According to a panel of three experts who spoke at the McNally Amphitheatre on April 24, that trio of so-called exotic alternative assets, while relatively new, presents attractive opportunities.
“It’s an area of asset growth, it’s an area of complexity, and it’s an area of excitement,” said Kevin Mirabile, clinical associate professor of finance and business economics at the Gabelli School of Business, who moderated the panel discussion.
Of the three, crypto assets, the most well-known being Bitcoin, are the most high-risk and high-reward, and, for that reason, the most “exciting,” said Michael Bucella, a partner and global head of strategic partnerships for BlockTower Capital.
Still, while augmenting a portfolio with cryptocurrencies is a relatively new endeavor and risk and volatility are significantly higher than in other, more conservative investment assets, traditional strategies still come in to play, Bucella said.
“It’s really just parsing the volatility and thinking about risk management in a very institutional way,” he said during the discussion, which was attended by about 100 people, the vast majority of them business students.
Digital assets, he continued, “all fit well within a larger portfolio,” if at relatively small allocations.
“Everything is nascent, everything is new, technology is new, market structure is new, the participants are new, [and]primarily still retail,” said Bucella, who earned a B.S. in finance, economics, and accounting from the Gabelli School in 2008.
“So there’s a lot of risks that you don’t come across with traditional assets and even more traditional alternatives, but you’re compensated with that risk with this more asymmetric return,” he said.
A decidedly more “material” exotic alternative investment than cryptocurrency is farmland.
Predictably perhaps, that asset is also a much more conservative investment, with low volatility, but also built-in protections against inflation, said Barbara Connolly Keady, the director of new business development at Ceres Partners, an Indiana-based investment firm that buys farmland in the Midwest and then leases it to caretaker farmers.
Increasing demand for food coupled with higher prices and a decreasing supply means a solid future for that asset, she said. “That is a visible growth driver that will continue.”
Appreciation of farmland investment during the last nine years has been about 25 percent, Connolly Keady noted.
“Farmland grows when everything else doesn’t,” she said.
Another burgeoning exotic alternative asset class, health care investments, is likely to see continued growth due to an aging population and the development of new drugs.
Dr. Evan Bedil, a managing director at Marathon Asset Management, outlined investment strategies that he said provide market solutions to pharmaceutical and medical companies in need of cash flow to, for instance, put new drugs on the market. Those include investments secured by drugs and equipment and royalty credits paid from future sales of FDA-approved drugs.
Bedil said limited competition, with just 8 to 10 firms worldwide investing in this asset class, make those investments attractive, although mostly to institutional investors.
These assets, he said, are “absolutely uncorrelated to general markets” with the potential to thrive. “On a risk-reward basis they are much better” than more traditional investments.
Mirabile, who teaches courses in finance, alternative investing, and hedge funds, noted that Gabelli School students can pursue a concentration in alternative investments, or AI. Students of late have conducted research on disparate investments such as film and music royalties, wines, collectible sneakers, watches, and even whiskey, he said.
Those assets, some decidedly exotic by any measure, “have returns and revenue characteristics that are different from even traditional alternative investments,” Mirabile said. “We know that investing in alternative investments improve the performance of portfolios.”
–Richard Khavkine
