The pandemic is receding and technology is reshaping the way people across the world invest. A sense of optimism is building, but it's still difficult to shake the uncertainties of the past year.
What are the best opportunities for your money in this environment? Investing $1 million in one shot opens up more possibilities – and, of course, can involve greater risk. We asked a panel of experts who offered us their best ideas on where to invest $1m.
They moved well beyond the standard world of funds and into the more colourful – and potentially riskier – domains of venture capital and start-up investing.
We also asked for some alternative, creative ideas for allocating that kind of cash in your portfolio and we got some interesting responses that just might inspire you: ideas like investing in a minor-league ice-hockey team or investing in classic watches.
David Root, founder of DBR & Co
I’m passionate about investing and mentoring. There's a way to do both, through something called a “search fund”. The idea behind a search fund is to back future chief executives in their search for a good company to acquire and lead for six to 10 years. It's part private equity, part venture capital.
The way it typically works is that a group of investors identify and back “searchers”, who may be newly minted MBAs, or MBAs who have been in the workforce for less than a decade. The group forms an investment vehicle, often a partnership structure. Then the business school graduates look for a privately held company, or companies, valued at $6m to $10m – it could be a car wash, a health company or a lifestyle company.
When successful, this has resulted in a relatively fast path for young graduates to become an owner-chief executive and brings attractive financial returns for both investors and searchers. A 2020 analysis by the Centre for Entrepreneurial Studies at Stanford University found that from 1984 to 2019, at least $1.4 billion of equity capital was invested in traditional search funds and their acquired companies, generating approximately $6.9bn of equity value for investors and an estimated $1.8bn for entrepreneurs so far.
The aggregate pre-tax internal rate of return for investors was 32.6 per cent through to the end of 2019, down from 33.7 per cent in a 2018 analysis, and the return on invested capital was 5.5 times, down from 6.9 times in 2018. That reflected slightly lower returns, shorter hold periods and a record number of new acquisitions. There is risk, of course: the 2020 analysis also found that one in three funds failed to buy a company, even after two years of full-time work trying to find one.
Another way to play: I love hockey. I played it, my sons played it – one of them played as a pro. I would love to invest my time and money into a minor-league hockey franchise. It’s such a gritty sport and tends to not be as ego-driven as other sports can be, like basketball. In the US, there’s talk of a minor league coming to Pittsburgh. But if it doesn’t, I’d look to the Cleveland or Michigan areas.
Matthew Liebman, founding partner at Amplius Wealth Advisers
We like the BlackRock Capital Allocation Trust, which launched as part of a sort of new generation of closed-end funds and trusts. [These funds and trusts trade like a stock or exchange-traded fund, but money doesn’t flow in or out of the fund as investors buy and sell shares.] Their original siblings had bigger upfront commissions and we'd only buy them when they traded in the secondary market, not at the initial offering price. But BCAT has no front-end load to the client – BlackRock has financed that – so it’s a more consumer-friendly way to have permanent capital.
We’ve been watching this trust since it came out about a year ago and it's looked particularly cheap trading in the secondary market at times, so we’ve been adding to it. It's effectively managed by Blackrock’s asset allocation team, which runs their flagship fund [the $27.5bn BlackRock Global Asset Allocation fund]. It is a “go anywhere” fund. They have between 25 per cent and 33 per cent of the fund in private securities, both debt and equity. It’s like a 60 per cent stock and 40 per cent bond fund, but a more nimble one.
The trust has a nice yield of more than 5.5 per cent and they make some of that by writing options. There is certainly risk here, but they are also getting yield from areas including dividend stocks, which are paying more than many high-yield bonds now. They get a lot of yield from private credit, where they have the expertise to make the deals and do due diligence to get above-market yields.
Another way to play: I think the whole collectibles market now is overinflated. If you really think things are going to cost more, then it could be an idea to invest in experiences now. I’ve long wanted to get to all 50 states [in the US], and I’ve been delayed between responsibilities at home and work and obviously with the pandemic.
