The organizers of the Total Alts Conference asked Ray, amongst the key speakers of the conference, to give some brief insight on how they are thinking about market directions, new market mechanics, what is keeping alternative investment managers up at night, and more. These questions and answers were highlighted in their Speaker Ebook.
Questions & Answers
1) Where is the market heading? Are we utilizing antiquated ideas and vocabulary to describe a new era of market mechanics?
At AlphaFlow we focus on fixed income so I’ll answer with regards to the credit markets. In the increasingly difficult search for yield, alternative fixed income opportunities are quickly garnering attention from traditional asset managers. The culprit is a disconnect in risk and reward in much of the credit world, perhaps illustrated best with Argentina’s recent issuance of a century bond shortly after exiting default. When the returns simply stop matching the risk for too long, savvy investors look for new opportunities. For us, that means we’re hearing from more hedge funds, family offices, and international investment groups looking to expand their investment relationships in order to tap into new sources of yield. We don’t expect rates to meaningfully increase anytime soon, so we think you’ll see more managers including alternative lenders in their strategies than ever before.
2) What keeps you up at night?
As is the case with all asset managers, AlphaFlow’s success hinges on the trust of its investors. Earning that trust takes time and requires transparency and of course ultimately delivering on our mandate. We focus on emerging spaces that are often pioneered in Silicon Valley by fintech firms before they’re accepted by Wall Street, and so sometimes that trust requires additional work. Our biggest worries involve scandals or other issues in our industry, which is one of the reasons we spend a tremendous amount of time conducting due diligence on our partners before even considering any of their investment offerings.
3) What is the next great investment opportunity? Who will be allocating capital to alternative fund structures?
With apologies for using a cliche baseball metaphor, we’re only in the first or second inning of what fintech is bringing to the investment world. Nascent companies around the globe are taking fragmented and unstandardized industries like cross-border finance and hard money real estate lending and transforming them into assets that can be easily evaluated and even placed into investment accounts with RIAs and wealth managers. For institutions, fintech is going to homogenize these asset classes, enabling them to access investments that were bespoke and generally untouchable. Some of the world’s most successful investors have quietly begun investing both in the companies driving this movement as well as the asset classes they’ve produced. It won’t take long for retail to follow. Before long, I believe you’ll see many of these investment opportunities listed as standard offerings as clients demand access as well.
4) Will the next great investment manager be powered by AI?
To begin, let’s level set, as some people conflate robe-advising with AI. The former usually means algorithmic allocation of assets within a portfolio, while the latter typically refers to using fields like machine learning to power quantitative strategies to uncover tradable signals in both market and other digital data. With the half-life of actionable trading signals shrinking over time, primarily from the rise of quant funds focused on identifying these, I think you’ll see AI used more often to identify similar signals in things like social media and web search data.
I think you’ll see new investment managers launched on a foundation of AI, but with investors like Paul Tudor Jones also embracing the technology, I think we’ll see AI at least supporting every major investment manager’s decisions in the coming years. Normalizing enormous swaths of unstandardized and fragmented data isn’t as simple as some may believe, but the dollars driving these enormous asset managers will certainly provide tailwinds for companies focused on that goal.
5) What question do you wish you were asked? Why?
Our primary investment focus is bridge lending in the residential real estate space, which more commonly might be referring to as “fix and flip loans.” Clients often believe all investors and lenders underwrite these loans in the same way, but that simply isn’t true. The industry is extremely fragmented, leading to inconsistent underwriting standards and even bespoke metrics. The reality is that many lenders we’ve evaluated simply use “comps” and stop there. We don’t find that to be sufficient and so we built an extensive analytics platform to cover the property, the market, and the borrower. Retail clients in particular often assume platforms are doing more due diligence than is actually the case, and I wish they asked everyone to dive deeper into that topic.
AlphaFlow is a proud sponsor of the Total Alts Conference, and we are looking forward to connecting with institutional investors, wealth managers, and financial advisors seeking the leading alternative investment providers.