Multifamily Investor Expo - Feb 15th
Global alternative investment opportunities are more varied and attainable than even before. But what’s driving this trend and how can High Net Worth investors take advantage?
Cole Shephard and Adam Jason are partners at The Legacy Group, an alternative asset manager that targets profitable investment opportunities with high social and environmental impact in Latin America.
Click the play button above to listen to our conversation.
- The macroeconomic trends pushing investors outside of their typical investing comfort zone.
- How High Net Worth self-directed investors can get started with global alternative investment opportunities.
- Why accredited investors should look to alternative investment opportunities outside of the United States.
- Examples of global alternative investments opportunities and proactive risk mitigation.
- How social and environmental impact investing is evolving and where it’s heading.
- The current state of the sustainable and impact investing landscape and why it’s an important development for investors.
- Why the farmland and agricultural space is growing in popularity and presenting new opportunities for investors.
- The unique benefits and competitive advantages of global agricultural and farmland investing.
Featured On This Episode
Industry Spotlight: Legacy Group
The Legacy Group, located in Medellín, Colombia, is an alternative asset manager focused on investing in long-life, high-quality assets across real estate, private equity, and infrastructure.
Learn More About Legacy Group:
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss diversification opportunities in the alts universe, including direct investments, DSTs, opportunity zones, private equity and more.
Jimmy: Welcome to The Alternative Investment Podcast. I’m your host, Jimmy Atkinson.
Andy: And I’m your co-host, Andy Hagans.
Jimmy: And today, Andy and I are going to be discussing the opportunity for High Net Worth investors to access alternative assets located outside of the United States. And joining us today to discuss that very topic are two partners at Legacy Group, Cole Shephard, and Adam Jason. They join us from Medellin, Colombia. Gentlemen, welcome to the show.
Jimmy: Yeah. Good to have you guys here. So to start us off, why should a U.S. accredited investor look to alts outside of the U.S.? What’s the case for doing that?
Cole: I’ll start us off, so, this is Cole Shephard. I think one of the primary things we see with our High Net Worth investors is really the look and the desire to find yields that they can’t find in U.S. markets, so things that we focus on at Legacy Group, like agricultural investments. Obviously, we only do alternative investments. A lot of our investors are looking for inflation hedges. In a time when inflation is rating higher than high yield junk bond rates, investors are looking for inflation hedge and yield wherever they can get it. So I think for projects that are located outside of the U.S. that have the potential for higher returns, a ton of High Net Worth individuals are looking for that exposure.
Adam: I think you’re seeing too some macroeconomic trends that are pushing people outside of what you might consider to be a typical investing comfort zone. I think the investors that we’ve talked to through Legacy Group, all of our guys are High Net Worth investors, they’re scared where equity markets are right now, challenging to find good opportunities, and especially putting to smart capital where it actually be a meaningful return for them. Bond markets in the U.S. are not even really an option. We put out an article last week that basically 85% of all of the challenge bonds, below investment grade bonds in the U.S. are not keeping up with inflation. Commercial real estate yields are basically the lowest they’ve been in a considerable amount of time. Concerns about, as Cole mentioned, inflation, and money printing going on in the U.S. where people are saying there’s a lot of opportunities, the world’s a big place, globalization continues, and we’re open to looking at opportunities outside the U.S.
Jimmy: Perfect. And I wanna focus on some of those market trends and macroeconomic trends that you touched upon in a few more minutes, but first, I wanna hear a little bit more about the two of you and Legacy Group. What can you tell us about Legacy Group? Who is your team? And also what is the unique value proposition that you provide to High Net Worth investors?
