End Of The Year… Or End Of The World?, With Kelly Ann Winget

The economy has faced headwinds in 2022, but the next 90 days may be particularly rocky, based on moves that large investors (including Warren Buffett) are making right now.

Kelly Ann Winget, founder of Alternative Wealth Partners, returns to the show to discuss how smart capital should be positioned to take advantage of opportunities that may arise soon.

Watch On YouTube

Episode Highlights

  • An update on Alternative Wealth Partners and its private placement offerings.
  • The headwinds that investors are facing in Q4 2022 (including a few developments that are “off the radar”).
  • Why Kelly believes that the true inflation rate is a lot higher than what is reported in the CPI.
  • How family offices are keeping cash on the sidelines, in anticipation of attractive deals that may arise in future.
  • A surprising market move from Warren Buffett (that might be a precursor of things to come).
  • Details on Kelly’s upcoming presentation at the Alts Expo, which will feature offerings from Alternative Wealth Partners.

Today’s Guest: Kelly Ann Winget, Alternative Wealth Partners

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

Listen Now

Show Transcript

Andy: Welcome to “The Alternative Investment Podcast.” I’m your host, Andy Hagans. And we have an awesome guest today. Returning to the show is Kelly Ann Winget. Kelly, welcome back.

Kelly: Thank you so much for having me, Andy. I’m excited to be back.

Andy: And we were just discussing before we started recording that our previous episode, and I’ll make sure to link to it in the show notes, was actually one of our most popular episodes of all time. The topic was non-correlated private equity strategies. And you know what, why don’t we start there? Because we talked about that first fund, your first fund in our original show, which I think is a really unique product in the sense that you have several different private equity sectors represented with energy, with multifamily, manufacturing. Could you give us an update on how diversified fund one is doing? Are there any new developments since our last show?

Kelly: Sure. So, I think the last time we spoke we were at about $15 million raised and deployed. And at this point, we’re at a little over $17 million raised and deployed. We’re over 25 individual portfolio companies inside of our diversified fund. So, you have exposure to a lot of different businesses that span across energy to real estate, manufacturing, and then what I call private equity, which are these equity-only deals, typically in fintech, or in the retail consumable space. So, you get a lot of diversification just from a single asset allocation, which if you were to do this on your own without an active manager involved, you’d be deploying $50,000 at a time across 25 different portfolio companies. So, it just takes a lot of that due diligence paying off the shoulders of investors who have better things to do, like running their companies.

Andy: Forget about due diligence. I just don’t want to get 25 K-1s, because you know 2 or 3 of them are going to be late, right?

Kelly: Yes. Especially when you’re dealing with oil and gas, you just kind of have to be prepared. So, we sit out one K-1, and I deal with the headache of getting all those other documents in.

Andy: It’s the best part of the job, right? Best part of being an asset manager.

Kelly: Yes. I like the portfolio companies that we’re invested in. So, our open communication between me and the asset managers is really good. So, I don’t have to do too much chasing. They know what my expectations are.

Andy: Okay, so big picture, let’s zoom out. And that fund is really cool because it’s truly diversified, which is kind of rare, even in the alternative investment space. But I know you’re kind of a big-picture thinker. You come from the family office world, and you’re reviewing real estate deals. You’re looking at venture capital type startup deals. You’re looking at multifamily commercial real estate. What are the headlines that you’re looking at right now? I don’t want to say that keep you up at night, but that kind of give you pause with where the market is right now?

Kelly: So, when you’re this kind of off market, when you’re in the private space exclusively, especially when we have so much exposure to commodities for the most part, the headlines we’re looking at are on the global scale. So, what’s happening overseas affects what’s happening here. What’s happening here affects overseas. And so, you really have to look at this micro economy situation…or macro, because when you dive down into it, everything that’s happening globally is going to affect our portfolio in some way. And we just happen to…in the middle of the pandemic, when we decided to start this, we kind of saw this world implosion thing happening. So, the way that we’re invested is really to kind of hedge that.

