Applied Real Intelligence LLC ("A.R.I."​)

Managing General Partner & Chief Investment Officer

Sun Life Investment Management

Director, U.S. Fixed Income

Deutsche Bank

Credit Trader

Scotiabank

Investment Banker

Thomson Reuters

Corporate Advisor

Zack Ellison, CFA, CAIA, is the Founder, Managing General Partner, and Chief Investment Officer of Applied Real Intelligence (“A.R.I.”).  A.R.I. is a Los Angeles-based venture debt investment manager focused on providing financing solutions to innovative, high-growth, companies in recession-resistant sectors and underserved regions in North America.  Mr. Ellison leads A.R.I.’s investment activities, including sourcing, due diligence, structuring, execution, and portfolio management.

Previously, Mr. Ellison was Director, U.S. Fixed Income at Sun Life Financial, where he was responsible for corporate credit investing. Prior to Sun Life Financial, he was a corporate bond and credit default swap trader at Deutsche Bank. During the Global Financial Crisis, he was a banker focused on leveraged loans within the media and telecom sectors at Scotiabank.

Mr. Ellison is a frequent speaker at financial industry conferences, where he has presented his views on how companies and the financial markets need to innovate, adapt, and evolve to optimize risk and return.  He has been a featured speaker at events hosted by CFA, CAIA, Risk Magazine, Euromoney, Bloomberg, TABB Forum, 100 Women in Hedge Funds, Fixed Income Leaders Summit, and Private Equity Wire, among others.

Mr. Ellison holds an MBA from The University of Chicago Booth School of Business and an MS in Risk Management from New York University’s Stern School of Business. He has earned the Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA) designations.

Currently, Mr. Ellison is a Board Member of the CFA Society of Los Angeles, a Board Member of the Southern California Chapter of the CAIA Association, and the West Coast Regional Director of the Hedge Fund Association. He is also a member of the Milken Institute’s Young Leaders Circle (YLC) and Tech Coast Angels (TCA), the largest angel investing group in the United States.

Adjustable Rate Bonds: A Paradigm Shift in Investor Thinking

In a recent interview with Brian Kasal, Founder of FourStar Wealth Advisors LLC, we discussed how floating-rate investments are a great way to hedge investment risk related to inflation and rising interest rates.

#investing #money #interestrates #wealthmanagement #RIA

Zack Ellison, CFA, CAIA

Shares of SVB Financial Group (SVB) fell by over 60% while the four biggest banks lost $52 billion (JPMorgan Chase & Co. lost $22bn, Bank of America lost $16bn, Wells Fargo lost $10bn, and Citi lost $4bn).

I traded bank bonds, CDS, and preferred stock at two $1 trillion firms (Deutsche Bank and Sun Life) for many years and can provide some insight for panicked investors and borrowers.

Banks have been caught off guard by the Fed’s rapid increase in interest rates and the draining of excess liquidity from the financial system.

This has concurrently led to a flight of customer deposits and a pile of losses on bank balance sheets (as I explain below).

1.  Over the past few years, with the financial world awash in liquidity, deposits soared at banks.

2.  Banks invested this money primarily in fixed income securities, which are sensitive to interest rate hikes.

3.  As the Fed began to hike interest rates, the value of the bonds that the banks owned declined (i.e. yields go up, bond prices go down)

4.  It appears that banks, some more than others, were caught off-guard by the speed and magnitude of the interest rate hikes.

5.  The fall in the value of the bonds has created significant (unrealized) losses for banks. 

6.  Meanwhile, depositors are fleeing because there are higher yields available in lower risk investments.  For instance, SVB deposits yield 2.3% while the 6-month U.S. Treasury Bill is currently yielding 5.3%.

7.  As deposits fled, SVB had to sell some of its bond holdings to fill the funding gap (thereby moving the bonds from the hold-to-maturity (HTM) to available-for-sale (AFS) status).

8.  HTM and AFS are two different accounting methods used by banks to record their investments in debt securities. For HTM securities, any unrealized gains or losses are not recognized in the income statement. However, if banks want to sell securities, they are marked as AFS, and any unrealized losses are recognized in the income statement.

