plans for Vivaris capital?
CM: We are currently opening an office in London. We have a lot of family office contacts in Europe, so we want to expand our presence there. In addition, we're in the final stages of publishing our new book on the VICAN, which I wrote and will be released in the coming weeks. Finally, like I said earlier, we will look at real estate opportunities, opportunistically.
EMS:Chris, I wanted to see if there are any final or concluding thoughts you would like to share with us today.
CM: I know this is a challenging time for many people. There's a lot of uncertainty about the economy right now and what the future will bring. Despite the anxiety, I believe this is still a very good time to invest in alternative assets. Especially if you can manage the risks involved. We're going to see some very good opportunities emerge and technologies develop as people adjust to working from home, for example. In my opinion, telemedicine will be widely adopted for many types of frontline care, and I will supplement this and many other industries to deliver better services at a much lower cost. Some real estate will be repurposed from office space, medical campuses, and retail into new mixed uses.
EMS:Thanks Chris for sharing your perspective with our listeners.
CM: Thanks for having me Elana.
EMS:And thank you for listening to the EisnerAmper Podcast Series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper Podcast when we get down to business.