So, when you have a global pandemic where the world shuts down, you have entire economies shutting down, it’s going to be really hard to come back from that. So, what can we invest in that’s going to support rebuilding entire societies basically, entire economies when the economy is changing from people going into stores buying things, to people staying at home working? So, there’s all these factors you have to constantly be on top of in order to see what part of our portfolio is going to suffer for a while, right?

So, it helps that we’re invested in energy. We’re invested in manufacturing of ammunition when there’s a global world war happening in huge energy states. Right? So, you have an entire piece of the energy market offline, Russia, right? So, where is that going to come from? Well, the United States has a lot of production here, and it hasn’t been invested in in 10 years. So, let’s focus there again. Ammunition. There’s a world war going on. What happens during war? People shoot guns. We have bullets. It’s a highly regulated space. So, there’s only a certain group of people that are allowed to operate in it. So, we’re able to tap ourselves to people that already have the licensing and the infrastructure to handle an increase in demand of that type of product.

And that spans across all commodities. We’re in what we call a commodity supercycle, where your tangible commodities are going to have more value than currency. Right? So, the more tangible commodity you can own, the more currency you have. And that’s what’s happening globally, is that your commodity is becoming a form of currency more than cash. So, if you’re sitting on cash, now’s the time to buy stuff.

Andy: So, quick question. Given that you invested in ammunition company, energy, could I borrow your crystal ball, maybe just rent it for a day or two? Okay, so you’ve spotted these…I mean, did you… Let me ask you this in regards to energy, because I do think that that is…it surprised people. It’s sort of continuing to surprise people that energy prices may just be high for the foreseeable future.

In a way, it doesn’t surprise me in the sense that it seems like a lot of policymakers want energy prices to be high. So, it’s kind of the hypotenuse, like the simplest solution is usually the correct one. Do you think that…is the market pricing in higher energy prices enough? I guess that’s what I’m trying to ask.

Kelly: So, energy’s a funny thing. And I don’t have a crystal ball. I have a history book, right? It’s just like this has happened before, and it happened before I was even alive. And I just know about it. And there’s still…it’s these constant red flags that keep getting raised as things pop up in the government, and the headlines and stuff. It’s like, “Okay, well, here we go again.” And if you can invest knowing that you had this happen before, it’s going to be a pretty safe bet.

And now with energy prices, you have a couple of things going on. One is there’s this energy independence thing happening. And in the energy space, we’ve had almost a decade worth of the beaten message of stop drilling from Wall Street, from the government. But the issue with that is that now that oil companies are doing that, they’re…we have these record profits, right? But they’re going back out to investors. They’re going out through dividends. They’re going out through just cash flow back to the investors. In the past that was used to reinvest back into the fields. Because when you’re getting money from the banks, you have to prove production. Once you prove production, you get more credit from the bank to go drill more wells.

That’s not happening anymore. The banks want to be paid back. The investors want to get paid back. The government wants you to stop drilling. So, that’s what the message has been in the industry for at least the last four or five years.

Andy: Now, is that ESG-driven from the corporate world?

Kelly: Yes.

Andy: It’s just… So, this is really…it’s not based on a pro forma or an analysis of future returns. It’s just based on, “This is icky. We don’t want to invest in it.” Or not even. I mean, just…

Kelly: Right. And I mean, today’s meeting I had at lunch today was with a bank that said they can lend to everything except for oil and gas, and has not…they say that the deals that they can loan to in the oil and gas space would outperform anything else in their portfolio. They’re just not allowed to do it. And they were like, “We wish we could, but our hands are tied. We’re just not allowed to.” And that’s all the messaging that’s coming from Wall Street. So, the people that are crying, “The gas prices are really high. And my utility bills are really high. They need to be drilling more.” Not to get political, but Biden’s also saying the same messages, but at the same time on the other side of his mouth saying, “Don’t drill anymore.”

It’s hard for the industry, even being in it, is what you actually want? There’s nothing we can do without private investors coming in and drilling it ourselves. Prices are going to stay high for a long time, especially since the government’s basically committed to buying back all of the supply they released when it goes back down to $75, $70 oil, which is really great since all of the operators out here in the United States can drill for under 40 bucks. So, if they get a guaranteed government contract to refill the reserves at $70, they’ll do it all day long. So, it’s kind of a weird place to be right now because, still, people aren’t investing, but the opportunities are wild right now.

