From Barron's, December 18:
Some wealthy families look elsewhere to invest as private-equity funds become too big. The strategies aren’t for the average investor.
One of the private investments Matt Cornue makes on behalf of a wealthy California family is in a specialty asset-management firm that buys tax liens on delinquent properties.
That firm, Ram Financial Group, provides municipalities with cash to run public services, and in return receives fees and interest penalties owed on the lien until the homeowner’s taxes are current. The cash flows through to investors until the fund liquidates, unlike most private-equity funds, which lock up investor cash for up to 10 years until the companies it owns are sold or go public.
As private-equity funds begin looking more like traditional investments, family offices looking for an edge are going further afield into off-the-beaten-track asset classes.
Boat marinas, whiskey aging, wireless spectrum licenses, and other “alternative, alternative” niche assets often perform in ways uncorrelated to stocks and bonds, bringing investors returns that zig when broader public and private markets zag. That’s because these investments aren’t tethered to the broader financial markets, says Emma Bewley, who runs uncorrelated strategies for Partners Capital, a global firm that provides investment services for family offices.
Family offices handle investing and wealth management for rich families, and often help with budgeting, tax planning, and insurance. Cornue, the chief investment officer of Horowitz Group—the office of a wealthy family that made its money in ready-made concrete—views these inefficient, noncompetitive corners of the market as more lucrative than investing in the latest private-equity fund. Similar asset classes include royalties from oil wells or from pharmaceuticals.
The return Horowitz Group receives on such investments are in line with private markets—about 14% to 20%—“but with much less risk than private equity or venture capital,” Cornue says. “Think of it as equity returns for credit-like risk.”
Such strategies aren’t for the average retail investor. They can take time to find and understand, and minimum investment levels can range from $250,000 to several million dollars. Even bigger institutional investors shy away from this niche, as they require taking a leap into unproven strategies. And most niche-alternative funds are small, with only $100 million or less in assets. Pension funds and endowments typically favor bigger funds.
Not all wealthy families are fans, either, according to Dan Golosovker, head of Insights-Analytics at Addepar, a New York–based portfolio technology and data platform. Though some have the sophistication to invest in niche assets, others prefer a long-term approach or a strategy that provides more of a consistent income stream for family members, Golosovker says....
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