Business Articles, Investing, Investment Adviser, Investment Adviser Arizona, Investment Adviser Kansas City, Investment Adviser Representative, Investment Vehicles, Money Manager, Venture Capital

Why VC Firms Are Turning To Investment Advisers?

VC and other Partnerships have a big problem. Some are not evolving with the changing Financial Landscape.

Many Venture Capital Funds and Private Partnerships are literally risking their capital to risk. It’s not difficult to observe the Capital they have worked tirelessly to raise is diminishing from sitting for long periods. It’s also apparent from the current VC Partnerships without a Investment Adviser the accounts they keep their funds in do nothing to serve the developing Risks. Which in return silently and maliciously erodes the Funds Purchasing Power and additionally? Diminishing the capital. Discounting continuity and Preservation of Principle. Investment Advisers know how to minimize risk, strategically Preserving Capital, while at the same time implementing Growth of Funds. The bottom line is this! Not evolving to the changing ecosystem. Will diminish your Partnership Performance and diminish your returns and capital performance for your clients.

Exemption for Venture Capital Funds for Investment Advisers

Currently the Investment Advisers Act of 1940 has an Exemption for SEC or State Registered Investment Advisers who manage Private and or Venture Capital Funds. This is a Gift to the VC Partnership and Private Fund world. However based on my experience and research only the serious Professionally managed Firms are quietly utilizing Investment Advisers skills to help manage their VC Funds. After reading a Post on Medium about this Topic. It seemed prudent for me to give my Professional opinion as a new Investment Advisor Representative. You can read the article the Attorney who wrote about Compliance of RIA’s turned Venture Captial Firms “HERE“.

Market Conditions Always Changing

The SEC is very strict in it’s Regulations, and the Finance Laws are extremely complex in the Investment Adviser money management world. However the Laws and Regulations can be used for good. Especially for PROFIT AND FUND GROWTH. If you have a small team of Advisors and Attorneys who are experienced and trained in how to use their skills to navigate the complex Regulations and laws for the Benefit of your Partnerships Fund. Your ahead of the Curve of Diminishing Funds. Making your Clients capital grow and keeping your Clients Happy with your Fund or Partnerships performance. There is one certainty in Business. That is “THINGS ARE CERTAIN TO CHANGE! EVLOVE OR DIE.”

Founders Fund Registered Investment Adviser?

Peter Thiel Founders Fund is now a Registered Investment Adviser. (Image BELOW)

Which recognizable VC Firms are Investment Advisers Currently? Sequoia Capital registered recently as a Registered Investment Adviser to begin investing in the Capital Markets and Crypto Assets. Andreessen Horowitz is another Venture Capital Fund that recently registered as an Investment Adviser. This list is growing. And it seems more and more VC Firms who are serious in the space are turning to Investment Advisers for their Funds. It’s likely they have so much money under management they need to distinguish themselves and account for risk vs. returns to add a layer of Preservation of Capital. It also must be shared it’s just good business acumen to have a Money Manager who can give peace of mind to the Fund Manager and Client’s personal Asset Allocators.

If you stop to fully read the SEC.Gov website on Exemptions for Advisers to Venture Capital Funds (BELOW). You will likely conclude this is certainly the future of VC Funds who are leaders in the VC Space. Having a Professional manage your Firms Funds is added security. The benefits far outweigh any downsides. When your thinking strategically as a Investment Committee. Recently a College PH.D Finance Professor shared with me at Arizona State University, “He feels the future of Investment Advisers will begin to morph into a fragmented space where VC funds become Powerhouse VC Investment Adviser Run groups.” I honestly can see myself it’s likely to expand into other Partnership Funds as well. Interestingly this is already taking place.

Did you know..? “It is against the Professional Standards and Regulations of the Uniform Securities Act and Investment Advisers Act of 1940 for any Investment Adviser Representatives to make guarantee’s or promises related returns.”

Venture Capital Firms Turning Into Investment Advisers

Traditionally many Private Funds or Venture Captial Funds have used a REG D offering for their Funds framework. However based on evidence in the space and growing sums of Capital under management? Times are changing and VC Firms are turning to or into Investment Advisers. To leverage Capital Markets for Preservation of Capital and Growth.

A Reg D offering and a (RIA) Registered Investment Adviser are completely two different things. A RIA is a Firm that Manages Funds for a percentage of Assets Under Management. Usually 1.5percent. A REG D offering is a “Exempt Offering”. The Law and Regulations all RIA’s Registered Investment Advisers have to adhere to professionally. Includes a long list of seriously strict responsibilities, Regulations and Policies. It’s serious business. Some of the rules of the road address Portfolio Management, Custody, Investment Discretion, Record keeping and lots lots more. However this is not a Post about Laws, Regulations or the differences of a REG D offering vs. a Registered Investment Adviser. This is meant to share more in depth examples of the complexity of Managing Funds.