Mark Watson, founder of Aquila Capital Partners
If you look at how the economy has changed over the past decade, there’s been a slow march to digitisation in just about every industry. The pandemic accelerated this and also forced consumers to engage with brands in a direct way. For some, it’s become almost a daily experience. I know people who order from Amazon every single day of the week. It’s this recurring interaction. You could say the same about Netflix. Historically, people have been pretty reluctant to buy insurance online. With the pandemic, it became a lot harder to talk to an agent in person, so people began experimenting with digital insurers, like Lemonade or Hippo.
A lot of those companies are private and venture-backed. You can invest through venture funds, which have got chunks of these bigger companies then parsed them out to smaller investors or by investing in early stage companies that are on their way to becoming a platform, then an ecosystem. That’s where I’m putting my dollars.
What I’m looking for as an investor is for the next ecosystem to be created. You want to look for companies that are constantly innovating to make the experience better for the customer every time they interact. What matters, too, is that the ecosystem is multi-sided: various people involved find it easier to transact with each other through the company’s platform than on their own. For example, Amazon is a marketplace that allows buyers and sellers to come together and transact in a more efficient way. In a true ecosystem, both sides have to win.
Another way to play: I’ve been collecting watches for 20 years, maybe longer. And I’ve noticed that the price of a lot of second-hand watches has gone up 50 per cent to 100 per cent over the past couple of years. A lot of people like Rolexes, especially the Submariner, which looks like a diver’s watch. You could have bought one used for $2,500 to $5,000 two years ago. That same watch today is $10,000 to $15,000. There’s an active second-hand market for Rolex, Audemars Piguet and Patek Philippe brands. If you really want to put some money to work, a Patek can be had for $20,000 all the way up to $1m. With watches, you get the benefit of an alternative asset class, collecting and enjoying it while it appreciates. They’re second-hand so they already have some wear and tear but because they’re so well made, you can afford to wear them and not worry.
Michael Sonnenfeldt, founder and chairman of Tiger 21
Everything these days is about the transition to clean energy. It used to be very theoretical, but when you have 60 people die in Portland and hundreds in British Columbia because of the heat, it's less so. Now, when people get into cars and turn on the air conditioning and waste energy, we have to think about the lives being put at risk because of climate change.
A major focus for me is renewable power companies. In the past decade, fossil-fuel companies have gone from being 16 per cent of publicly traded equities to under 3 per cent. The market has understood the clean energy transition. Politicians haven’t – many people haven’t – but the people betting dollars on the future have spelt the end of fossil fuels and anyone not thinking about that in their investment strategy is living in the past.
I’m backing start-ups that have unique technologies to play in the power market – not just the energy market. If the past decade was about the growing use of renewable energy, the next decade will be about the growing use of renewable power. That's when renewable power will tip over some minimum around 30 per cent of the mix of power sources for utility companies. That tipping point will change the world as “on demand” renewable power increasingly replaces the base loads previously supplied to utilities by coal plants or intermittent peak power supplied by gas peaker plants. The same energy transition will drive the adoption of electric vehicles. It’s not just Tesla. There is electric-vehicle maker Lucid Motors, which will debut in the next few months. You can trade it in the Churchill SPAC (CCIV) and, more broadly, you can also play in exchange-traded funds like LIT (the Global X Lithium and Battery Tech ETF) or TAN (the solar Invesco ETF).
Another way to play: My personal investing is also about the need to go green. I don’t want to have pleasure at the expense of other people's misery. I'm putting in a new swimming pool and getting geothermal heating instead of gas. Geothermal has been free energy available for aeons. Maybe it's a little more of a capital cost, but once it's installed, it's free for life. I'm putting geothermal heating in my house using the same geothermal field. I'll use more for pool heating in the summer and have it available for heating the house in the winter to use the system as efficiently as possible. I also made a massive investment in solar power on my sailboat to minimise the use of fossil fuel.
