Raising the Curtain: The Next Act for Alternative Investments
On September 21 and 22, EisnerAmper held its 7th Annual Alternative Investment Summit titled Raising the Curtain: The Next Act for Alternative Investments. The Summit featured prominent investors and fund managers who did a deep dive on the alternative investment markets. The first day, which took place virtually, included three virtual panels on inflation, investment strategies and attracting and retaining talent. The second day took place in person at the iconic Edison Ballroom. It featured futurist Erica Orange, vice president and chief operating officer of The Future Hunters, who shared a futuristic perspective on the industry, followed by a fireside chat with Charly Weinstein, CEO of Eisner Advisory Group LLC, interviewing Kevin McCollum, an award-winning Broadway producer and founder of Alchemation, a production and management company, who highlighted life lessons for creating business and investor opportunities for success.
Below are summaries of the five panels:
Inflation’s Impact on the Global Market Ecosystem
Inflation has not only impacted the economy but also the alternative investment industry. For hedge funds, higher inflation has led to higher nominal interest rates which decreases multiples on risk related assets, prompting the need to recalibrate the valuation framework. In addition, inflation has forced fund managers to differentiate between volume-driven operating leverage and pricing power when picking stocks since pricing power can be volatile during periods of inflation and operating leverage is the true volume related growth.
For private equity managers, inflation has caused exit activities to slow down, prompting the need for managers to be patient and wait for favorable exit opportunities. Also, an increase in interest rates has decreased portfolio company valuations. Finally, in this environment, holding periods have lengthened, therefore both general partners (GPs) and limited partners (LPs) need to be more patient in obtaining the most value from an investment.
- Lisa Shalett, chief investment officer and head of the Global Investment Office, Morgan Stanley Wealth Management;
- Christopher W. Kersey, founding managing partner, Havencrest Capital Management; and
- Gautham Deshpande, partner, EisnerAmper (moderator).
Investment Spotlight: Where Investors Are Looking for Future Performance
During these uncertain times, alternative investment managers and investors alike have been reevaluating their investment strategies and how they allocate their capital. The panelists addressed important issues that fund managers and investors should take into account. When determining whether or not to invest in emerging trends including carbon credit, new technologies on blockchain and more, the speakers concurred that the fundamental investment principals are the same as any other investment decision — give consideration to risk tolerance, match the duration of their liabilities to the duration of their assets, and focus on strategies with the highest probability of providing the desired objective. They also said ESG continues to be a priority for most investors and impacts the entire organization, from the fund level down to the portfolio companies themselves. Finally, with such uncertainty, panelists emphasized the importance of having a strategy and sticking with it; for example, create a strategy based on macro trends and develop an approach to create and protect that value in the long term.
- Kane Brenan, CEO, TIFF Investment Management;
- Brett A. Hickey, founder and CEO of Star Mountain Capital;
- William Kelly, president and CEO of CAIA Association; and
- Jennifer Cuello, partner, EisnerAmper (moderator).
What Is Your Strategy… for Talent?
Attracting, retaining and engaging talent has been a recent challenge for the alternative investment industry. The speakers discussed this hurdle and emphasized importance of strong relationships with employees. They addressed the differences between working from home versus at the office and stated that since the pandemic naturally forced people to work from home, while many want to return to the office, there are just as many reluctant to do so. They also said compensation and growth opportunities are the two most common factors to retain talent, hence an increase in the offer packages as well as a path to promotion are keys to retention. Finally, having a strong culture at the firm is critical to retain employees and bench strength empowers workplaces to be more resilient and respect employees’ time off.
- Rick Rusin, COO, Crabel Capital Management;
- Sonya Mughal, CEO, Bailard Inc.;
- Wendy Norton, director, Norgay Partners; and
- Natalie McVeigh, managing director, EisnerAmper (moderator).
A Futurist’s Perspective on the Alternative Investment Industry
Erica Orange, one of the 50 Top Female Futurists as listed by Forbes, discussed the impact of emerging social, technological, demographic, and environmental trends as they relate to the alternative investment industry. She said things are happening faster than ever and there is so much risk that hence having the right outlook and proper safeguards is paramount. She also emphasized it’s imperative to get comfortable with the tailwinds, not just the headwinds, both of which create tremendous opportunities.
She also discussed how her coined term “templosion” came about due to the temporal explosion of so much happening in much shorter periods. For example, she noted the rapid rise of startups and billion-dollar unicorn companies, all employing minimal people, and having shorter timeframes for their strategic, financial, and research and development (R&D) planning cycles. Finally, she said artificial intelligence (AI) has been accelerated due to COVID-19 and while human labor isn’t going away, certain components will be replaced by AI. And in addition to time, trust and truth are also luxuries, hence it’s key to start putting more trust in human relationships and human judgement. Further, there are so many versions of ‘reality’ in the world, she noted it’s hard to decipher the truth.
Fireside Chat with Award-Winning Broadway Producer Kevin McCollum
McCollum first discussed the difference between the film business and theater. In the film business, you buy a script or a story and the studio owns the copyright. In the theater, however, you do not own it. You pay for an option and own the exclusive license while the copyright remains with the author. Therefore, it’s a business in which you have to constantly show up and check in with each other.
He also discussed the economics of theater. First, the GP would acquire the rights to a specific show. Then the GP would start putting together the show and create an offering to raise capital to fund the rest of the production. During this offering, investors would purchase equity in a production as well as negotiate other terms. The capital raised would then pay for expenses until the show is ready to open on Broadway. Once the show is ready to open on Broadway, the show will sell tickets. Of the ticket sales, costs to run the show and royalties are deducted. The remaining profit goes to the investors until the investors recoup their investment. The GP will not be paid anything (aside from a small portion of the royalty as part of his salary) until the investors’ capital is recouped.
Unlike the typical 80/20 split in a venture capital deal structure, with theater, every dollar after recouperation is 50/50 split between GP and the limited partners (LPs). Also, the GP bears most of the risk and is responsible for any overages above the capital raised.
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