Future Returns: The Banking Crisis Didn’t Scare Off Alternative Investors | Kanebridge News
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Future Returns: The Banking Crisis Didn’t Scare Off Alternative Investors

By BETH PINSKER
Wed, Apr 5, 2023 8:24amGrey Clock 3 min

Investing for high-net-worth clients can be a bit of a high-wire act because they can have significant amounts of money tied up in complex alternative investments. When the panic started with the collapse of Silicon Valley Bank in March, wealth manager Tom Ruggie was relieved that none of his clients were directly invested.

“We got lucky there,” says Ruggie, a certified financial planner and author who is based in central Florida. “But when it came to Credit Suisse, we had a little bit of a scare.”

Ruggie’s firms—a family office business called Destiny Wealth Partners and a financial planning firm called Ruggie Wealth Management—did some work with the troubled financial institution on debt obligations. It turned out that all of the contracts were completed, but if Credit Suisse had failed, Ruggie and his clients would have lost a lot of money because the notes would not have been paid back.

Investors who have money in private equity, hedge funds, and direct investments in start-ups are used to taking on a lot of risk and have the financial capacity to absorb it. Ruggie points to an EY study that a third of those with assets above US$250,000 hold some alternatives in their portfolios, including 81% of ultra-high net worth clients with more than US$30 million. Scares don’t happen often, but when they do, “it’s an eye-opening event,” Ruggie says.

Still, rather than run to safety when things turn sour, Ruggie’s clients are more likely to go back and do it again. “They are usually willing to take risks when everyone else is running for cover,” he says. “When you have something come up, like the current banking crisis or the situation in 2008, a lot of people psychologically don’t do well with uncertainty. But the savvy investors, they look at it as an opportunity.”

Here’s where Ruggie says high-net-worth investors want to put their money today.

How Much Risk?

Not all high-net-worth investing is deep in alternatives. Ruggie says he divides client money into three pools: short-term money in fixed income, mid-range money in traditional equity investments like mutual funds and exchange-traded funds, and then long-term money in private investments.

To decide the ratio, he says “it’s a statistical correlation of how much money you have to how much you need and for how long. There’s no cookie-cutter answer.”

Some clients don’t put more than 10% of their net worth into non-traditional alternatives. Ruggie’s personal portfolio is pushing 40% alternatives, he says. Much of that is tied up in sports memorabilia—mostly an extensive baseball card collection—and some collectible wines, along with direct investments in companies.

Non-fungible tokens (NFTs) are a bridge too far—“I personally can’t see the advantage of investing in something like that, and never recommend for a client to do so,” Ruggie says.

As for cryptocurrency, Ruggie has dabbled, but just for the experience. “I wanted to learn,” he says. “I did quite well, but when clients came to us for advice, our guidance was that it’s off our path. Our client base is more concerned about long-term performance than the gambling aspect of investing.”

How Much Capital is Required?

Ruggie says direct investments in companies can start as low as US$25,000. These are the opportunities that are the most interesting to his clients right now, especially technology-based start-ups.

Some clients also take a step back and put their money into private-equity that then pools investments and finds companies worth investing in. Those typically require putting in at least US$250,000 and the purchaser has to be qualified, with a net worth of US$5 million net. Ruggie’s clients also invest in hedge funds, real estate, and collectibles.

Of these investments, hedge funds are the most liquid. There’s usually a lock-in period of a year, but then money can typically be withdrawn with 30-days notice.

Private equity has much less flexibility. “I tell people to basically anticipate no liquidity at all,” Ruggie says. “My mindset on private equity is that this is long-term money.”

The same goes for most direct investments in companies, which aside from the potential to sell stakes on the secondary market, there’s no ability to get cash out unless the company goes public and the shares appreciate.

The Potential Gain?

The main reason for investing in alternatives is that the potential upside of these investments is unlimited.That’s what makes it worth the risk. The other reason is that many high-net-worth clients have money to put on the line.