Cole: Sure. I’ll start talking and Adam will, I’m sure, add something in for me. Adam and myself started working there in 2017. Actually, we found what is soon to be the largest coffee producer in Colombia. Right now we’re number three. The name of the company is called Green Coffee Company. Adam and I are focused purely on all parts of the investment. Really we look at opportunities in Colombia, which we see as a largely underserved market for U.S. investors. I only look for companies that have a bridge, kind of bridging developing world, which we consider places like Latin America and Colombia, and developed world of which we would consider most of our investors are from the U.S. We’d like to see an end source consumer market for the United States as well. So businesses that focus on developing value, developing markets, and can have an end target client, an investor in developed markets, such as the United States, have tremendous value.
So what we focus on for our High Net Worth investor audience is really the creation of investment products that nobody else has. You can’t, for instance, go to Goldman Sachs or APG as a private equity manager and be able to offer our products. We create unique products for our investors, and we’re basically the only one that has them. So we’re the investments sponsor, we invest a tremendous amount of our own capital, our own projects due to the fact that we believe so heavily in that. We invest very heavily in our own projects alongside of our investors. So what we try to do is really bring unique opportunity to our investors that they can’t get elsewhere.
Adam: And myself and Cole are partners, the two partners for Legacy Group. We both come from professional services backgrounds, really the U.S. and globally. Myself, attorney by trade, worked in capital markets, as you see right away, at two of the larger law firms in the world, specializing with IPL in public-private equity, debt financing. We both saw opportunity to expand opportunity for people on a global basis. We’re focused here in Colombia, we’re focused here in farmland, and agriculture, but really opening new markets to people, building value, and sustainability initiatives. We’re putting together, as the name says, legacy, trying to do something special in the impact space that builds great businesses but also generates the kind of financial requirements that High Net Worth folks participate along with us are looking for.
Andy: That sounds really exciting and attractive. I mean, looking around today’s investment landscape and a lot of the themes that you touched on and how your firm is adding value, I think it’s really interesting that you mentioned that so much of the bond market is now at a negative yield. So it’s like every investor needs to turn over every rock and stone to look for alpha, leave no stone unturned. And, you know, you mentioned that agricultural investments and farmland have appeal as a potential inflation hedge. And, Jimmy and I have noticed as we’ve talked to some other guests recently who are doing asset management in the agricultural and farmland space, they’re really growing in popularity, they’re gaining assets.
Traditionally, of course, like, you know, you had the endowments that were investing in these illiquid investments, but now they’re becoming more and more accessible, you know, kind of down the chain from endowments and institutional investors to Ultra High Net Worth. And now, kind of, even just your everyday accredited investor can now invest like $10,000 in a private placement, or private fund, or direct investment. So I’m curious, why do you think that the farmland agricultural space is becoming so popular right now? Like, is it mainly the inflation protection? Are there other, sort of, macro trends that you’re hearing from investors that are making them so interested in that asset class?
Adam: Right now, we’re, as Cole mentioned, project sponsors for Green Coffee Company, third-largest producer of coffee here in Colombia. We’re in the middle of our Series B capital raise, moving towards the end, we have about $2.5 million left of $9.6 million that we started with. The reason I mention that is we’re having conversations with investors and potential investors every day. And they’re basically answering the question you just had for us. And a big one is inflation protection, looking for yields, and looking for opportunities. And we’re seeing it play out in the market. The coffee space that we’re in, coffee prices continue to hit record highs on a daily basis. There was an article in The Wall Street Journal today documenting from the International Monetary Fund, basically, your average cup of coffee has gone up 30% since February. So our investors, in many ways, are taking a, “If I can’t beat them, join them,” approach. And they’re gonna be paying more for their cup of coffee, then they wanna be connected to the profits that the companies that are active in that space are developing.
Cole: And to add on just a little bit from a macro perspective, you’ve seen the Ultra High Net Worth individuals really are agriculture heavily, both in the history of the world and more recently with people like Bill Gates coming in to be the largest individual landholder in the United States. You’re seeing more opportunity to invest in things like farmland through syndications, such as private placement and such as our own. In the past, if you wanted to invest in farmland, I mean, you need to be putting out what I would call a big boy check, right? You need to be putting out eight, nine-figure checks to be able to buy sufficient farmland assets in the United States, or in any developed market, really, to run them effectively, create a management company, and you’re creating a job for yourself.