Andy: So, it sounds to me, and I’ve discussed this with other guests, that it’s the perfect opportunity for private capital, presuming that I don’t have any compunctions investing in petroleum, or oil and gas deal. And personally, I don’t. But presuming that one doesn’t, this is…what’s the word? It’s an inefficiency, because institutional investors and corporate investors, they know the returns are there. They know it’s legal. But nevertheless, they’re not investing because of ESG mandates, or whatever policies they have at the organizational level, political level, whatever. So, it’s basically…I don’t want to say free alpha, but it’s a wide open lane for family offices, for high net worth accredited investors to come in and provide that capital.

Kelly: Yeah. I mean, they have to understand that Wall Street works with really patient long-term money. These are retirement pension funds, endowments, and stuff. So, the fact that they’re like, “No more oil and gas,” is because they can invest in things like renewables without the expectation that that capital is going to leave their managed EOM for decades. Even with the huge wealth transfer, they just think that it’s just going to compile into the same account, and get invested the same way.

That’s when you have these things that happen where people start pulling capital out of stuff, they get really worried. It was kind of the whole point of last year when the government was trying to change the rules around your retirement accounts, and restrict the Roth conversions, and put caps on the IRAs, the growth that can happen in the IRAs. And that’s because they don’t want the money to leave the accounts, because if they do, then it all implodes. Right?

So, that’s the issue you’re going to have. But if you’re a private investor, I mean, the world is your oyster. You can invest in these things where the capital used to be and left at pennies on the dollar. Why wouldn’t you? There’s a lot of mitigated risk because this isn’t drilling like it was 15 years ago. The technology’s changed, the competition’s changed. And as far as the large operators, your ExxonMobil’s, and your Devon…Devon’s a private company, but your ExxonMobil companies are getting rid of things off their book that are small, or in their older fields because they have to focus on these big production numbers in order to meet whatever mandate is coming from Wall Street.

And that’s the deal with publicly traded companies, is that they answer to an entire pool of people and the public, when privately-owned companies are like, “We’re going to do whatever we want. The only people we have to report to are the handful of investors we work with,” who are all basically on the same page. Which is quite funny.

Andy: Well, sure. And even renewables, even investment into renewables, even the Tesla coming off the line that gets transported to a dealership, all that does take hydrocarbon energy, right? At various points in production, and transportation, distribution. It’s just not going away.

Kelly: And charging.

Andy: I’m sorry?

Kelly: Right. And charging. You had California where, “We’re going to have electric cars starting 2030.” And then the next day, they told everybody in California not to charge their EVs because they were having a power outage because they don’t have enough power. You can’t have that kind of…what is the word I’m looking for? Ultimatum when you don’t have the infrastructure to support it. And the only way you can build the infrastructure to do that is to have cheap oil. And you can’t have cheap oil unless you drill for it. So, there’s a… I know I always get into oil and gas, or a diversified fund, but it really is the root of everything. Everything we do is based on oil and natural gas. And if we don’t make the investment and support it, then things are going to get really expensive for a really long time.

Andy: Do you think that’s going to happen? I mean, that exact thing that you just said, things are going to get really expensive for a really long time, do you anticipate that happening?

Kelly: Yeah, I think we have this really delayed recession. And I don’t even know if recession is the right word, because they said that we haven’t entered a recession, but we have. Is that you had 2020, and then you had people not only lose their jobs, but found new jobs, different jobs. And then you had an influx of support money from the government. But then people weren’t spending money the same way they were pre-pandemic. So, now they have more disposable income. So, it’s been delayed a year because now they’re not spending money going out to restaurants, or bars, or whatever, or driving. They’re staying home or they’re working from home. So, the money they were spending on gas, or travel, or anything like that, is now being redirected into something else. Then they paid off debt. Right?

