P. 9

1. Liquidity: Unless you are a pension fund or a signif- icant institution why would you not want to be in a regulated and liquid structure?
2. Disclosure: A lack of liquidity usually comes with low levels of disclosure. Transparency has been a buzz word for some time but is still lacking in many invest- ment opportunities. A recent FT article commented on Lendy, the peer to peer business which reported a 12.3% non-performing loan book. However, FT analysis showed 62% of the loan book was outside its terms, meaning payments were at least one day overdue, begging the question - is there adequate disclosure here on the underlying portfolio perfor- mance? Investors need to know where exactly their investment is and what the ownership structure or security is, particularly when it comes to investments via platforms or mini bonds. Here the devil is in the detail.
3. Assumptions: Nearly every investment requires assumptions to be tested; for example renewable energy investments sound safe and boring but changes in assumed future power prices can make large differences to asset values today or what assumptions might an alternative lender use around default rates and are these likely? Some tweaks
in assumptions here, and movements there, have larger effects on values than others; the key risk is in identifying the big drivers of potential NAV changes and stress testing assumptions.
4. Leverage: Put simply, one should not just look at
the rate of return on an investment but the leverage required to achieve that return; if one business is using more leverage then there are additional risks – and that should mean an additional return. Investors’ eyes are usually drawn to the headline return rates.
5. Valuations: Mark to market or mark to model? Is there an independent valuation agent as well giving additional investor oversight which investors can take comfort from. All RM funds have an independ- ent valuation performed daily or monthly.
6. Premiums/discounts to NAV: Listed investments can trade at a premium or a discount to published NAVs – this can provide an additional level of volatility even though the underlying portfolio value might be static.
RM Funds developed the VT Alternative Income Fund around three key defensive areas of the alternatives uni- verse namely Infrastructure, Specialist Real Estate and Alternative Credit.
The focus is on infrastructure assets with long-econom- ic lives that are essential to society such as schools, hospitals, and airports -cash flows are contracted and typically inflation-linked.
Specialist Real Estate can cover a range of more spe- cialist or esoteric real estate which is less exposed to the business cycle. At RM, we focus on two key themat- ic areas - ageing populations and technological change, and typically invest in assets such as care homes, GP surgeries, and distribution centres, data centres.
Alternative Credit encompasses all non-bank lending activities from, direct lending, asset finance & leasing and structured credit.
When we construct our portfolio, we start with a top down analysis of the business areas where our focus lies. At this point our attention moves to negative screen- ing against ethical guidelines – we then move through to specific bottom up company analysis – an area where the RM investment team have an edge, as experts in the areas of alternatives.
     9 DIY Investor Magazine | Dec 2018

   7   8   9   10   11