The valuations of traditional investments such as shares, bonds and property could be stretched at current prices.
Recent market volatility has activated investor fears of a slide in asset prices. This has left some investors looking for places to put their money to work with returns that are not necessarily highly correlated with those of traditional assets.
One option for investing in alternate investments is through the Listed Invested Company (LIC) Blue Sky Alternative Investments Ltd (ASX: BLA).
Blue Sky Alternative Investments is an investment company with over $3.4 billion in fee-earning assets under management. The company has four pillars to its investment strategy.
Through its private equity strategy Blue Sky provides growth capital and late stage venture capital to rapidly growing businesses.
Through its real assets strategy the company has invested in what it describes as the most limiting factor in Australian agriculture – water. Blue Sky has invested in water entitlements, as well as agriculture infrastructure.
Blue Sky’s private real estate segment includes investments into real estate development in the US, student accommodation and retirement living. Lastly, the hedge fund strategy aims to deliver positive returns when other asset classes are doing poorly.
One of the primary reasons that one might invest in Blue Sky is its recent performance. Over the 11 years to June 30, 2017 the company had delivered a return of 15.9% per annum after all fees. That is an impressive track record over a reasonable time period. Although, past performance does not guarantee future performance, so they say.
Blue Sky has an impressive history of growing its assets under management. For example, in the 3 years from July 2014 to June 2017, Blue Sky more than quadrupled its fee-earning assets under management. This is important if you are looking to invest in Blue Sky as an LIC because the company earns profits from the fees applied to assets under management.
Further, Blue Sky is forecasting for continued growth in the coming years as it targets $5 billion in assets under management by June 30 2019. With its track record in growing assets under management, I wouldn’t bet against the company achieving its target.
At a P/E ratio of 57 and a Price to Book of over 6, the company is priced for growth. The real question may be whether it can continue to grow at current rates for an extended period of time. If so, the high price you will pay today (even after the market correction) would be more than justified in 10 years’ time.
While the primary reason for owning Blue Sky may be exposure to alternate investments, it is worth remembering that investing in Blue Sky as a LIC on the ASX will mean that the share price is subject to investor sentiment. For example, the share price took a hit in the recent market correction.
Much of the thesis for investing in Blue Sky depends on continued growth. The share price is expensive, but if the company can continue to provide exceptional returns that are not highly correlated with the returns of traditional assets it may not matter whether you pay 20, 30, or 60 times today’s earnings. I’m betting on an increase in demand for alternative assets over the next decade – I think it’s a buy.
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Motley Fool contributor Stewart Vella owns shares of Blue Sky Alternative Investments Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.