“Sophisticated investors buy negative yielding bonds – are you not a sophisticated investor?”
What madness will today bring?
From up in the Shard’s Eyrie in the Walkie Talkie Building we can see Marquees and Tents going up on the Tower of London’s lawn. What can they be for? Press tents to cover the beheading of the Prime Minister perhaps? The rebellious Scots judges have declared the suspension of parliament to be unlawful – meaning Boris has betrayed the crown? Naughty. Let’s see what the English courts say. Brilliant. I mean its only 360 years since our last proper Civil War, although Scotland vs England tends to be a more regular fixture.
Meanwhile, I suppose we should be thinking what Trump delaying some tariffs means. Absolutely nothing I suspect.
Today is going to be about waiting for what the ECB says, and my guess is as I described y’day: the ECB will disappoint markets expecting a further cut and resumption of asset purchases in order to move the Euro agenda on to a discussion of fiscal policies under the new ECB head, Christine Lagarde, in November. Watch this space. The world is changing.
At last.. what do I do during the day ?
Most mornings I finish the Porridge with “out of time, and back to the day job”. The unanswered question is: what is my day job?
Regular readers of the Porridge know QE and monetary experimentation has left me highly sceptical of Bond and Stock Market valuations. I much prefer the attractions of real assets: diversification away from distorted financial assets, into real things that earn real positive returns.
My day job – once I’ve got the strategy stuff out the way each morning – is to originate and finance “alternative” assets like property, infrastructure, renewable energy and other real opportunities to institutional investors. Typically, I have to demonstrate such assets are realistic propositions, backed by serious and effective management, with business strategies like to ensure predictable and sustainable returns. At the moment I’m working on deals in Carbon Sequestration, Impact investments in Renewable Energy, Commercial Property, Coal, Helium and a bunch of other stuff. Most deals we look at, we turn down because they fail at least one of our key tests. (We focus entirely on deals aimed at institutional investors – I don’t get involved in retail targeted deals like mini-bonds!)
What fascinates me most are the reasons investors reject deals. It may be structure, or asset class, or often its profile: they don’t fit ESG guidelines or compliance concerns. Most often its liquidity. Real/alternative assets tend to be very illiquid, but I’d argue most corporate bonds will prove equally difficult to shift when the crunch inevitably comes.
One of the real asset areas I’ve always been interested in is Aircraft. Most airlines don’t own their planes. Specialised Leasing companies own the Aircraft and rent them to Airlines, which results in very predictable returns. Airplanes may depreciate as they age, but it’s a large market and fairly easy to estimate their future value at any point in their life cycle. We also know there are large order backlogs for popular models and older aircraft are perfectly safe. Demand outstrips supply.