The reason why people would obviously do that, investors would do that, is for enhanced yields. So in the past few decades, farmland in the United States has largely become institutionalized. A lot of the largest institutional players own a significant amount of U.S. farmland. But what has happened, it basically has mirrored the valuation rates that you see in the commercial real estate market, farmland can trade at cap rates. And when the cap rate starts to mirror that of real estate, like they’re seeing in the United States, let’s say, if you invest in farmland assets, in the United States, you’re not gonna make significantly more than if you’re going to buy a commercial center for something, let’s say, in developed type A, type B city. So the reason why guys want to invest in agriculture or anything outside of the United States is going to be for that enhanced yield that you’re gonna get. That’s why a lot of homeowners or real estate investors who are looking for exit opportunities that have cap rate adjustments that are superior than what they see in the residential or commercial real estate world.
Adam: It’s also a nice place for people who are looking for collateralized assets as well. There’s obviously a ton of money flowing into technology and ghat space now, but, you know, that’s in many ways a guy with a computer and an idea versus investing in something with substantial landholding and having a little bit more of a downside, but also having a huge upside potential that we’re seeing in these alternative investments.
Andy: Absolutely. I always like to say, you know, money has to go somewhere. In America, we’re pumping so much liquidity into the economy and into the markets. You look across all these asset classes, and I think you’re exactly right, it’s like the valuations are just rich across the board, whether you’re talking residential real estate, institutional and commercial real estate, of course, the equity markets, the bond market, you know, on a real basis, basically, the entire bond market is negative before taxes, taxable accounts, negative before taxes. So it makes sense that folks start looking at alts and they start looking at overseas opportunities. And that’s really…my next question is kind of zooming out a little bit. Jimmy and I just started this podcast, we launched The Alternative Investment Podcast just a couple of weeks ago, we’re talking now the second week of October. And we actually have been amazed how quickly…right after we launched, we were getting so much interest right out of the gate.
And we’re like, wow, we obviously believed in alts or we wouldn’t be launching this podcast, but even we are surprised by the positive response that we’re getting. We’re like, wow, people are really interested in alts right now. And I think some of it, like you already stated, is that inflation protection and the search for yield. I think some of the interest is also that there’s this sort of shift down the chain where products are becoming more and more accessible. I’m not talking about crowdfunding, but just like that your normal High Net Worth not necessarily Ultra High Net Worth investor can access some of these opportunities now. But you know, always curious…you two interact with investors and I’m always curious to hear what kind of stories or themes are really resonating with the investors that you talk to. outside of just inflation protection, are there other, sort of, unique angles attracting investors into the specific projects that you’re working on?
Cole: So I think private placement investing and alternative investing, you have a certain breed of investors, to begin with, usually they’re less risk-averse. They want higher returns, but they’re more comfortable with early-stage investing, which I think is a hugely important thing an alternative investment is becoming comfortable with early-stage investing. Now, the theme of venture capital has been around for a long time, but it’s really become more institutionalized in the last couple of decades. So really that return, I think you need to start looking at developing companies, just like you look at developing markets.
So one of the key themes that I’ve seen with High Net Worth individuals these days that say, look, the bond market is effectively dead to me, equity markets, public equity markets they see as largely inflated and overvalued. They’re seeing the lowest cap rates they’ve ever seen in commercial real estate. And I agree with you, Andy, 100% that money has to move somewhere, so they need to play capital. So, and they want advanced yields. So they’ll look at one early-stage investment, right? Early-stage companies that they have the potential for exit opportunities that are important. Now, some of your viewership and readership probably is looking at emerging market investing, developing market investing, similar concepts, but one of the things to keep in mind that our investors ask about a lot is, obviously, the exit, but the viability of a large exit. Everyone who invests in private placements in early market, or early-stage companies, or earlier stage developing companies wanna see an exit at some…typically wanna see an exit and they wanna see it be reasonable, and they’d like to see it be big if possible.