“What is excess? It’s a correlation between what you have and what you need,” says Ruggie. “Everyone’s definition of rich is different.”

In a year like 2022, advisers like Ruggie have had to go to clients with bad news about losses for the year and say, they may have outperformed the market but still lost 10% or whatever the number. But for Ruggie, that’s a temporary situation with paper losses.

The rest of the speech goes something like this: “It’s my belief—backed up by my personal investments—that what we’re doing with alternatives is going to outperform the market with statistically less risk than the market over time. It will catch up.”



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Preparatory Work for UAE to Oman Hafeet Rail Project Commences at Full Speed

Preparations have begun on the transformative UAE to Oman Hafeet Rail network, revealing significant construction details during a site visit.

Thu, May 16, 2024 3 min

The $3bn Hafeet Rail project between the UAE and Oman will feature 60 bridges and a 2.5km tunnel, making it an “architectural and engineering marvel,” according to CEO Ahmed Al Musawa Al Hashemi.

Hafeet Rail has announced that preparatory work is moving full speed ahead for constructing the transformative railway link between the UAE and Oman. This announcement was made during a site visit attended by key officials, members of the Asyad and Hafeet Rail executive management teams, project contractors, and consultants.

Key Highlights

During the visit, attendees were introduced to the main components of the project, including passenger, repair, and shipping stations, as well as major bridges and tunnel sites.

The Hafeet Rail project is set to play a very important role in enhancing local and regional trade, unlocking new opportunities in the infrastructure, transportation, and logistics sectors, and fostering economic diversification. It will also strengthen bilateral relations between the UAE and Oman.

The project will involve constructing 60 bridges, some reaching heights of up to 34 meters, and tunnels extending 2.5 kilometres. The Hafeet Rail team showcased the latest rail technologies and innovative engineering and architectural solutions designed to navigate the challenging geographical terrain and weather conditions while maintaining high standards of efficiency and safety.

The rail network will boost various industrial sectors and economic activities and significantly impact the tourism industry by facilitating easier and faster travel between the two countries.

Ahmed Al Bulushi, Asyad Group Chief Executive Asset, noted that the project’s rapid progress reflects the commitment of the UAE and Oman to developing and realizing the project’s multifaceted benefits.

Investment and Future Impact

Al Bulushi added that investments in developing local capabilities and expertise in rail-related disciplines over recent years have enabled the project to reach the implementation phase successfully under the leadership of highly efficient and professional national talent.

Hafeet Rail’s CEO Ahmed Al Musawa Al Hashemi emphasized, “The commencement of preparatory works for construction is a testament to the robust synergy between all parties involved in both nations, achieving this milestone in record time. We are confidently laying down the right tracks thanks to the shareholders of Hafeet Rail and the expertise of local companies in Oman and the UAE, alongside international partners.”

During the site visit, the visitors explored some of the key preparatory sites, including Wadi Al Jizi, where a 700-meter-long bridge towering 34 meters will be constructed. This ambitious project is envisioned as an architectural and engineering marvel in a complex geographical landscape.

Future phases will require more collaboration, with a continued focus on quality, safety, and environmental considerations in line with the international industry best practices.

The Hafeet Rail project represents the first-of-its-kind railway network linking two Gulf nations, marking a significant shift in regional goods transportation. This efficient and reliable transportation option will reduce dependence on slower and less sustainable road transport.

Hafeet Rail promises a 40% reduction in shipping costs and a 50% in transit times compared to traditional land transportation methods, as it will be connecting five major ports and several industrial and free zones in both countries.

This shift will reduce reliance on road transport by cars and trucks and promote more sustainable shipping practices. The establishment of the railway network will also create significant opportunities for SMEs in construction, engineering, and logistics support, acting as a catalyst for economic growth and innovation within the domestic economy.

By linking major ports, the Hafeet Rail project will enable local SMEs to import, export, and distribute their products more effectively, enhancing their market reach and global competitiveness.

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