Alternative Insight on Alternative Investments: Bitcoin, Royalties, Ag-Tech and Land Deals

Aug 5 2016 | 6:56pm ET

It’s exhausting to write about politics right now…

And the ongoing race to the bottom among central banks is just as frustrating. It's a fine time for the equities markets when there's nothing but more stimulus and lower rates every 24-hour news cycle. The Dow is well above 18,000, and the S&P 500 is sitting at nosebleed levels at 25x earnings. Meanwhile, deeper insight on alternative investments is fleeting.

As we explained yesterday, there are a handful of lists out there on the web about alternative investments, but not much of a deeper dive into specifics. Sure, it’s nice to know that alternative investments like hedge funds and bitcoin exists...but most of these lists are just clickbait. There’s no substance to them. No knowledge of the industry size. No direct link to companies actually engaged in the action. And no central list to promote actual thought leadership in the space.

So, we're going to start a new tradition here at The Daily Alpha. We're going to talk directly to leading voices in the alternatives space and engage in real talk on investment and finance.
Every Friday, we'll hone in on actual alternative investments rather than tackle market news. This is an important case of investor education and updates on alternative ways to make money in this zero-interest rate sinkhole that central banks have provided.

And we invite your comments...and your thought leadership. Let's highlight a few with a quotes in the industry that captured our attention this week...

“Creating a prosperous wealth management practice serving wealthy clients will often require being able to provide a broad array of high-quality products and services. Alternative investments, for example, are in demand by the affluent, but relatively few wealth managers are able to deliver quality products.”

That was Russ Alan Prince at Forbes, arguing that money managers are struggling to find alternative investments that offer quality returns. He was highlighting comments from results of a survey at the 2016 Morningstar Conference. Roughly half of the 163 managers surveyed saw value in alternative investments in order to retain their clients.

The delivery of quality products is the challenge. Here are a few different ideas that popped up this week.

“While we saw a decline in total dollars over the same period in 2015 the ag-tech investing market was surprisingly durable against the backdrop of the broader venture capital market, which started its retreat in Q4 of 2015 and has been anemic ever since. There were both pockets of growth and pull back so this was not a systematic decline.”

That’s Rob LeClerc in a short conversation with The Alpha Pages today.

Leclerc is the CEO and Co-Founder of AgFunder.

The firm operates an online investment platform that offers managed fund opportunities in agriculture and food technology deals.

This morning, AgFunder reported $1.75 billion of venture investment in food and agriculture technology in the first six months of 2016. This featured 307 deals.

While investment dollars decreased by 20% year-over-year, it is inline with the ongoing decline in venture capital. With investors becoming more selective, the global VC market slipped 14% in the same period. The good news for agricultural investors is that – unlike the broader VC market – AgFunder says it recorded "an uptick in deal activity and active investors in the sector.”

Despite the short-term decline, agricultural technology remains an investment force on the West Coast. The challenge to feed a population that isn’t slowing down in growth. By 2050, we can expect the global population to increase to roughly nine billion.

That’s a lot of food, water, and other inputs to meet their needs. Investment opportunities are emerging each day.

In fact, the U.N. reports indicate that food production must double by 2050.

That has made agricultural technology such an interesting space. Agricultural drones – to monitor farmland, prevent theft, ensure proper irrigation flows and more – alone could be a $3.69 billion market by 2022.

We say could because AgFunder reported a decline in investment in their own projects. The gains in the first six months came from food e-commerce, biomaterials and biochemicals, soil and crop technology and precision agriculture.

“Over the last couple of years we have seen bursts of fundings within sub sectors such as drones and alternative protein followed by a 12- to 18-month refractory period of reduced investment. After that, the cohort goes back to the market to raise larger growth rounds. I think what we are seeing is some of that ebb and flow,” LeClerc said today. 

AgFunder just put out a 65-page report on agricultural investment over the first six months of 2016.

It includes a number of different investment opportunities that the mainstream press never covers. Be sure to check it out.

“The price of Bitcoin fell significantly last night, at one point dipping to $480 per Bitcoin. The cause of the coin sell-off was news that broke that a major Hong Kong exchange, Bitfinex, was hacked to the tune of 119,000 Bitcoin (between $65-$75M BTC).”

That’s the anonymous author Parke Shall, writing at Seeking Alpha yesterday. The recent hacking of Bitcoin in Hong Kong is the latest setback for the crypto-currency. But Shall explains that the recent dip – and the ensuing bounce back – still creates a buying opportunity for Bitcoin buyers.

It’s easy to be skeptical of the Bitcoin hacks. It’s easy to dismiss the “commodity” because of potential security flaws. But we have to consider that every small setback will fuel a larger step forward. When Modern Trader drafted its "Many Facets of Bitcoin" issue in October 2015, we sat down with Barry Silbert and Tyler Winklevoss to discuss Bitcoin’s underlying technology – the Blockchain. As we’ve seen from Winklevoss and itBit CEO Chad Cascarilla, the blockchain has the potential to disrupt hundreds of billions of dollars in processing transactions. It could easily displace mid-office operations significantly, and can increase the flow of trade on anything from entertainment royalty payments to the home-closing process.

Be sure to check out our interview with Cascarilla from April for greater insight on ways to invest in Bitcoin and the block chain, right here.

“This is a non-correlated asset and can provide steady cash flow for a number of years. Established popular music copyrights are generally consistent earners and often increase in value over time, regardless of market activity. The overall yield can often mean 10% or more for the non-correlated asset with a strong history of royalty generation.”

Bitcoin has the capacity to improve the payment of royalties in the music and entertainment space.

That’s good news for the music industry, which is experiencing a major reversal in revenues after a two-decade decline. With the music industry turning away from ad-based and free-streaming services, Credit Suisse projects a massive expansion in paid-streaming services.

The investment bank projects that the industry will return to 2008 revenue levels by mid-2016.
Hedge Fund P. Schoenfeld Asset Management has projected significant growth in the global music industry. From 2015 – when revenues were around $15 billion, until 2020, global music value could rise to $26 billion. That includes an increase in streaming revenues from $2.9 billion in 2015 to $16.42 billion in 2020.

For alternative investors, music royalties create an intriguing investment opportunity, says Benom Plum, a music business professor at University of Colorado-Denver.

Plum sat down with FINalternatives this month to explain how music royalties work, the benefits and risks of this uncorrelated asset, and the potential returns available.

Here’s what he had to say 

"I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."

Bill Gross spoke this week…

It’s always interesting to hear what he says, and then consider doing the opposite. This week’s “likes” and “don’t likes” were far more conservative. He likes land, and buildings...and tangible equipment at a discount.

First, we all love discounts. Second, he really went out on a limb by saying that he didn’t like bonds. Perhaps he’s learned his lesson with interest rates cratering and others like Mark Grant saying that the 10-year could fall to 1.25%.

Land is always an interesting investment – farm land, especially. We’ve seen a number of peaks and valleys over the last decade. In the Midwest, farm prices fell by 4%, the largest drop since 1987.

Rather than jump into one land investment, we’d like to recommend this article that includes a variety of different land investment funds available on the market today.

We’ll dive deeper as we start this new phase of the Daily Alpha.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...


FINalternatives Trending

From the current issue of