Alternative Access September 2019
WHEN THE PAST MEETS THE FUTURE A New and Exciting Opportunity Coming Your Way
Over the past 300 years, nontraditional investments have included things like lending to Greek shipbuilders, and the venerable Rothschilds, Lehmans, and Barings, who lent to foreign governments for war operations the same way James Pierpont Morgan financed the United States’ efforts domestically. Bonds were an instrument founded by Marcus Goldman, his eponymous firm being Goldman Sachs, which just turned 150 years old. In the book “The Merchant Bankers,” author Joel Wechsberg discusses some of the innovative deal-making that wealthy European families have engaged in for the past 300 years. Most people do not realize that many alternative investment conventions we use today, like venture capital and private equity, were created by wealthy European family businesses. These family businesses first started as successful merchants or industrialists, and their ability to invest in opportunities when others couldn’t earned them the name “merchant bankers.” Some merchant banking activities involve what is now called collateral-based lending: lending against an asset you hold as collateral. In the past, these were esoteric
fine art-based loans, a form of collateralized lending where families such as the Lazards would lend money to kings and governments and use their high-end art as collateral. Think museum-quality pieces such as Picasso, Rothko, Rembrandt, or Van Gogh. After all, once a country is taken over by war or other means, the first items to be carried home are those priceless works of art. They are status-enhancing, transportable, and surprisingly liquid. Today, these artworks by Picasso, Rothko, Rembrandt, Van Gogh, and other household names are still highly- coveted pieces of collateral. I’ve had the pleasure of knowing Alan Snyder for about a decade. Alan has run his own family office, called Shinnecock Partners, for 35 years and has created a bespoke investment product that provides impressively liquid passive income. During his tenure as a merchant banker and head of his own single-family office, Alan has profitably pioneered several aspects of alternative lending and has influenced platforms such as Prosper.com. If you have ever had marginal credit, you can thank Alan for inventing the Discover Card in 1985 when he was at Morgan Stanley. This card paved the way for marginal borrowers to gain access to a relatively low-interest rate credit card. His consistent track record and talent for finding opportunities are what drive his incredible success at Shinnecock. Today, his family office at Shinnecock in Beverly Hills owns and operates one of the industry’s preeminent fine art-based lending platforms. When
insurance called “Disaster Strikes Your Fine Art Collection,” which raised a few eyebrows in the established high-end fine art market, he has influenced the market to adapt to new, tighter covenants in such insurance products. He’s effectively influencing the terms and structuring the risk away from us. As a result of this tightening and controlling the market, Dandrew Partners has been able to arrange a strictly optional leveraged tranche to investors. We have put together terms to leverage the balance sheet of another single-family office (SFO) to provide a revolving debt facility on this, collateralized by the partnership’s equity into that particular tranche. Therefore, this L-Tranche will only be available to investors who have indicated that they want to be in that tranche. Leverage brings inherent risks to marriages and investment partnerships alike, so it needs to be disclosed upfront. The unlevered tranche is called the S-Tranche for Shinnecock. We’re patient and want to remind you that it takes time and brainpower to set up and let the lawyers paper the docs correctly. Sometimes lawyers don’t execute them the way you expect, and I’ll tell you why this is important in a moment. We’ve been working to set up beneficial terms for you, our investors, for close to a year now, and this is the result of our hard work. A bespoke product for affluent, sophisticated investors that provides the following: 1. Liquidity After 12 months, you can remove all or part of your initial capital contribution. You will need to send us a notice 30 days prior. 2. Optional Leverage Check the box if you want to juice your returns. Or not. 3. Quarterly Distributions This pays out cash flow distributions paid quarterly.
Alan goes into something, it’s a niche market where few players have walked the path prior.
And as a direct credit to Alan writing an academic paper on the topic of fine-art
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4. Significantly Lower Barrier to Entry You can club in with us. I’m placing $100,000 from the proceeds of my mother’s estate into this for the very reasons I’ve explained here. That is also the minimum ticket size we’d like for our LPs to co-invest alongside us at for either tranche. The next tranches will probably have a higher minimum of around $500,000 to accommodate our larger families, who have investment minimums for fixed income alternatives here. Right now, we’re seeing what you, our investors, want — leverage or unleveraged — so we can plan future structures. 5. ERISA Eligible It costs a fortune to craft an IRS compliant structure that allows for ERISA accounts to participate. Over the years, I’ve seen Alan create the best legal structure I’ve encountered in any credit or debt fund. Three law firms and many dead brain cells later, Alan’s been able to create the correct legal structure that allows for SDIRAs to invest directly into a US fund via an offshore leverage blocker structure —which is usual for these types of deals — and with no effective connected income for tax-qualified plans to invest in debt fund. In fact, this is could be the consummate product to put into your SDIRA because if a special opportunity comes along (distressed, special situations) — and you know there will be in the future — you can reallocate into something else while not having to have sit on cash for an entire year or two, all while getting a current cash flowway above money market yields. We’re very proud to be working with Alan. His decades worth of wisdom has benefited me when I needed it most, and I invite you to join this special club we’ve created for you so you can benefit too. Just wait until you see the deal toys we have planned for you later! They are really cool looking, and they will impress your coworkers and friends. This opportunity is for investors who want liquidity within 12 months and are looking for 8% and above returns with ostensibly better risk levels, insurance, security, and liquidity than that of a CD or money market account. If you fit in this category of sophisticated investor, we look forward to having you co-invest alongside us. This will be an evergreen investment. We’ve designed it purposely with all of these rich features unrivaled in comparison as far as security, cash flow, liquidity and insurance. It’s also a perfect first investment for newer investors to gently get to know us better and see howwe work and get to appreciate our culture and our values. I can personally attest to the level of detail and granularities that Alan and his team have built — truly world-class.
