You Can Invest in That?

stlucia

September 10, 2018

As a registered investment advisory firm known for being active in both the public and private markets, we receive solicitations for a diverse range of investment opportunities.  Many of these proposals arrive by email and are narrowly focused.  One day, I received email pitches from a Pan-African hedge fund, a solar farm developer, a provider of patent infringement litigation funding, and a broker of a 14 unit luxury apartment property in London.  The last touted an opportunity to acquire the units “wholesale, 17% below market value”, while guiding bids to £65,000,000!

Other pitches have included private investment funds oriented around faith and veterans, uncorrelated strategies implemented using securities listed in India, and “the world’s first vertically integrated neem business” claiming to have the largest commercial plantation of neem trees in Brazil grown for medicinal, nutritional and agricultural applications.

One of the more eye-catching recently was an offering for an unfinished beach, golf, and marina resort in St. Lucia.  The 600 acre luxury residential property went on the market as the “result of a medical situation” and included tax concessions, rights to develop a casino, and even rights to produce geothermal energy.  After completing the $67 million purchase, a buyer will need to keep their checkbook handy because completion of the next phases is estimated to cost another $106 million.

Some pitches seem based on exploiting the law of averages: send a large enough volume of emails and some recipients are bound to respond.  These tend to include long descriptions with grammatical errors and sensationalized language, sometimes with bold claims about return expectations.  Others take things a step further and state future returns as fact!   More effective pitches are crafted with greater care and provide only enough information to stimulate curiosity.

As outlandish as many of these solicitations are, they illustrate the very broad set of potential investment opportunities which are available.  In general, the quality of the selection of an opportunity improves as the number of opportunities to select from increases. It is a refrain we hear often from managers, particularly those investing in the private markets where the volume of candidate investments is exponentially greater than the landscape of less numerous, more informationally-efficient publicly traded securities.

Overall, the main factor that sets apart these uninvited, yet entertaining, proposals from opportunities that might earn more serious deliberation is people.  Not only are the senders unknown, but it is rare for any email pitch to show that the sender took time to understand the recipient and tailor the message.  It is easy to concentrate on facts and numbers and overlook the importance of the individuals involved.  One of our colleagues likes to say that he has never seen a proforma that does not look good. If a surprise does arise after making an investment, the character and experience of the actual people with whom investors have partnered becomes critical.

Cam Simonds

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