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Expected Returns for Alternative Asset Classes (plus Reading Habits w/ David Senra) (EP.219)

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Sep 22, 2022

01:29:26

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INSIGHT

Direct Real Estate Mirrors Public REIT Returns

Private (direct) real estate generally delivers returns similar to public REITs after adjustments and offers no clear illiquidity premium.
Expected real capital return is roughly inflation with additional return from net rental yield; local yields matter most.

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INSIGHT

Crypto: Lottery-Like, Low Expected Return

The hosts model cryptocurrencies as low expected-return, extremely high-volatility lottery-like assets driven by speculation and hype.
They assign rough nominal expected return ~1% with a very high SD (assume ~60%) for planning scenarios.

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ADVICE

Test Clients On Fees And Protections

Financial literacy gaps are real: Canadians averaged 53% correct on detailed investment questions and scored lowest on cost and investor protection questions.
Verify client understanding of fees and protections; don't assume robo-advice users have strong knowledge.

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The Expected Returns of Alternative Assa Classes

How to Quantify Performance Differences Between Public and Private Equity Investments

08:24 • 2min

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Is There a Relationship Between Private Market Valuation and Returns?

10:17 • 5min

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Inventure Capital - Is There Persistence in Bottom Quartil Funds?

15:38 • 5min

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The Wilt Bank Research on Angel Investing

The Expected Return for Private Credit

27:23 • 5min

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Hedge Fund Investors Are Their Own Worst Enemies

32:05 • 3min

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The Big Take Away on Private Real Estate

35:33 • 4min

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Investing in Cryptocurrencies

39:51 • 4min

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Is the Medium Return on Cryptocurrencies Better?

43:46 • 5min

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The Future Proof Conference

48:37 • 3min

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A Few Things I Wanted to Share With You at the LACUTOS Conference

51:15 • 2min

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Crypto and Block Chain

53:07 • 3min

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Crypto Is Not as Good as Some People Purport, Is It?

55:43 • 2min

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Do Undor Reviews Quick and Sure, Goin to Reviews

57:24 • 2min

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What's the Silver Bullet Solution?

59:15 • 5min

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How Did You Find Mentors?

01:04:10 • 3min

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How to Read Slowly in the Morning

01:07:06 • 4min

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How Do You Capture the Information?

01:10:45 • 3min

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Is There a Man for All Markets?

01:13:49 • 3min

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The Importance of Reading

01:16:58 • 6min

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The Best Biography on Steve Jobs

01:22:33 • 5min

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Do You Want to Read More?

01:27:53 • 2min

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The type of assets which usually come to mind when considering investments are stocks, bonds, or cash, but what are the alternatives? And what kind of returns do alternative asset classes offer? In today's episode, we delve into the returns which can be expected from alternative asset classes such as private equity, venture capital, angel investing, private credit, hedge funds, direct real estate, and cryptocurrencies. Hear an in-depth analysis based on empirical studies and the expertise of your hosts, Ben and Cameron, to discover whether there is any merit to alternative asset classes as investments. We unpack the extra layer of complexity associated with predicting returns on alternative assets, how to approach calculating returns, and why the associated fees are an essential consideration. We also hear details about an interesting conference Cameron recently attended and briefly recap cryptocurrencies as an investment. You'll also hear our conversation with our 22 in 22 reading challenge guest David Senra about his reading habits, the books that most inspire him, and his advice for people who want to read more.

Key Points From This Episode:

Outline of today's main topic: expected returns for alternative asset classes. (0:01:51)
Why predicting returns of alternative asset classes has an extra layer of complexity. (0:03:18)
How to approach estimating the returns of private equity, specifically buyouts. (0:05:04)
We unpack historical data regarding the returns of private equity. (0:07:35)
Calculating the returns on venture capital and reasons to be cautious about it as an asset class. (0:16:35)
The distribution of returns from venture capital based on the market numbers. (0:20:09)
Learn what angel investing is and its associated returns. (0:20:54)
What returns on angel investing are most dependent on and why. (0:22:21)
The different types and the associated returns. (0:25:23)
Hear about the fees associated with private credit. (0:27:42)
We unravel the concept of hedge funds, the associated fees, and expected returns. (0:29:29)
A limiting factor on hedge funds: capacity constraints. (0:33:38)
The takeaway regarding private real estate investments. (0:36:25)
How private real estate is valued as an asset class. (0:37:48)
Cryptocurrencies and the returns to be expected. (0:39:34)
We discuss some of the key takeaways from today's main topic. (0:43:30)
We follow up on a previous topic we covered: financial literacy. (0:45:10)
Find out about an interesting conference that Cameron recently attended. (0:48:46)
Hear about the recent reviews we have received about the podcast. (0:57:58)
We introduce our 22 and 22 reading challenge guest, David Senra. (01:00:15)
Where David's passion for reading about founders originates from. (01:02:25)
David shares details about his reading habits. (01:05:57)
His approach to finding founders that he wants to read about. (01:08:49)
David's approach to note taking while reading a book. (01:11:07)
We learn about the stories that have impacted David the most. (01:13:53)
He explains the benefits of reading a book for a second time. (01:17:11)
Books about founders that he thinks everyone should read. (01:19:20)
David's observation of the role of luck in a founder's success story. (01:23:19)
Advice he has for people who want to read more. (01:29:33)

Links From Today's Episode:

AQR Capital Management — https://www.aqr.com/

BlackRock Asset Management — https://www.blackrock.com

Bank of America — https://www.bankofamerica.com/

'The risk and return of venture capital' — https://www.sciencedirect.com/science/article/pii/S0304405X04001564

'Performance of Private Credit Funds: A First Look' — https://jai.pm-research.com/content/21/2/31.short

'Do Hedge Funds Hedge?' — https://jpm.pm-research.com/content/28/1/6.short

'The Performance of Hedge Fund Performance Fees' — https://www.nber.org/papers/w27454

'Higher risk, lower returns: What hedge fund investors really earn' — https://www.sciencedirect.com/science/article/abs/pii/S0304405X1100016X

'Another Look at Private Real Estate Returns by Strategy' — https://jpm.pm-research.com/content/45/7/95/tab-pdf-trialist

'The Characteristics and Portfolio Behavior of Bitcoin Investors: Evidence from Indirect Cryptocurrency Investments' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3501549

'Beliefs and the Disposition Effect' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3516567

'Once Bitten, Twice Shy: The Power of Personal Experiences in Risk Taking' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2506627

S&P Global FinLit Survey — https://gflec.org/initiatives/sp-global-finlit-survey/

Future Proof Conference — https://futureproof.advisorcircle.com/

Invest Like the Best Podcast — https://investlikethebest.libsyn.com/

David Senra on LinkedIn — https://www.linkedin.com/in/david-senra-278843236/

David Senra on Twitter — https://twitter.com/FoundersPodcast?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

David Senra on Facebook — https://www.facebook.com/david.senra.1

The Founders Podcast — https://founders.simplecast.com/

A Triumph of Genius — https://www.amazon.com/Triumph-Genius-Edwin-Polaroid-Patent/dp/1627227695

Cable Cowboy — https://www.amazon.com/Cable-Cowboy-Malone-Modern-Business/

Titan — https://www.amazon.com/Rare-Chernow-Titan-Life-Rockefeller/