Stratfor: War in the Middle East Becomes Increasingly Likely
The United States is sending additional forces to the Persian Gulf as Iran prepares and mobilizes its army. Together, these countries’ actions are significantly increasing the possibility of war. This should also affect insurance rates, which will soar. Pepe Escobar of Asian Times writes this: Oil derivative specialists know well that if the flow of energy in the Gulf is blocked, it could lead to the price of oil reaching $200 a barrel (actually $1,000 a barrel according to Goldman Sachs), or much higher over an extended period. Crashing the derivatives market would create an unprecedented global depression. Trump’s former Goldman Sachs’ treasury secretary Steve Mnuchin should know as much. A series of studies hit President Trump’s desk and caused panic in Washington. These showed that, in the case of the Strait of Hormuz being shut down, whatever the reason, Iran has the power to hammer the world financial system by causing global trade in derivatives to be blown apart. The Bank for International Settlements said last year that the “notional amount outstanding for derivatives contracts” was $542 trillion, although the gross market value was put at just $12.7 trillion. Others suggest it is $1.2 quadrillion or more. It all has to do with the Strait of Hormuz. Blocking the Strait could cut off oil and gas from Saudi Arabia, United Arab Emirates, Iraq, Kuwait, Bahrain, Qatar, and Iran — 20% of the world’s oil. There has been some debate regarding if this could occur. The discussion is whether the U.S. 5th Fleet, which is stationed nearby, could stop Tehran doing this, and if Iran, which has anti-ship missiles on its territory along the northern border of the Persian Gulf, would go that far. The derivatives clock is ticking. The great Bilderberg secret of 2019 had to do with why, suddenly, the Trump administration has decided that it wants to talk to Iran ‘with no preconditions.’ Tehran has not voiced this “nuclear option” openly. And yet General Qasem Soleimani, head of the Iranian Revolutionary Guard Corps’ Quds Force and a Pentagon bête noire, evoked it in internal Iranian discussions. The information was duly circulated to France, Britain, and Germany, and the EU-3 members of the Iran nuclear deal (or Joint Comprehensive Plan of Action) also caused a panic.
I look forward to co-investing alongside you and Alan in this.
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THE WEAKNESS IN THE WORLD FINANCIAL SYSTEM AND AMERICA’S OBSOLETE MILITARY
We have often discussed the 2.5-quadrillion derivative problem that would explode in the event that the Strait of Hormuz was closed by Iran and which would cause the world financial system to implode into the greatest world depression in history. This discussion is below the military analysis coming next. This derivative and military problemwere the main topics of the recent Bilderberg Group Conference. It was considered essential that this danger not be discussed in the world press, as the danger itself might cause a crisis. This report will concentrate on the inability of the United States to project military power in any meaningful way, whether in Europe for NATO, which is a myth, or against Iran.
The same applies in the Middle East as Iran has enough missiles to knock out the U.S. bases while the Patriot, Aegis Defensive Missile System, and the THAAD are relatively worthless against advanced Iranian missiles. The obsolescence of the U.S. Navy is discussed below, making it impossible to project force again, as we saw in the IraqWar. The U.S. finds itself in a catastrophic situation of its own making. “The United States does not have the military power to keep the Strait of Hormuz open, and its carrier task forces must flee if they are within range of Russian and Chinese anti-ship missiles lining the coast of Iran, which are the most advanced in the world,” said General Barry McCaffrey, former assistant to the chairman, joint chiefs of staff (JCS), and director of strategic plans and policy, in a conversation with me at lunch at the Harvard Club. “If the Strait of Hormuz is closed, the price of oil will rise to a $1,000 a barrel, representing over 45% of the world GDP, crashing the 2.5-quadrillion derivative market and creating a world depression of unprecedented proportions,” said the Goldman Sachs oil-derivative specialist in response to my question at a BCA Conference based on internal stress tests.
In Europe, the main proponent of U.S. power is its preponderance of air power, but the F-35 is already obsolete before it can be used, and NATO will be destroyed in
minutes rather than months based on the immediate destruction of all NATO airfields within 10 minutes of commencement of hostilities by Russian missiles.
By David K. Lifschultz, CEO of Genoil, Inc. and the Lifschultz Organization of New York City founded in 1899.
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