Venture Capital Teams Under Pressure to Evolve From Competition

With many Venture Capital Firms under pressure to out perform each other and evolve from their competition by performing with their Clients Money. These Venture Capital Funds are feeling the squeeze of having Capital sit for long periods inside accounts without proper preservation policies implemented. This causes the Capital to be inactive on the Firms Balance Sheet. There are strategies Investment Advisers can execute to minimize Purchasing Power Risk and begin to grow Funds implementing a preservation of capital as it’s Objective. Several large VC Firms have seen the Value Investment Advisers bring to the Balance Sheet using Advisers. And more and more Venture Capital firms are on the look out to Recruit Investment Adviser Representatives for their Skills. One thing is certain in this Asset management Business. You should always be looking to gain the edge by utilizing Investment Advisers Skills to help grow the Firms Funds.

Conclusion Clients Impressed By Increased Returns

In conclusion after sharing the above examples. It looks to be completely clear the Venture Capital space is turning to Investment Adviser Representatives and utilizing their money management skills. It’s absolutely clear the Value and increased performance Advisers can bring to a VC Firm and their Investment committee. Traditionally speaking? Investment Advisers do 3 things incredibly well. Preserve Capital, Manage Capital while managing risk, and strategically use Capital Markets to Grow funds, for the purpose of beefing up a Company’s Balance Sheet.

Have you read my post on the Three Financial Statements “HERE“.

Risk will always be apart of Professional Investing at every stage. However many Investment Committee’s and Investment Professionals would most likely agree. “Having a Professional Money Manager on your Firms Team will likely give your Company an Edge in the Market while making your Clients very happy from seeing a improvement ROIC.”

Thank you for reading.

Business Articles, Investing, Investment Vehicles

“Exchange Traded Fund” ETF Basics

Many Business professionals would be shocked to find out that a basic Exchange Traded Fund on the NASDAQ, New York Stock Exchange or on Japans 225 funds that make up the Nekkei Index are all either UIT’s or Open-Ended Funds (Mutual Funds). This article’s purpose is meant to identify and educate more executive business leaders about ETF’s you likely see daily listed on TV or on the many Stock exchanges.

Before we are able to begin listing the different key components that make a Exchange Traded Fund. It’s a good idea if I share some basics to help you understand the ETF’s are complex Financial Vehicles. And for today’s article we will be touching on UIT’s, and Open-Ended Funds. Because that is what the majority of ETF’s are! Unit Investment Trusts and Open-Ended Funds. Interesting stuff right? Lets breakdown the basics of UIT’s and Open-Ended Funds.

Unit Investment Trust “UIT”

What is a Unit Investment Trust? Great question! According to FINRA‘s Website:

“Unit investment trusts, or UITs, fall in the same category as mutual funds and closed-end funds. All three are investment companies, which means they pool money from many investors and invest it based on specific investment goals. The key difference with UITs, however, is once a UIT sets its portfolio, it remains the same for the life of the fund (barring any major corporate events, such as a merger or bankruptcy proceeding) and the term is fixed.”

Investment Company Act of 1940

The key to understanding ETF’s is the fact all ETF’s are Investment companies. If I share more descriptively. A ETF is a Pool of Money that has been legally established as an Investment Company. Now we need to dive slightly deeper into what is “The Investment Company Act of 1940?” The S.E.C. Securities and Exchange Commission. The S.E.C. states on it’s website :

Additionally The Act was signed in to law by President Franklin D. Rosevelt who felt the need for Regulation after the Stock Market Crash of 1929 destroyed so many and especially after the Great Depression left its mark on America’s tattered Finances. The biggest thing I would like to leave you with to know and recognize about the Investment Company Act of 1940 is the fact this Law is a regulatory framework for retail investment products and vehicles. Most importantly the Act leaves Fund Managers and Financiers with three categories of Investment Companies to make offerings. These Company categories are “Unit Investment Trusts” UIT’s, (Mutual Funds) Open-Ended Management Investment Funds and Closed Ended Management Investment Funds. It’s very important to discern the Requirements for Investment Companies are based on their categorization and offerings of Investment products or vehicles.

Open-Ended Management Investment Fund

All a Open-Ended Management Investment Fund really is in most cases is a Mutual Fund! It’s very simple. A collection of Securities or Investments organized into a Pooled Investment Vehicle as a Investment Company. Here are some facts about Mutual Funds. An Open-Ended Fund continuously makes new Shares available to the Public for purchase. These funds are professionally managed and often are able to negotiate and procure Investment vehicles at a discounted price that is not available to Retail Investors. Most Retirement Funds and Retirement Accounts prefer the ease and efficiency of Mutual Funds for Investment Vehicles. Open-Ended Funds can be Growth Oriented, or even Mixed with Alternative investments used as Products inside the Fund. And this is why they make a excellent vehicle for Exchange Traded Funds.

