Trust Company of the South’s Burke Koonce, investment strategist, recently sat down with Mark Roberts of Ironsides Asset Advisors to discuss the current state of alternative investments.
During their conversation, the following points were covered:
- Dislocation in financials following a year of dislocation in many things.
- Natural seize-ups as central banks remove liquidity and currency from the system.
- How long-horizon assets, including venture capital and financial institutions that have been exposed to venture capital, are some of the first places for pain points to arise.
- SVB failed as they had a poor asset liability management situation relative to the number of deposits they had taken in from venture-type institutions. This caused a seize up in the bank.
- Underlying portfolio companies will be looking even more carefully at risk management going forward.
- Raleigh’s First Citizens Bank taking on a lot of the SVB collapse.
- Endowments that have had positive disproportionate exposure to venture capital have seen significant markdowns over the venture capital universe.
- Cost of capital for venture capital firms has risen as liquidity has dried up and this has had an impact on overall valuations at several pensions and endowments.
- There is a preference for small and middle-market buyouts compared to large buyouts in distressed categories.
- Real estate segments, such as data centers and infrastructure remain interesting, while there is financing risk in other segments.
Trust Company of the South emphasizes diversification of vintages and consistency in exposure across years to navigate these challenges. Overall, alternative investments present opportunities for returns, but careful risk management and operational diligence are essential.
If you have any questions about evidence-based investing or any other style of investment management, please do not hesitate to contact us.