9.  In simple terms, SVB had to sell AFS securities to cover the shortfall created by customers who were withdrawing deposits. These sales (at a loss) created a $1.8 billion loss on SVB’s income statement.

10.  To make up for this loss, SVB announced they were raising $2.25 billion through a mix of common and preferred stock.

While all banks have been impacted by the trends of rising interest rates and deposit flight, SVB was hit particularly hard because of their heavy reliance on deposits (89% of liabilities) and the technology sector which flooded the bank with deposits that were invested in fixed income securities at the worst possible time. 

Lots more to come…

#technology #banking #riskmanagement #interestrates #money #stockmarket #venturecapital #venturedebt 

Which of these legendary investors dislikes crypto the most?

“Sometimes I call it crypto ‘crappo,’ sometimes I call it ‘crypto s---.’ It’s just ridiculous that anybody would buy this stuff…It’s totally absolutely crazy, stupid gambling.” – Charlies Munger, Vice Chairman of Berkshire Hathaway, at the annual meeting for the Los Angeles-based newspaper publisher Daily Journal on 2/16/23

“I think all that's been a waste of time and why you guys waste any breath on it is totally beyond me. Bitcoin itself is a hyped up fraud. It's a pet rock.” – Jamie Dimon, CEO of JPMorgan Chase & Co., as told to CNBC at the World Economic Forum in Davos on 1/29/23

“I actually believe most of the companies are not going to be around.” – Larry Fink, CEO of BlackRock, at the The New York Times DealBook Summit on 11/30/22

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything." – Warren Buffett, CEO of Berkshire Hathaway, at the company’s annual shareholder meeting on 4/30/22

#bitcoin #cryptocurrency #investing 

NEW FUND LAUNCH

Applied Real Intelligence LLC ("A.R.I."​) has launched its A.R.I. Venture Debt Opportunities Fund for Qualified Clients in response to significant interest from Registered Investment Advisors (RIAs), wealth advisors, and their affluent clients who are seeking higher returns, greater safety, and low correlation to other assets in their portfolios.
 
Venture debt has delivered annual returns of 15% to 20%-plus with loss rates of less than 0.25% over the last two decades. Moreover, its returns have been less volatile and exhibited minimal correlation with other asset classes, establishing it as a highly effective investment strategy.
 
While this type of fund offering has traditionally been available only to institutional investors with minimum commitments greater than $1 million, A.R.I. is now providing access for the first time to Qualified Clients and Qualified Purchasers via Schwab, Fidelity, and other major custodians. 
 
A.R.I.’s Qualified Client Fund focuses on exclusive investment opportunities with equity-like returns and the risk of senior debt by providing short maturity, floating-rate loans, combined with equity participation rights, to the most promising high-growth technology companies in North America.

To learn more about how to seamlessly invest, please visit WWW.ARIVC.COM or email our Investor Relations team at IR@ARIVC.COM.

#investing #wealthmanagement #RIA #investmentmanagement #assetmanagement #alternativeinvestments

A few more tidbits of wisdom from Warren Buffett and Charlie Munger in Berkshire Hathaway's 2023 shareholder letter:

Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying.  - Charlie Munger

There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero.  - Charlie Munger

You have to keep learning if you want to become a great investor. When the world changes, you must change.  - Charlie Munger

Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never. - Charlie Munger

Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.” - Warren Buffett

I [Warren Buffett] will add to Charlie’s list a rule of my own: Find a very smart high-grade partner – preferably slightly older than you – and then listen very carefully to what he says. - Warren Buffett

#investingadvice #investing #wealthmanagement #stockmarket #learning 

If you are a certified financial planner recommending crypto for your clients, you risk losing your accreditation.

The CFP Board issued a recent report stating that Crypto-Related Assets:

- Can be speculative and volatile investments, and this volatility can have a particularly negative effect on investors

- Are difficult to analyze and present challenges to CFP® professionals seeking to make informed investment decisions (with even knowledgeable investors experiencing difficulty evaluating these assets and separating “facts from the hype”)

- May present unique custodial risks that expose investors to heightened risk of theft or loss

- Raise valuation issues because they may not be subject to commonly-accepted valuation methodologies and may not be subject to consistent accounting treatment or traditional reporting requirements

- May be unregistered or otherwise offered by or through providers who are operating outside of or not complying with existing regulatory frameworks

- May be subject to additional regulation, which may evolve in unpredictable ways.