Exchange Traded Funds

By now I think your catching on to the fact Exchange Traded Funds can take many forms or basically be a Investment Company formed into one of three categories Unit Investment Trusts, Open-Ended Funds, Closed Ended-Funds. It is remarkable that when you breakdown the basics of “What a ETF is?” you find that most Exchange Traded Funds are a unmanaged UIT or a Mutual Fund. I do hope you learned some things reading this week’s article. And in conclusion stay tuned! I feel it’s only fair for me to revisit expand on Closed-Ended Investment Management Companies in the near future. But for today? After doing some heavy studying. I felt it was really interesting to write about the fact that 70% of the ETF’s in the OTC and Big Blue Chip Markets? Are UIT’s and Open-Ended Funds are just Mutual Funds. I hope you found this article interesting and educational. This was something I felt could be useful and I felt it would make for a great little article. In conclusion. I would say, stay tuned. Big NEWS next coming week. Thanks for stopping by. Please feel free to contact me. HERE.

Godspeed

Business Articles, Investment Vehicles

Treasury Inflation Protected Securities (TIPS)

What is (TIPS) Bonds/Fixed Income and How do Investment Advisors, Investment Banker, Stock Broker Professionals Calculate TIPS Payments?

Very interesting Topic has come up on my Study Plan this week inside the Fixed Income topic and Investment Vehicles. This post will go on to explain and demonstrate exactly “How” and “What” Treasury Inflation Protected Securities are used for as Investment Vehicles and the math that we use to calculate the Payments.

To make this simple according to the United States Treasury “(TIPS): are marketable Treasury securities whose principal amount is adjusted for inflation. They were first auctioned in January 1997 after the market expressed a strong interest in the inflation-indexed asset class. In 2009, 20-year TIPS were discontinued in favor of 30-year TIPS. Treasury now offers 5-year, 10-year, and 30-year TIPS.”

TIPS are used in Investment Portfolio’s for the purpose of staying ahead or keeping pace with inflation happening on the Consumer Price Index. The following article is “How Investment Professionals calculate and do the math for TIPS for your Portfolio. But first let’s watch more for The Money Guy Show explaining TIPS and How they are bought and used by Retail Investor and Investment Management.

TIPS are not just another Investment vehicle we use in Portfolio Management or as Investment Fund Managers. We must be highly selective on what make since at the time when we are building Investment Portfolios. Like other Treasury securities, TIPS are exempt from state and local tax. But! The TIPS interest and income on the principle are still taxed at the Federal Level for that year. Please have your Investment Counsel or Investment Advisor give you more information related to the Taxation of your own Investments. This post should not be used as Investment Advice and is strictly a informative guide to math of TIPS.

How to Calculate Treasury Inflation Protected Securities

It’s true when calculating TIPS that there is a part of this method that does involve compounding of the Coupon Rate and the Principle Semiannually. This is how we Make the Math Make Since. You need to know first, That we use the Nominal Yield as the Coupon and we also use the Principle value for our computation/calculations.

Let’s say for instance we have (TIPS) that pay’s 6% annually and then Inflation Rate is 4% for the next 3 years? Here is what happens Mathematically and how we see this Investment Vehicle work and keep pace with Inflation.

Let’s say you bought the 6% TIPS BOND and the Inflation Rate is 4% for the next three years.

You first need to understand the Coupon/Nominal Yield of 6% will be paid in two installments of 3% semiannually. And the 4% will be compounded and paid on the Principle of the Bond.

BOND is $1000 at par.

6months pass by… We are paid as the Bond Holder $1020.00,(2%+1000=1020.00) the first semi annual Dividend we are paid is $30.60.

6months later? We are paid another 40.20. Which now added brings our Bond Principle to ($1040.40). Our Second semi annual Dividend paid to us is $31.21

Year 1 Complete.

Year 2 after 6 months We are paid on the Principle and now Principle increases to (1,061.21). The math to get to this number is (1,040.40×102%=1,061.21) Our first Dividend for this year is paid to us $31.84. How we arrive at this dividend number? We take 1,061.21×3%=31.84

Six Months later our Principle is paid again (1,061.21×102%=$1,082.44) Our final semi annual year 2 Dividend is paid out. (1,082.44×3%= $32.47)

Year 3, six months pass and our Principle is paid (1,082.44×102%=1,104.09) Our first year 3 Dividend is paid out (1,104.09×3%=$33.12)

Six Months later our final year three semi annual Principal is paid (1,104.09×102%=1,126.17) Our final year 3 Dividend is paid out (1,126.17×3%=$33.78).

The Math is clear and so is the method we use to calculate (TIPS) Treasury Inflation Protected Securities. It’s easy, clean math. If you had trouble calculating the math here? Please feel free to email me and I would be happy to walk you through the math in a Video. You may be wondering why I wrote and posted this? Well truth is? I love this stuff and do it for fun. I know I am slightly bizarre. But in all fairness Mr. Bill Gross who is a fellow Navy Veteran and Bond Bad Ass who built the Bond Company PIMCO is also a life long student of Fixed Income and Investing Wisdom. Please do feel free to watch this video Documentary of Mr. Gross. It’s certainly is worth the watch!

However the proof is in the numbers. And rolling up your sleeves and learning new things is the backbone of what makes a Great Investor and Investment Professional. I hope you enjoyed todays post and learned something. Thank You for stopping by.