Artifex Private Equity Opportunities - Week of April 8 2024

Artifex Private Equity Opportunities - Week of April 8 2024

April 09, 2024

One of my activities over the last several years has been researching and implementing additional tools that we can use to enhance the risk and return profiles of our client portfolios.  A major focus of these activities is the world of alternative investments, or investments that are less correlated with the public stock and bond markets.  Typical asset types that may be considered as "alternatives" include commodities, precious metals, real estate, infrastructure projects, farmland, art, hedge funds, private equity (private company stock), private credit (private lending), private real estate - (direct or via a fund), venture capital, etc.

The options cover the spectrum of risk / return metrics, so there is the potential for detailed customization for our clients.  The primary motivation for including assets like this in a portfolio is to enhance the risk and return characteristics of the portfolio.  Many RIA firms like ourselves are currently recommending 30-40% of their portfolios in alternatives, and are reducing both public bond and stock holdings to accommodate this.  Institutional investors, such as endowment funds and pension plans tend to have at least 30% and as much as 80% in alternative / private holdings.

Without going too far down the rabbit hole in this email, I will attempt to keep you informed about general developments in this space going forward.  For those of you who are interested in this approach, please contact me directly to discuss the appropriateness of various strategies for your accounts.

--Doug Kinsey, CFP, CIMA

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Opportunities in SpaceX and Open AI

I have done a lot of research on private equity funds and individual stock opportunities over the last year.  The number of platforms that now offer these types of investments is growing exponentially, many of them directed at the investing public through social media, etc.  It is essential that you take a very critical look at any of these supposedly great opportunities.  I recently saw a promotion for SpaceX where the provider was promising "no ongoing management fees or carry ("carry" being the term for the percentage of profit the sponsor takes before the investors)."  Upon closer inspection, this particular firm stated that the way they make their money is by buying the shares for a set price and then marking them up before sale to investors.  In other words, they are making their money from the bid / ask spread.  In their SpaceX offering, the price they are quoting to investors is somewhere in the range of $180/share.  Most indications in the private market show the shares most recently trading around $100 each.  That is a SIGNIFICANT markup and is hugely detrimental to investors.

On the flip side, I have established a relationship with AG Dillon & Co in NY, and have met with Aaron Dillon at length.  He is a veteran of the investment profession, with deep experience in creating ETFs and in trading at well-known Wall Street firms.  Aaron has a particular affinity toward secondary private stock transactions.  He researches marketplace pricing for these transactions and develops his own reasonable valuation.  He then negotiates with the seller for best pricing.  He has also created indexes of leading private stocks for tracking purposes. For his services, he typically charges a .30% management fee and 10% carried interest. Very reasonable compared to other firms.  He only works with clients of selected RIAs, such as ourselves.

He is putting together two funds that will separately hold SpaceX and OpenAI.  He will either be buying the stock or shares of another fund that holds the stock of these firms, and will hold them until a liquidity event occurs (sale of the company or IPO), at which point, the shares will be sold and proceeds delivered to investors.

SpaceX has approximately $30B in revenues, and has a proven model for ongoing success with a virtual monopoly in space and satellite capabilities.  Rumors are that the company will spin-out Starlink and IPO the business.

Open AI has substantial market share and a strategic partnership with Microsoft.  

For additional details on SpaceX

For additional details on Open AI

Both of these opportunities are closing this week, so if you are interested, let me know ASAP.  The minimum investment is $2,500, and the shares can be held at Schwab in virtually any type of account.  

Understand, we are making no projections on the future value or performance of these investments, and investments in private equity should be looked at as if none of your money may be returned.  We will have a discussion about the proper way to include this in your portfolio.  Also, you must be an accredited investor to participate in these opportunities, which means that you meet one of the following criteria:

  • $1 million of net worth, or joint net worth with a spouse that exceeds $1,000,000 exclusive of your primary residence.
  • Have individual income of $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

If you are interested in either of these offerings, please let me know before this Friday, as that is the final cutoff date for indications of interest.

You may call me at 855-752-6644 or email me at doug.kinsey@artifexfinancial.com