High-Yield Investing In A Rising Rate Environment

Ramin Kamfar, founded Bluerock in 2002 and serves as the firm’s CEO. He has over 30 years of experience in various aspects of real estate, mergers, and acquisitions, private equity investing, investment banking, and public and private financings.

Russ Alan Prince: Bluerock celebrates its 20th anniversary this year. What’s the driving factor(s) behind your success and where do you see Bluerock going from here?

Ramin Kamfar: We founded Bluerock knowing that individual investors must rely on their own abilities to manage their investment portfolios and properly diversify, now more so than ever. Given this backdrop, we have worked to build a diverse, alternative investment platform over the last twenty years that is tailored to individual investors and helps solve many of the challenges they face today. 

By way of example, for many years baby boomers’ parents worked a significant portion of their career for one major company and heavily relied on that company’s defined benefit plan for a significant portion—or even all—of their retirement savings. As defined benefit plans have been phased out over the past few decades, individuals have been obliged with managing their savings in defined contribution plans such as 401Ks and individual retirement accounts—IRAs. 

Our investment solutions facilitate properly diversifying beyond the conventional 60/40 portfolio, generating tax-efficient income, reducing portfolio volatility and correlation with the broader markets, and enhancing risk-adjusted returns. Our mission is to continue to develop and manage this growing suite of investment programs to meet the demands of the ever-changing investment landscape.  

Prince: What are the advantages of investing in real estate in this low-yield, high inflationary environment?

Kamfar: Institutional real estate has significant advantages over other asset classes in the current economic environment. For example, unlike fixed-income investments, the income component for many property types can meet or even beat inflation. Economic growth, supply constraints, and consumer demand can drive inflation or demand-pull inflation, which is currently the case.

For real estate, the current income returns are higher than stock and public REITs dividends, and also high yield bonds, consistent with recent historical averages. Strong growth drives demand for real estate which also drives higher rent growth and thus, higher values. 

Secondarily, higher inflation brings higher construction costs which limit new supply. This, in turn, increases rents as replacement costs rise. Real estate thus tends to exhibit characteristics of both stocks and bonds, with growth characteristics of stocks and income-producing characteristics of bonds.    

Prince: Describe Bluerock’s investment philosophy and how your programs are engineered to enable individuals to invest alongside the institutions and how you are able to provide meaningful income.

Kamfar: Bluerock’s investment philosophy is to identify asset classes that have generated historically strong returns with low volatility but have not been available to individual investors because of a lack of daily liquidity. The lack of access to these asset classes has significantly impacted individual investors’ investment approach compared to institutions that have been dependent on these asset classes to maximize diversification and generate income. This is due not only to the longer-term investment horizon of institutions but also to the high minimum investments typically required to invest in these attractive asset classes. These obstacles have made these types of investments out of reach for most individuals. 

To solve this problem, we continue to innovate and structure investment programs that greatly reduce the minimum investment requirement to as little as $1,000, provide more frequent liquidity opportunities, and truly allow individuals the ability to co-invest alongside some of the best-known and highest-regarded institutional investors. This investment approach is gaining traction as these types of programs are increasingly garnering more attention and capital from individuals who seek higher returns relative to risk and low correlation to equity and fixed income markets. Furthermore, we’re partnering with best-in-class sub-advisors with specific expertise in strategy execution to deliver above-benchmark returns and add an extra layer of oversight and due diligence.             

Prince: Does Bluerock see any alternative asset classes outside of real estate that may be attractive in the current market environment?

Kamfar: Given high inflation and the rising rate environment, investors are struggling to find compelling income options. We at Bluerock are excited about yet another historically institutional asset class that we are making available to individual investors. Senior secured loans, when invested in via a collateralized loan obligation, offer opportunities for high single-digit income returns, with floating rates that adjust to current interest rates. 

This is attractive given low-interest rates that fail to generate sufficient income, and persistent and increasing inflation, which erodes real yields. Additionally, the investment structure may generate attractive risk-adjusted returns with a low correlation to broader markets. We have been working to offer this investment class to individual investors in a ‘40 Act vehicle. 

Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals. Connect with him on LinkedIn.com.

To read more stories , click here

Leave a Reply

Your email address will not be published.