As the list of uncertainties – including the Covid pandemic, war in Ukraine, volatile stock markets and locally, loadshedding and political uncertainty – keeps growing, investors are looking for ways to insulate their assets against uncertainty. But how do they go about achieving that? Riaan van der Vyver and Scott Picken from Wealth Migrate believe the answer lies in diversification into alternative assets. With their platform, they say, you can invest like the 1% – who don’t put their eggs in one basket – with a click of a button. Wealth Migrate is a digital marketplace providing vetted investment opportunities. Van der Vyver said due diligence was done on the opportunities, and an investor can invest in a range of alternative asset classes for as little as $100. – Linda van Tilburg
South Africans tend to view ‘alternative assets’ as hedge funds – Riaan van der Vyver
People around the world, I think, understand alternative assets a bit more, but in South Africa, for example, financial advisors and clients or investors see alternative assets as hedge funds. And the problem with hedge funds, especially in the South African market – and globally – is that they all fish in the same pond as equity managers and long-only equity managers. The only thing is that they’ve got a few more tools to go long, go short and so on. But when we talk about alternative assets, we talk about a broader basis of scale. So, we include alternative assets such as commercial real estate. Commercial real estate could include sub-asset classes like industrial assets, logistic assets, medical assets and aged care assets. Then we also look at structured notes, which are so relevant in the current volatile, uncertain markets. We look at private equity and we also look at ESG investment, social-responsible investment in the form of solar panel investing, green energy, alternative energy; that’s what we’re talking about, when we say alternative asset classes.
You’re not diversified if you have a flat in London
When you look at uncertain times, it often comes down to income and predictable income because that allows you to ride the wave. So again, South Africans love houses and capital growth and bitcoin and capital growth. But trust me, in uncertain times, capital growth can go up; it could go down as fast as it goes up. And ultimately, it’s your assets and your income that equals your freedom one day. It’s your passive income that equals your freedom.
The one thing that I’ve learnt from wealthy people – we’ve got members now in 171 countries – is diversification. They don’t have all their eggs in one basket and proverbially most people have all their eggs in one basket. They’re in one country, one currency and one asset class and they think, okay, I’ll go to London, I’ll buy an apartment. I’m diversified. No, you’re not. You’ve taken all your money and put it just into one basket with all your eggs, one asset, one country, one currency and one partner. It’s all about diversification. Those are the fundamentals of how to succeed in uncertainty. All that we’ve done is add technology as a layer on top to make it easy for you to be able to copy the wealthiest people in the world.
Now you can invest like the Ruperts and the other 1%
You know, the fastest way to get successful is to copy a successful person. The fastest way to not only create and protect your wealth is to invest like the top 1%. The Ruperts have been investing and using these principles for decades and yet you and I, the rest of us, the 99% don’t invest like the top 1%. Why not? Until 10 years ago it was not possible: it was inaccessible. The minimum investment for a structured note was $2 million. Unless you had $2 million lying around, you couldn’t invest in stocks. And that’s why no one’s heard of a structured note probably other than the top 1% of wealthy investors. Now because of technology, you can get in from $100. So, we can all now invest like the top 1%. You invest like the top 1%; you’re going to get the same results as the top 1%. That’s what technology offers you in uncertain times. But please, I want to be very clear. Technology doesn’t change the fundamentals.
Asset managers tend to behave the same and tend to focus on long-only equities
The challenge we have typically and I’m talking from the South African perspective, is that we think that we are diversified because we’re using different asset managers. I think I’m diversified because I’m using different portfolios, typically balanced portfolios or multi-asset class portfolios. And I think I am diversified because I’ve got South African exposure and I’ve got a bit of global exposure. The problem is that these asset managers tend to behave the same. So, in other words, if there’s inflation, if there’s interest rates, you will find that these asset managers behave the same. In other words, there’s a high correlation between these asset managers and their returns. And your problem is that if you find a manager that’s not correlated and we can think of something like PSG or Foord or something like that, you end up with periods of significant underperformance. Also, your problem here is that they invest in long-only assets. So, in other words, equities, bonds, cash, listed property. And a further problem is that a big part of the portfolio only focuses on equities to generate return. In other words, just equity as a growth asset. But your problem here is that equities are all driven by the same fundamental sectors. So your risk is, although you have diversification, the equity component of your portfolio will behave the same in similar market circumstances.
