Alternative Access - March 2020

INVESTMENTS THAT HAVE SURVIVED HUMAN PLAGUES

A “black swan” is an event you never saw coming. COVID-19, commonly known as the coronavirus, could be considered a black-swan event. It will devastate a portion of the world before we know it, and perhaps the equity markets as well. That’s why we like real estate or fine art. They’re protected against any black swans. For my 30th birthday, my girlfriend at the time took me to Paris, and we went to the Louvre. Standing in there for hours, I looked at pieces of art that have survived the Black Death, locusts, bird flu, tsunamis, any war you’ve read about, and any other human-culling catastrophe you can think of. Fine art is a liquid asset and is often more valuable than a kilo of gold. You can insure art; it’s secured. This is exactly why we slowly rolled out a well-established, bespoke, fixed-income product that pays

a much higher interest payment and gives you that coveted liquidity.

the markets. That goes for oil too. These galleries have reputations on the line, and any murmur of impropriety will cause them certain and irreparable harm. Speaking of which, here’s who you don’t lend to: people who are too wealthy. Those, like Steven Cohen or Steve Wynn, can afford to tie you up in court just because they want to. Again, it’s about risk. Necessity is the mother of invention, and there is nothing out there that is as secured, insured, and liquid as art. If you must wait a whole year and you’re getting paid to wait, that’s great. Fine art won’t catch the coronavirus or diseases or get slapped with tariffs, and it won’t go out of style if a tweet targets it. Alan has done a great job of putting this platform together, and the best part is that by spending a small fortune on lawyers to get this whole structure IRS-compliant for ERISA-based pension plans, it’s designed to be used with self-directed IRAs. Investors in this fund will receive more information about the launch of the Beverly Hills Fine Art Society (BHFAS) later this year, and you will be invited to become a part of it. It’s going to be a lot of fun and include fun people, maybe even someone you recognize from TV. Otherwise, what’s the point really? We have also culled our list for nominees who will be invited onto the Board of Advisors for the BHFAS organization. Emails will be sent announcing the nominations.

It really feels great to say this. We’re very happy we’ve started working with and investing into Alan Snyder via his formidable fine art-based lending fund. I’ve known Alan for over 10 years. He’s a straight shooter and a New Yorker who has run the venerable Shinnecock Partners (now out of Beverly Hills) for over 40 years. He’s a mentor of mine and a world-class guy. One of the more impressive things I’ve seen Alan do is influence the entire fine art insurance industry with his white paper “Disaster Strikes Your Fine Art! R U Truly Protected?” Somehow it feels like his art has better insurance than the FDIC does, but I don’t want to get into that here. Back when Americans with marginal credit were having problems getting credit cards, it was Alan’s team that created the Discover Card at the firm known today as Morgan Stanley.

By watching a family office create a fixed-income alternative for

other family offices, I’ve seen how exhaustive this world-class team’s attention to detail is and how much experience they have in structuring the risk as far away as possible.

We don’t own the art. We lend against it and receive interest payments while it’s kept in a bonded warehouse deep inside Manhattan’s granite crypt, as we wait for that next disaster to be born. I’d rather lend to gallery owners at 50% than, say, risk my liquidity on a bad pullback in

Current investors, be on the lookout for your Wonka golden ticket.

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Before that opportunity makes it to your desk, we’re committed to the deal and we’re investing in it.

We’ve already incurred significant costs to insure — belts, suspenders, and life jackets.

Some Updates and Good News

The Biggest Little City AND THE MOST STORIED OPPORTUNITY ZONE IN THE U.S.

We made the conscious decision in September to shut down our funds to new investors so we could concentrate on building out our operating platform, from the website to the entire investor experience. If you have a question or need to see a tax statement or schedule of distributions, this will be fully automated. We want to make the process easy for you. In 2019, we achieved a lot of notoriety and success and, with that, conviction, which is why I decided to reinvest into something that, frankly, not too many other cross-asset managers can provide: a fully integrated cross- asset management platform that is very easy for you to use. Anybody can buy software or a service and throw money indiscriminately at the issue. However, you’re the users who need the platform, so I wanted it to be very easy to navigate. I don’t care if George Soros himself uses a program — if a 65-year-old widow can’t download a K-1 form intuitively, it’s not worth the time or effort, and it solves nothing. If you want to know why this is important to me, it’s because I had to assist my mother with similar tasks for years, and it was prohibitively painful and time-consuming. Removing friction is just good business for everyone involved.

Reno is by far the city with the highest growth potential in the entire United States. Lots of tax refugees from northern California have been migrating in. It’s to the point where it’s about seven times more expensive to rent a U-Haul one way from San Francisco to Reno than it is on the return. For about a year now, we’ve been preparing for what is billed to be the single most-valuable piece of Qualified Opportunity Zone land in the entire 48 contiguous states. This 4,300-acre parcel has a bit of a story to it too, as it was tangentially mentioned in an October 2017 New York Times article (NYTimes. com/2019/10/26/business/michael- milken-trump-opportunity-zones. html), peppered with all sorts of things salacious, sensational, and subjective. With all that aside, what makes this unique parcel especially valuable is that it has the flattest 4,000 contiguous acres in all of Reno and a few notable names on it. It will be developed in several phases. It’s perfect for industrial — meaning more high-quality credit — tenants and, most importantly, those coveted data

centers. Expect to hear more on this quite soon.

For those wanting to know what a Qualified Opportunity Zone is, I wrote an article for Forbes (Forbes.com/sites/ theyec/2019/11/19/tax-free-windfalls- a-definitive-look-at-opportunity-zones) that explains who is qualified to co- invest alongside us and who isn’t. In short, you will need to have capital gains to be allowed to invest into any opportunity zone, and if you’re looking for a reason to sell some of that high- flying Amazon or Apple stock, this could be your excuse. I mean, we’ve had 30% up years. Can it keep going? Probably. It depends on where you want to be in 10 years. Remember, stocks are now affected by illness and disease that occur nowhere near where you live. It’s the result of an interconnected global economy and financial system. And that is something President Trump won’t be able to contain, I’m afraid. Imagine losing another decade of savings and already compounded 30% returns because of something you couldn’t control. Again, we are targeting April or May for a soft launch of the first phase of this project.

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I T ’ S WHAT WE DO : REAL ESTATE D I RECT INVEST ING

For real estate, we make direct investments. We invest our firm’s money and the money raised from outside investors into the asset. We do not invest in funds. We invest directly into the capital structure of the asset with controls, rights, and remedies. Simply stated, we take our capital and the capital of very wealthy families and invest it into world- class assets handled by best-in-class operators who have been around for several economic cycles (good and bad). They are audited, too. Belt, suspenders, and life jackets. The barrier to entry is higher, but then again so are the bragging rights and what I call true “risk- adjusted” returns — accounting for strong operator experience — which you can’t see on any pro forma.

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