One of the things that we do with Legacy Group is we structure companies out of the United States. And a lot of people ask, why do we do that? It’s for one of the most important exit angles that exists in the world is, you know, to have the ability for a public market exit. You know, if we were doing holding companies in Panama or BVI, it is more challenging to go public on an international market. And, you know, the most liquid markets in the world are ultimately in the United States. And when we have 90%, 95% of our investor banks are High Net Worth individuals from out of the U.S., they want to see a U.S. public exit. So I would say two of the key themes that I see when I speak to our High Net Worth audience is the applicableness of investing in early-stage companies and the use of U.S. structures to have one avenue of an exit being a U.S.-based IPO. U.S. investors look for that all the time.
Adam: And we’d say talking to our investors, I imagine it’s the same conversation for many of the investment sponsors, you know, globally right now, with the financial returns question and it’s gonna be kind of how much money can you make? I think it’s attractive to a lot of people, the personal nature of it. You know, maybe you can say, I can invest in a small-cap stock and, you know, double or triple over time, but there isn’t a lot of excitement in that versus now something like people are coming down to Colombia to see the coffee farms, participating on a personal basis, getting the product in the mail and trying it is a little bit of a lifestyle element as well. Most people, our investors, for example, are typically putting $100,000, $200,000 in our deal. For that amount of money, they’re gonna have limited access to, kind of, really opportunities that they can get excited about the alt space in the U.S.
The other common thread that we’ve seen over the last 18 months is a genuine distrust in government, whether it’s with respect to COVID restrictions or the one we’re touching on here. Mostly it’s printing money and the access to capital in the market. But people are saying, “You know what? I got to look elsewhere and find my place to go,” and it’s alts outside of the U.S., so you got what people want, in many cases people like ourselves have that U.S. experience…that’s how we can make it a viable option versus, you know, I got to go and scout opportunities myself, or people in a foreign language now. So we try to fill that gap for people and that seems to be the appeal.
Jimmy: Oh, that’s great, guys. That’s the great insights that you have there. I’m curious to learn more about your current offering. What can you tell us about that current offering? The Green Coffee Company, would love to know some numbers on it, and anything else that you were able to share with us today.
Cole: Sure. I’ll start us off. So it’s a $9.6 million Series C. We’ve been in operation, like I said earlier, since 2017. It was the brainchild of Adam and myself. We launched the initiation of the company in Q1 2018. We started with a $5.7 million capital commitment, and since grown it from that before we started the raise to about $8.3 million deployed here in Colombia. And really the purpose of this raise is to develop infrastructure to make that, right now, the third-largest in Colombia. Primarily the capital spend is related to infrastructure. At the end of this month, actually, we’re gonna be launching the most advanced coffee infrastructure that exists in Colombia. One of our facilities opens October 28th. The second is gonna open in mid-December, and that really will springboard us to make the most innovative coffee company in Colombia.
Next year, we’ll engage in a debt raise and we’ll acquire one more round of farms, and that’ll create a position of number one in the country as far as coffee production is concerned. We launched this spring to outside investors in about May of this year. So we’ve been raising for a couple months now. We only have $2.5 million left. So we expect to be completed with the trade probably within the next 30 to 60 days.
Adam: In terms of some numbers and things investors look for, so we’re expecting revenue of about $5.5 million next year. So we’ll have a profit and expect to pay dividends, about 8% annually over the holding period through 2025 we told investors. Our goal though really is, as we build out, go from number three to number one in Colombia, add on a B2C component, really taking it to the public markets in U.S. And our goal is 7x for every dollar that anybody puts into the product in 2025. We’ll see what markets look like and that’s what we’re trying to build for people. And kind of on what we’ve talked about of the theme of, well, conversation of an opportunity folks couldn’t get, good exit potential, and inflation in an industry most people know and enjoy.