If you bring in alternative assets, you can be more passive
So, what we are saying is: bring alternative assets to your portfolio. First of all, it results in a far more passive approach. In other words, if you’ve got a portion of your portfolio in alternative assets, it means that your opportunity set goes up. That just simply means my drivers of return, my sources of alpha or outperformance are just broadened. It means that because the alternative assets behave differently to the long-only assets like equity and bonds, I can be far more passive in my approach. But parts of my portfolio behave differently in the same market conditions, which means it bring stability to my portfolio, which means I’ve got a far bigger chance to achieve my objectives as part of my financial plan, and that is how the inclusion of alternative assets bring about proper diversification, more predictable outcomes, and helps to achieve our objectives. Up until recently, portfolios struggled to achieve inflation plus benchmarks. Now, if you bring in an alternative asset class which behaves differently, which brings more stable return profiles, it helps me to achieve what we call absolute benchmarking, in other words, inflation plus benchmarks. So, we believe that the only way to achieve diversification in your portfolio is to include alternative asset classes in your total portfolio construction.
$100 is enough to start investing in alternative assets with a click of a button
What we are doing through technology, is we are taking that big puzzle, let’s call it the big opportunity, investment opportunity and breaking it up into different pieces so investors can come in at a smaller amount. We aggregate all these small amounts to make up the big amount and then they stack into these alternative assets. That’s why it’s now suddenly available to the 1%, but more importantly, through technology. So, reshaping the marketplace. What we are doing is through one single logging and investors can go in and get access to investment opportunities in real estate, in structured notes, in private equity and in green energy through one single access point. You’ve got this centralised access to all these investment opportunities because it’s plenty enabled and that makes it so much easier – because suddenly you get a deal from America, a deal from Europe, a deal from Australia. It’s all on the same platform at a click of the button and that’s what we are doing and that’s why it’s now a sizeable deal.
Is it safe?
It’s in a regulated environment. We are regulated here in South Africa. We also regulate and have overseas regulations, including Europe, where the money is custodian. Your money is in Europe, it’s protected. It’s in a European destination. I always ask whether you want your money on a small island, or in a third market, emerging economy or do you want it in the First World, you get to choose. From a safety perspective equally, there’s a huge amount of due diligence in not only finding the right countries, finding the right cities, finding the right asset classes, finding the right partners within those asset classes. We only go after institutional partners; we’re not interested in the small deals that a bunch of South Africans can fly overseas and do on their own.
It is a company called LemonWay, which are French regulated and talking about safety, they do what we call the cash custody. So, in other words, they are in control of investor funds. We don’t have access to the funds. We simply go and find investment opportunities and we provide an instruction to move the funds to that investment opportunity. At no stage do we have access to investor funds, which is a very important safeguarding mechanism for investors.
Cutting out the middleman like Uber and Airbnb
First of all, there are two fundamental differences between our cost structure policy approach to a traditional portfolio manager or asset management. So, typically your traditional portfolio manager asks a certain percentage per annum of assets under management, and whether my portfolio outperform or underperforms, I pay that amount of money. We say no. We are aligned with the results of the investor. So, first of all, we do not charge a portfolio management fee or an asset under administration fee. We earn our ongoing fee when there is an income payment to an investor, we earn a certain percentage of that income payment. So, only when the investor earns return, we earn revenue. There’s total alignment of interest between our fee model and investor success.
I started trading my house on Airbnb and I realised how simple it was. There was a simple transaction fee upfront which was completely transparent and there’s a performance fee on the back-end which is completely aligned with the investor’s interests. We decided not to copy the financial industry. We decided to make it simple and safe for people so that they can participate. Our fees on the front end range from 1 to 3%, depending on the size of investment for investors and on the back end, there’s a success fee and the majority of our income is earned when the investors make money. We’re aligned, but we don’t just do deals for the sake of doing deals because we get no value out of that. Does that make sense? And this is a very, very important concept. Let’s borrow from other industries, like Airbnb or Uber for that matter, because really that’s what we’ve done. What have Airbnb and Uber done? They’ve cut out the middleman, they’ve cut out the costs, and they’ve dramatically increased the trust, the transparency and the accessibility. What we’ve done is allow everybody access to what traditionally only institutional investors had access to.
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