By Dr. Clifford Lipscomb From Greenfield Advisors

Earlier this week, my first post from the Cayman Alternative Investment Summit discussed the first morning’s events. In this post, I’ll discuss some of the events from the end of day one as well as all of the big talks during day two.

Al Pacino (yes, the star of Scarface, Scent of a Woman, and The Godfather) spoke on Thursday afternoon to a standing-room only audience. He spent most of the time talking about his acting career and how he got started in the business. Even though he was not around for earlier sessions, it was interesting that some of his comments, particularly those related to building relationships and how to work well with people by connecting on a personal level, paralleled comments made earlier in the day regarding building relationships with fund managers and developing trust.

Day two brought together several interesting speakers. In the first keynote session of the day, Jim Glasgow, Managing Member of Five Mile Capital, which coincidentally owns the Ritz-Carlton Hotel in Grand Cayman, talked about several trends that he is seeing in commercial real estate (CRE). First, his firm (and others) maximizes the value of an investment by integrating investment and operational expertise under one roof. His firm, in a joint venture with Mitsubishi, will do approximately $1.6 billion in commercial mortgage-backed securities (CMBS) in 2015.

Then, another trend Glasgow is seeing is that CRE investors are focusing on net operating income (NOI) growth of underperforming assets in select markets because interest rates are as low as they feasibly can go. Glasgow selected a few representative market opportunities to illustrate his point—these included 123 N. Wacker Drive in Chicago, a Pennsylvania real estate investment trust (REIT) portfolio, Citadel Center, and The Adam’s Mark Hotel.

One of the more interesting slides in Glasgow’s presentation showed the spreads between Moody’s loan-to-value (LTV) ratios and the underwritten LTV ratios. These spreads currently hover around 45% [source: Moody’s Investor Services, Moody’s CMBS Q3 Review, October 2014]. This difference shows where the opportunities may lie to purchase assets with large differences in LTV ratios at the time the loans were underwritten versus LTV ratios now.

As a result of the financial crisis, 388 commercial mortgage lenders have been forced to exit the market since 2006 [source: EIHI (2012)].

Glasgow concluded with a summary of how Five Mile Capital addresses new opportunities; his firm finds the right combination of skill sets (e.g., deal structurers, business planners, developers, asset acquisition specialists) and brings them together.

After Glasgow’s talk, Anne Richards, CIO of Aberdeen Asset Management, moderated a panel that focused on emerging markets. Panelists included Mark Roberts from the Biltmore Family Office, Yi (Sonny) Shen from the Shanghai ShenYi Investment Consulting Company, and Gordon Rajamohan, a partner in the Alternative Investments practice at KPMG in the Cayman Islands. The eclectic panel focused on where the best investments are located. Lots of the discussion focused on China. In particular, Richards observed that the perceptions of China do not seem to match the empirical evidence on Chinese inflation, house price stability, and credit availability.

Another point related to perceptions is that China announced this week that it is now reporting net export numbers in Reminbi instead of U.S. dollars. According to Shen, this signals China’s higher level of confidence in its own currency. He also said that investment in Africa is still active and comes in two flavors—government and private sector. Government investment includes embassies and railroads, whereas the private sector includes mining. In particular, mining did well at the beginning but has faltered due to pollution issues and clashes between Chinese nationals working in Africa and the local indigenous workers.

Finally, the panel concluded with remarks on the next hot spots in CRE. Two of the three panelists said China (Chinese derivatives and the purchase of distressed European assets in particular) and one said Argentina (because of the new president who will take office in October). [I’ll note that a different panelist in one of yesterday’s sessions also noted Argentina as a hot spot.] Lastly, Roberts said he likes farmland as a long-term investment and Shen agreed.

I enjoyed the Cayman Alternative Investment Summit, and not just because of the locale. A wide range of experts presented information on many different fronts. I’m glad I was able to attend and share some insights with readers.

IMAGE: Citadel Center, Chicago Loop, courtesy of Ken Lund, CC BY-SA 2.0.

For more on this story go to: https://www.greenfieldadvisors.com/cayman-alternative-investment-summit-part-deux/

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Cayman Alternative Investment Summit

I had the opportunity to attend the Cayman Alternative Investment Summit on February 12–13, 2015, at the Ritz-Carlton Hotel on Grand Cayman, Cayman Islands. The audience included venture capital fund managers, economists, investment managers, transactions attorneys, and others. In this post, I’ll recap the first morning’s events, which focused on the big demographic and social trends as well as trends occurring in the world economy.

First, Anthony Cowell, Head of Alternative Investments for KPMG in the Cayman Islands, discussed the big trends that are shaping investment decisions. These so-called “megatrends” include the increased consumption of diapers, the percentage of folks with Internet access, and increased automation and technological advances. Speaking of technological advances, arguably the highlight of the session was a small robot delivering a Diet Coke to the speaker—a robot called MiP.

The three big megatrends outlined by Cowell are (1) the mainstreaming of alternative investments (regulations and new products), (2) the institutionalization of investments (power is concentrated and people want simplicity), and (3) consolidation across the administration/director level and more collaboration at the software development level.

Next, Mark Yusko of Morgan Creek Capital Management gave the first keynote address entitled “Channeling Byron: 10 Potential Surprises of 2015.” He discussed the following potential surprises of the coming year:

The “Lula pivot”—Greek politician Alexis Tsipras will spur a better Greek market, just like Luiz Inacio Lula da Silva did in Brazil in 2002.

Deflation will be the primary economic challenge worldwide.

The U.S. Federal Reserve does not raise rates in 2015, and long bond rates take out the 2012 lows in yield. [In a previous post about the Goodwin Proctor Real Estate Capital Markets (RECM) Conference in January, I mentioned that a JPMorgan panelist said that her firm’s prediction models use a long-term Treasury yield rate of 4%.]

The S&P breaks its string of 6 consecutive years up and suffers its first losing year since 2008.
Russian equities turn out to be one of the best global markets in 2015, and bull markets are born on pessimism. The oil price drop likely slows Russian GDP growth.

Demand for gold and silver increases—folks seem to be migrating to hard currency.
Emerging market equities will outperform developed market equities. Yusko said that Argentina is a great place to invest over the next 10 years. India is also really cheap right now, and local investors are buying in their local markets.

Oil prices will fall to 2008 lows ($30 per barrel) and will stay in the $40 to $50 per barrel range this year. By contrast, the U.S. Energy Information Administration (EIA) predicts no excess supply by the end of 2015, but Yusko suggests that the EIA always seems to predict a balanced market and smoother prices. When oil prices are very high, folks lend money to people to build more oil wells. This seems counterintuitive, and now lenders seem to be regretting those decisions given the current price of oil.

Abenomics (the economic policies of Shinzo Abe that focus on inflation targeting at a 2% annual rate, quantitative easing, correcting the excessive appreciation of the yen, and structural reforms such as participation in the Trans-Pacific Partnership) in Japan seems to be working.

China will enter a bull market despite the warnings—the quality of growth is a better indicator than the quantity of growth. Chinese e-commerce is one of five core areas of focus for the coming years.
Bonus surprise prediction: lower gas prices in the U.S. do not result in a windfall for consumers—U.S. real GDP growth will hover around 2% in 2015, as opposed to the relatively strong growth that the IMF predicted as noted by Christina Romer at the RECM Conference last month.
I enjoyed my time at the Cayman Alternative Investment Summit. Check back in a few days for more thoughts on this unique and educational conference.

For more on this story go to: http://www.greenfieldadvisors.com/cayman-alternative-investment-summit/