Jimmy: Oh, that sounds phenomenal. That’s a fairly significant exit potential there, a fairly unique type of offering too, very compelling. And at Legacy Group, I’m perusing your website right now, obviously, your goal is to generate favorable returns. You touched upon this a minute ago though that you also target opportunities with high social and environmental impact. What’s the importance of that, are investors clamoring for those types of impact investments these days, or why is it important to you?
Cole: I’ll start us off on this one. This is important for Adam and myself. I think it’s important for the future of both the alternate investments, industry, and just investing as a whole. You’re going to see impact investing in ESG impact the investing world, I think, being the most significant change in investor mentality, probably within the last couple of decades. As far as our investors are concerned, I will say over half of our investors are very heavily concerned, especially about items such as climate change. But this is a really interesting impact. About the coffee industry in general, I’m under the understanding and the belief that if you’re not involved with impact and sustainability initiatives, you’re not gonna be around here in a decade to run that business in industries, in agriculture where it’s largely consumer-driven.
So let’s assume the person and their barista is, let’s say, San Francisco, they wanna know the company that is selling them coffee is doing the right thing, and they’re driving that towards impact. So I think, from our point of view, not only do we only want to be involved with companies that are doing the right things and are generally in line with our own ethical guidelines, I think businesses like that exist in the coffee industry, things like the cacao industry, anything in agriculture, if you’re not supporting the community around you, if you’re not doing things in an environmentally standard and beneficial way, you’re not gonna be around to tell your story. So both from an aspect that we wanna be around companies that are doing the right thing, we only wanna be around executives and counterparties that are doing business that we see as being viable for the future, selfishly in the business, I think you have to do it either way.
Adam: For the reasons Cole mentioned, the transparency, doing the right thing for the business, and building something where in a world that’s continuous and more transparent, you’re doing the right thing, a complete value-add to the business. You know, you’re seeing stories of whether it’s BlackRock setting up funds that are impacting, that had no impact at all, or you’re seeing…the good term now is feet-washing where companies basically say, “We’re so great, and we’d do all this,” but they have either no impact or negative impact at all.
We’ve always said, the Green Coffee Company, everything that we do that, we wanna have that social-environmental impact and we want it to be measurable and have it be value-added, not peeling off the piece of the revenue stream to give away or anything like that. Everything has to be for the business, shareholders, but also to the community around us. A good example is this year for all the coffee farms that we have, we got Rainforest Alliance Certification on the farms. People say it’s impossible to measure ESG impact, and how do you quantify for it as a business? For us, for example, the Rainforest Alliance we paid for with a small portion of our harvest, and then all the coffee coming off the farms going forward will have a 6% to 8% premium. Right there is a good example of doing things the right way, run the business in the right way, but also add more value and process that’s measurable.
Jimmy: Yeah. That all makes sense, doing things the right way, a certainly important…becoming more important these days. Social and environmental impact investing, definitely a trend that has a lot of momentum behind it. I think that’s a good place to wrap up our conversation today. Gentlemen, thanks for joining us today, and really do appreciate all the insights that you’ve brought on the episode today. Before we go, though, where can our listeners go to learn more about you and Legacy Group?
Adam: Sure. I’ll take that one, Cole. To contact us, any questions that we talked about today, questions about investment opportunities and projects that we told you about. Email us at [email protected], instead of .com, and you can find us there and we’ll get you set up with all your questions or opportunities.
Jimmy: Fantastic. That’s [email protected] I’ll make sure to link to that email address in the show notes for today’s website on the AltsDB website. You can find those show notes, as always, at altsdb.com/podcast. And you’ll find links to all of the other resources that we discussed with our guests today as well. Cole Shephard and Adam Jason, thanks for joining us today. It’s been a pleasure.
Cole: Thank you, Jimmy.