A CFP® professional must consider each of these and other attributes and risks when providing Financial Advice about cryptocurrency-related assets.

Sounds like a whole lot of work and #risk as an advisor. I hope that CFA Institute and CAIA Association soon follow suit with updated guidance.

#bitcoin #crypto #cryptocurrency #riskmanagement #wealthmanagement #investmentadvisor #RIA #CFP #CFA #CAIA #investing

Applied Real Intelligence (“A.R.I.”) Launches Venture Debt Opportunities Fund for Qualified Clients Bringing Exclusive Access to Wealth Advisors and Affluent Clients for First Time


Who Is Applied Real Intelligence (A.R.I.)?

Applied Real Intelligence LLC (“A.R.I.”) is a Los Angeles-based venture debt investment manager focused on providing financing solutions to innovative, high-growth, venture-backed companies operating in recession-resistant sectors throughout North America.


What Does A.R.I. Do?

A.R.I. empowers institutional investors and family offices by providing access to innovation as an asset class while democratizing the availability of capital for founders of early-stage companies.


Why Invest With A.R.I.?

A.R.I. delivers exclusive investment opportunities with equity-like returns and the risk of senior debt by providing short maturity, floating-rate loans, combined with equity participation rights, to the most promising high-growth technology companies.


How To Invest with A.R.I.?

A.R.I. runs multiple funds and recently launched a Venture Debt Opportunities Fund for Qualified Clients in response to significant interest from Registered Investment Advisors (RIAs), wealth advisors, and their affluent clients who are seeking higher returns, greater safety, and low correlation to other assets in their portfolios. 


How To Learn More?

Read the Press Release: https://lnkd.in/dSm-c_UY)

Visit A.R.I.'s website at WWW.ARIVC.COM.

Email A.R.I.’s Investor Relations team at IR@ARIVC.COM.

#investing #wealthmanagement #financialadvice #financialadvisor #financialplanning #RIA 

Applied Real Intelligence LLC ("A.R.I."​), ADISA, Institutional Limited Partners Association (ILPA)

I get asked by investors and startup founders every day to explain the venture debt market. 

In a recent interview, I explained the competitive landscape of the bank and non-bank venture lending markets. --> SEE ATTACHED VIDEO

Below is a BRIEF OVERVIEW OF VENTURE DEBT:

Venture debt consists of loans made to venture-backed startups that have reached a growth or expansion stage. 

These loans are typically made to Series B through Series D companies that are producing revenue and can service debt payments. 

Typically, a loan is made three to six months after a company has completed its equity raise and is designed to provide growth capital for founders to develop new products, enter new markets, expand their marketing and so on. 

Venture debt can be a cheaper, minimally dilutive alternative to equity financing.

In fact, the biggest differentiator between venture debt and venture equity is that venture debt is a lot less dilutive; equity dilution occurs when a firm’s owners sell shares in their company to raise capital. 

Venture loans are typically three to four years in maturity. The lender also gets some equity upside in the company through warrants worth 5 to 10 percent of the debt. 

Even with this equity upside, the financing package is much less dilutive, and much less expensive for founders, than a straight equity raise.

#venturedebt #venturecapital #startups #investing #startup #founders #startup #innovation #funding #startupfunding 

Which credit ETFs experienced RECORD OUTFLOWS in February?

There was an unprecedented exodus from credit ETFs last month with swaps contracts showing the Federal Reserve’s policy rate will hit 5.5% in September. 

Three of the most heavily traded credit ETFs had record outflows.

$4.9 billion was withdrawn from the $12.8 billion iShares iBoxx High Yield Corporate Bond ETF (HYG). 

The $33 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the $7.4 billion SPDR Bloomberg High Yield Bond ETF (JNK) also posted their biggest monthly outflows ever.

If you think this is bad, wait until credit spreads start widening. It's going to get ugly.  

