The beginning of 2020 was impacted by an unanticipated event that will have profound consequences for the decade to come. The COVID-19 outbreak is an unprecedented crisis that stopped much of the world economy at various times during that year, and the pandemic will have reshaped consumers’ behaviour and the way in which business activities are carried out across the world. Hindering large parts of the economic activities of most countries, the first effect of the pandemic was a sharp decline in most financial markets with the notable exception of less liquid assets, such as alternative assets. As allocations of investors grow and diversification becomes of utmost importance, alternative investments play an increasingly critical role in portfolios. Investae is a boutique investment firm specialising in alternative investments. We strive to bring to financial professionals – financial advisors, family offices, wealth management companies and even private banks – best-in-class ideas for the portfolio of their clients.

The alternative assets
We work mainly with private debt instruments. The growth of private debt arose out of the 2008 financial crisis, when government authorities consolidated the regulation of international banking. The Basel III agreements published in December 2010, aimed at strengthening the financial system, have tightened up access to credit.

Believing that the severity of the crisis was in part due to the growth of excessive bank financing, regulators concluded that restrictions on certain types of financing were the solution to limit further systemic risks to the banking system. From then on, banks were required to keep more cash in reserve for lending to businesses, unlike loans to governments. The direct consequence of this regulation is that some businesses have less access to credit, or indeed no access at all.

Even with healthy balance sheets and positive cash flows, the guarantees that these businesses can offer may no longer be acceptable to banks. This has opened up an opportunity for investors, both institutional and private, to fill the vacuum. Private debt instruments have some notable advantages for the portfolio of investors, namely higher yield and absence of correlation to the market fluctuations.

We built our platform for financial advisors and family offices with one simple goal in mind: to offer alternative asset opportunities that are easier to understand for their investors

However, there is one substantial drawback, limited or no liquidity, even though these instruments are traded on European stock exchanges. Investing in private debt comes down to sacrificing liquidity for a higher return and capital stability. In the financial world, it’s important to pay special attention to proper due diligence when it comes to selecting investment opportunities. Investae reviews over 30 investment opportunities annually in the field of alternative assets.

We identify opportunities with characteristics that are aligned with investors’ expectations and preferences, we compare the yield to the market, assessing how much this particular investment is better or worse than others, and how attractive the investment opportunity is.

Usually, the credit rating reliability is set by rating agencies (S&P, Fitch, Moodys, ARC Ratings, CreditSpectrum, Euroratings, etc). When available we will review the credit rating. We will explain how this investment opportunity can be a suitable fit to investors’ portfolios and how it affects investors’ asset allocation. We will assess how the investment opportunity is protecting investors’ interests. We will identify risk factors and how the company is mitigating these risks, and we will assess the different scenarios and outcomes that may develop over the life of the investment. We will assess the different exit routes available to the investment managers. Whenever necessary, we will require a legal opinion from a law firm. A law firm may, for example, examine the structure of the investment and issue a legal opinion that describes whether the transaction is legally structured and which type of investors are permitted to purchase it. We will organise a face-to-face or online meeting with the firm’s management. We will constantly be monitoring the investment in the news and other reports, in light of market ratios and return expectations. Whenever necessary, rebalancing may be suggested.

Making Investae stand out
We perfectly understand that for many financial professionals, and even more so for their clients, alternative investments are a relatively new asset class. Investae has built a fully integrated marketing platform, including a learning centre for financial professionals. The goal of this platform is to make the world of alternative investments simple and accessible to financial professionals.

Financial education is the key to the success of both financial professionals and their clients. Indecision in prospective investors is usually a sign that indicates that the offer would benefit from extra explanation. Most of the time, prospective investors will be very open about their concerns, but in some cases, they do not provide much feedback. When an investor delays their investment decision, this is usually the sign that part of the investment’s characteristics may be confusing or unclear, or that he or she fears making the wrong decision.

Sometimes investors may even ignore the true reason for their indecisiveness, which they call a ‘gut feeling.’ This is usually the sign that questions related to the offer are being left unanswered.

The prospective investor might not even be aware of the hidden fear that impedes them from going further. We built our platform for financial advisors and family offices with one simple goal in mind: to offer alternative asset opportunities that are easier to understand for their investors. We have achieved this by creating marketing tools to educate both investors and financial professionals. For example, for each opportunity on the platform, we create short, animated videos that will explain the investment proposal. Nowadays, investors are bombarded by investment opportunities. If the first interaction they get with an investment opportunity is a 25-page presentation or any written material, there is a good chance they won’t even look at it.

Whenever a financial professional starts an interaction with a prospective investor, the aim should be to grab their attention and generate interest and curiosity. This is where short, animated videos are helpful. They are the perfect tool to explain an investment opportunity in less than two minutes. They are also extremely useful in the post-COVID-19 world when most professionals are asked to work remotely because they can be shared via instant messaging.

Moreover, our platform also offers what we call an ‘objection centre,’ which is a resource to help resolve the most frequent objections and questions that prospective investors have. In some instances, a prospective investor may ask a good question about how the investment opportunity might perform in certain economic circumstances. We deal with the question directly with the issuer or investment manager and provide the answer via this resource.

Financial mechanics
Lastly, our platform provides ongoing support and coaching to all financial professionals. It is becoming increasingly difficult to get investors’ attention in an overcrowded financial world. Investors lead busy lives and don’t always have time to get to the core of every opportunity presented to them. It is the professionals’ job to make the investment offer clear and understandable. We know that investors are very keen on learning more about the mechanics of the financial markets, but this should be done in a way that takes into account their limited knowledge of the financial world.

We empower investors with knowledge to evaluate different financial products, help them make informed decisions and enable them to correctly understand and manage risk. This reduces investors’ vulnerability. This is how Ben Franklin’s famous quote; “An investment in knowledge pays the best interest” should be understood.

Education is key to the success of both financial professionals and their clients. Our objective is to become the outsourced alternative investment desk for financial professionals. We believe that the quality of our due diligence and the marketing and educational tools that we provide really set us apart in a crowded and competitive field.

By Gerald Autier

Gerald Autier is the Managing Director at Investae