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The longer-term nature of Real Assets

After decades  of analysing and investing in financials and equipped with a strong sense for macro-economics  we, the founders of  Weisshorn Capital Partners Ltd abandoned liquid, listed equity financials to fully dedicate to alternative, real-assets.

One of the reasons was the realisation that listed capital markets e.g. trading financials were in fact efficient and as a consequence, lasting out-performance was difficult, if  not impossible to achieve. Further more, while being efficient, all the research  and number-crunching by thousands of MBA’s and physicists proved efficient but not effective as nobody was capable to predict the melt-down of the financial industry that was unfolding in front of their eyes. 

Although less liquid, real-assets combine investments in secular growth trends with some inflation protection
Alternative assets and in this sphere real-assets stand out in many ways. Firstly, their non-liquid nature requires a more long-term capital commitment and along with that a more long-term  view on markets. We prefer this view over short-termism where noise and sentiment influence each other to  compound to ever shorter trading cycles. In fact, as has been stated repeatedly, we only focus on tectonic trends that are propelled by multiple, mutually reinforcing  trends.

As is explained in more detail under “macro trends”  this is for example the confluence of population growth, soil erosion, emerging middle classes etc and their combined impact on the price of agricultural assets. Together with our partner in Uruguay we have done extensive research on agricultural investment opportunities. As a result we picked Uruguay as one of the most attractive places to buy farmland. Apart from the above factors farmland should have another, very important feature: inflation protection. We believe inflation protection and income generation are two key features of the coming years.

Fat-tail risks, sovereign debt crises, risk aversion and inflation protection
For the economy we see continued risk aversion and assess   the €-zone sovereign debt crisis as a far reaching event, with substantial impact on future government spending and economic growth. In the best of all worlds we expect to see years of muted growth and a constant flirt with recession. Needless to say that sub-trend growth will increase unemployment

In some European nations youth unemployment has already reached 40%. As a whole generation is about to be lost pressure mounts on political systems. In such an environment monetary policy is near certain to be accommodating. In other words, central bank rates will stay low and subdued growth plus safe haven impact, the yield curve is likely to be flattish.

Further, the likes of Germany are determined to maintain currency stability i.e. fight inflation, but we believe it is certain that politicians find it highly attractive to devalue government debt via inflation. It will be crucial how the BRIC and especially the Chinese economy perform in this scenario. Arguably, the justification and raison d'être of the Politburo is economic growth. Conversely, should the Chinese economy slow down, (food) inflation increase and or the housing market implode, we find it likely that revolutionary tendencies may spread out and synchronize

Continued growth of BRICs should put further pressure on resource prices
The consequences for China and for China’s foreign politics could be dramatic. Political aspects aside, this could prove to tilt the already fragile Western economies over the edge and into a dynamic downward spiral. On the other hand, as one would hope, should China maintain growth levels of around 8% then we may be spared the worst but at the same time, BRIC nations’ ferocious hunger for resources will grow  from ever greater bases.

In this scenario resource prices and agricultural commodities in particular are going to stay on elevated levels. Additional to population growth ever more people join the middle classes. An ever larger car fleet, more and more meat consumption, bio-diesel replacing food production, energy demand rising, political risks in oil producing countries, rising  incremental cost of new oil etc should be an ideal precondition for resource based, “grass-root-inflation”.

Under the light of this outlook we decided to focus on assets in the alternative asset spectrum that will do well and benefit from asset rotation out of previously perceived risk-free assets like Italian government bonds. We actively and constantly screen the market for assets and locations that could provide investors with stable income, in politically stable economies, inflation protection, downside protection against fat tail risks (e.g. €-zone break-down) and favourable upside even in this environment. And of course, we look for those assets that
are supported by tectonic shifts. We already mentioned Uruguay farmland as a crystallisation of our asset focus.














Asset Classes Corporate Venture Capital Fund Renewable Energy Real Assets Commercial Property Residential Property Agriculture