We're at risk of running into stagflation (high inflation + slow growth) which will decimate bond markets with the double whammy of high base rates and higher credit spreads.

Where's the money going? 

1. Cash 

2. Floating-rate investments that offer significant upside and strong downside protection (like Applied Real Intelligence LLC ("A.R.I."​)'s Venture Debt Opportunities Fund).

Learn more: https://lnkd.in/exjTSZEY

#investing #finance #wealthmanagement #riskmanagement #bonds #fixedincome #ETF #venturedebt #money

I'll be in Miami on Monday, March 6th to attend the Greenwich Economic Forum in Coconut Grove and BTIG's Fixed Income Reception in South Beach.

I'm in Miami to meet with investors about Applied Real Intelligence LLC ("A.R.I."​)'s just launched Venture Debt Opportunities Fund for Qualified Clients. If you're in town, drop me a message on LinkedIn.

A.R.I. launched our new fund in response to significant interest from Registered Investment Advisors (RIAs), wealth advisors, and their affluent clients who are seeking higher returns, greater safety, and low correlation to other assets in their portfolios.
 
Venture debt has delivered annual returns of 15% to 20%+ with loss rates of less than 0.25% over the last two decades. Moreover, its returns have been less volatile and exhibited minimal correlation with other asset classes, establishing it as a highly effective investment strategy.
 
While this type of fund offering has traditionally been available only to institutional investors with minimum commitments greater than $1 million, A.R.I. is now providing access for the first time to Qualified Clients and Qualified Purchasers via Schwab, Fidelity, and other major custodians.
 
A.R.I.’s Qualified Client Fund focuses on exclusive investment opportunities with equity-like returns and the risk of senior debt by providing short maturity, floating-rate loans, combined with equity participation rights, to the most promising high-growth technology companies in North America.

If I don't see you in Miami, please visit WWW.ARIVC.COM or email our Investor Relations team at IR@ARIVC.COM to get in touch.

#investing #wealthmanagement #RIA #investmentmanagement #assetmanagement #alternativeinvestments #familyoffice #familyoffices #miami #venturecapital #venturedebt #technology #startups

Fed Chair Jerome Powell told U.S. lawmakers today that “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

Although inflation "has been moderating," since its peak last year, Powell said, "the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy."

"To restore price stability, we will need to see lower inflation in [the labor intensive services sector], and there will very likely be some softening in labor market conditions," Powell said.

The current 3.4% unemployment rate is the lowest since 1969 and wages remain strong. 

From what I can see, inflation isn’t close to being tamed and we are running a significant risk of landing in a devastating stagflationary environment.

What do you think? 

Where does the Fed Funds Rate end the year?

Can we achieve a soft landing? 

#interestrates  #Fed #FOMC #debt #fixedincome #economy

Rising Interest Rates Now - Higher Credit Spreads Later 

Investors were startled back to attention today following comments from Fed Chairman Powell that indicated inflation remains far from under control, with interest rates likely to move higher and stay there for longer. 

Every time inflation is mentioned, and as a successful former bond trader at two $1 trillion+ firms, I feel the need to warn investors about the significant risk of owning corporate bonds at this time.

Here's how I think this will play out...

1. Interest rates will rise further to combat inflation - which is stickier than most investors are pricing in.

2. Higher interest rates will lead to slower economic growth, resulting in reduced cash flow and lower profits for corporate borrowers.

3. Higher (base) interest rates will make it more expensive for companies to borrow money.

4. Reduced cash flow (#2 above) and higher borrower costs (#3 above) will lead to an increase in the risk of bond defaults.

5. Investors will require higher yields to compensate them for increased risk (#4 above).  Investment grade corporate bonds spreads are the lowest (i.e., tightest) they have been relative to the 6-month T-Bill in over 20 years. In simple terms, this means investors are getting less compensation now for taking credit risk than they have in decades.

6. Thus, owners of corporate bonds will get hit with a DOUBLE WHAMMY OF HIGHER INTEREST RATES AND WIDER (HIGHER) CREDIT SPREADS this year. Investors buying corporate bonds now are playing Russian Roulette with five of the six chambers loaded.

