Water and Wine were once two forms of liquidity that PE firms don’t deal directly in. Not anymore. Last week PE world’s first wine-focused firm, Bacchus Capital Management, made its first investment. Today Aramid Capital Partners, a movie fund that backed the Oliver Stone film W., entered the market with a new fund.
If you ask me, this is the worst time ever for a super-specialized (and therefore super risky, I would think), “alternative strategy” fund to enter the market. Yet dozens are. And somehow, they’re finding the money.
I’m not just talking about run of the mill sector-focused funds. I’m talking about exotic vehicles designed to invest in revenue streams, aimed toward liquidity events I don’t quite understand.
These funds include art funds, life settlements, film and movie royalties. The strangest one I heard was a valuable coin fund, which makes me want to seriously re-evaluate my career as a business journalist.
Some of these are ridiculous sounding, but they prove that the need to differentiate is just as strong as it’s ever been. The one thing they have in common is they invest in something with a limited supply. Perhaps they’ll increase in popularity as investors rush to pour their money into tangible assets. Besides, LPs are eager to invest in the private sector while the stock market volatility plays out. Steven Huttler, a fundraising lawyer at Sadis Goldberg, told me, “LPs are hungry for these private non-traditional funds, and they aren’t afraid of over-specializing.”
As far as private equity is concerned, I believe the key to making super specialization worthwhile is diversification within your that specialty. Take Summit Global Management, a water rights fund based in Washington D.C. Jud Hill, a managing partner with the firm, told me that to invest in water rights, his firm will take private the 100 year rights for water from municipalities or ranchers. Beyond that, his firm can take control stakes in companies that treat or transport the water, or capitalize on water scarcity in other parts of the country by selling “virtual water,” or make real estate plays for water storage, or re-zone water usage rights after buying it from towns looking to monetize their resources. “It’s really a theme and not a category,” he said.
UPDATE: I’ve now been informed of a fund that invests in rare and vintage guitars. In March, Anchorage Capital Partners raised $100 million for “The Guitar Fund.” This is starting to remind me of collecting baseball cards as a kid. Your mint condition Topps Nolan Ryan card might have been worth three bucks according to the Beckett guide, but it wasn’t worth squat if you could’nt find someone to pay that!
Earlier: Wine Fund Manager Not A Wine Drinker