7. Investors should strongly consider selling corporate bonds and diversifying their portfolios with other asset classes to mitigate the significant interest rate risk and credit risk of corporate bonds.

8. An attractive alternative (pun intended) to corporate bonds is FLOATING-RATE loans that also offer equity participation (through warrants).  

9. These floating-rate products, such as A.R.I.'s Venture Debt Opportunities Fund, provide a DOUBLE HEDGE against rising interest rates and inflation. They also offer significant diversification benefits with low correlation to the stocks and bonds.

10. The Venture Debt Opportunities Fund offered by Applied Real Intelligence LLC ("A.R.I."​) can be accessed seamlessly through Schwab, Fidelity, and other major custodians.

#investment #investing #wealthmanagement #interestrates #riskmanagement #alternativeinvestments 

VC FUNDS FACE CHALLENGING FUNDRAISING ENVIRONMENT

The challenges for raising capital as a VC fund include:

1. Volatility in the macroeconomic factors affecting institutional-investor appetite, leading to a slowdown in public exits and acquisition activity.

2. LPs experiencing the denominator effect, becoming overexposed to the asset class and halting new commitments to VC funds for the year.

3. Increasing concentration of capital in larger-sized funds led by experienced managers, making it difficult for new managers to attract investment.

4. The persistent fear of a global recession affecting investor sentiment.

5. Increasing competition in the market, with a record annual high of $162.6 billion closed across 769 funds in 2022, making it difficult for funds to stand out.

While traditional VC funds face challenges in raising capital, venture debt funds have seen a significant increase in fundraising as investors seek uncorrelated and unique exposures. 

Investing in venture debt fund can provide investors with the potential for equity-like returns while also reducing volatility and drawdown risk. 

#venturecapital #venturedebt #fundraising #investing 

As the founder of Applied Real Intelligence LLC ("A.R.I."​), an investment firm specializing in venture debt, I have been closely monitoring the situation with SVB and other regional banks. 
 
Previously, I traded bank and financial company bonds, CDS, and preferred stock for many years at two $1 trillion firms, Deutsche Bank and Sun Life.
 
Here are the key points to note:
 
• SVB is currently experiencing a bank run, causing investors and customers to panic.
 
• SVB shares plummeted by 60% on Thursday and an additional 62% this morning, leading to a trading halt.
 
• The underlying cause of the bank run on SVB is detailed in
my LinkedIn post:
https://lnkd.in/g_RrpjZ3
 
• SVB has cancelled its planned $2.25 billion share sale and now requires rescue.
 
• Bill Ackman, a prominent #hedgefund manager, tweeted "The failure of SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred #bailout should be considered."
 
• In my opinion, a large bank purchasing #SVB is the most likely outcome to restore confidence.
 
• The buyer would be getting a steal considering SVB's prominence in the #technology and #innovation communities. SVB has far greater relevance in #SiliconValley than its closest competitors and has access to VCs and founders that every bank craves.
 
• SVB is the largest player in venture debt, with several major players attempting to enter the space, including Blackstone, Oaktree Capital Management, L.P., KKR, and Wellington Management, among others.
 
• JPMorgan Chase & Co. is the most likely candidate to purchase SVB. JPM has expanded its venture lending business with the hiring of many SVB employees focused on #venturedebt.
 
• Citi and Wells Fargo are other potential buyers, given their previous attempts to make an impact in the venture ecosystem and their capacity to absorb SVB and restore confidence quickly.
 
• SVB's impact on the innovation funding economy is significant, with the bank underwriting over 60% of venture loans annually.
Other commercial banks providing loans to startups (Pacific Western Bank, Signature Bank, Comerica Bank) are experiencing similar stress and will pullback lending efforts.
 
• Irrespective of the specific outcome, the current situation creates a huge hole in the innovation funding economy that will need to be filled by non-bank lenders, including Applied Real Intelligence LLC ("A.R.I."​).
 
• Much like non-bank lenders who generated phenomenal returns in the period following the #GFC (2010 - 2015), venture debt providers will benefit from the demand for capital far outstripping supply.

#banking #riskmanagement #interestrates #money #stockmarket #venturecapital #venturedebt #bankrun #financialcrisis 

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