But now here we are, and they’re coming back to normal, and they’re spending the same way. But rents have all increased like 10%, 15%, 20% some places in the United States. The cost of gas has gone up 100%. Utility bills have gone up 200%. Groceries have gone up 200%. Thanksgiving dinner cost, I don’t know…I’m sure, everybody is going to be listening to this. But Thanksgiving last year and the year before might have cost $100 to $200 to buy kind of everything. And this year, I went to the grocery store, and bought the same exact stuff. I bought enough…two pies, a turkey, and sides and stuff, it was like $500 for no reason.

So, you have these experiences for the real person, the reality, the grocery store bill, that’s getting very expensive, and it’s not catching…it’s going to surprise everybody. So, the type of recession we’re going to have the next two years, it’s going to affect basically everyone that makes $150,000, $200,000 and less. Everyone else is going to be fine. They’re just going to have to kind of buy less maybe. But everybody else is going to be completely demolished. And that’s going to be really bad, but it’s not going to help anything to get better.

So, we have to figure out where to find that balance in the utility space, or else it’s going to just be really expensive for probably three years.

Andy: Okay. Well, yeah.

Kelly: Sorry, it’s not the best news.

Andy: No. Tell us how you really feel. Well, we were talking before recording, and you mentioned heading into a recession, and you’re seeing these warning signs, or flashing warning signals. And I want to talk about some of those. But is it necessarily even a bad thing to be in a recession? Isn’t that where a lot of real wealth is built, provided that you have some dry powder, some cash on the sidelines?

Kelly: Yeah, I think there’s a lot of cash sitting around, because the deals just haven’t been that great. And it used to be a ton of money is being poured into the tech space, and that’s not happening anymore because there’s these terrible companies that are coming out being worth nothing, or they haven’t been doing what they said they’d be doing. And so, you’re going to see a correction. I think it’s kind of like…we’re going to have a combined experience of 2008 and 2000 where you had this tech dot-com bubble and the housing bubble all coming together at once, except for it’s not dot-com. It’s WeWork all over again for 10 or 15 different companies that everybody’s heavily invested in.

Andy: So, do you see the tech bubble, is that…we’re talking mainly publicly traded companies, or really late stage venture, or are we talking…are you even seeing a bubble with seed rounds and startups?

Kelly: Yeah. I mean, it’s getting really hard for companies to raise their first rounds of funding, and they’re becoming more realistic. The same company that…a tech company maybe 3 or 4 years ago could probably raise $10 million pretty easily on their first round of funding. But now they’re going after maybe $2 million or $3 million instead. And it’s because they don’t need all that money. Tech never needed that much money to do anything. And I think people are just coming back to reality. And the problem is that all the people that come into tech a couple of years ago, and spent that money on those offerings, are going to see that correction. And they’re going to have to just wait until that company becomes profitable again.

I mean, even with Elon Musk buying Twitter, the company’s like a massive debt. And he laid off everybody because the company didn’t actually need all of that, which he recognized, but he still overpaid for it. And he had to sell his own company to…a piece of his own company to purchase that deal. So, I think he’ll lose 100% of that. I think that will be a complete waste of time and money for everybody involved.

Andy: Yeah, yeah. The debt there. I mean, the normal private equity plan of stripping away unneeded overhead appears to be working. But as you say, if you had to leverage yourself to the hilt to get into a deal and then while they overpay, it’s not likely to be a good ending. So, that tech bubble may be deflating. And that’s probably… A lot of these things are just healthy resets. Right? But one corner that we cover a lot, commercial real estate, and it’s interesting to me, there’s definitely opportunity in commercial real estate. But personally, I personally as an investor, and I think a lot of other family offices, and other high net worth investors are like, we’re waiting around for this correction that maybe there’s a little bit of movement, but it’s like it doesn’t seem to be correcting as much as it should given the underlying… Am I wrong in that analysis? How do you see the commercial real estate market?

Kelly: Well, the commercial real estate market is really interesting because…especially here where I am in Texas. I live in like North Fort Worth. And there’s nothing out there but ranches. And so, those big ranch properties are being purchased, and they’re putting these massive warehouses out there. So, I think that in the commercial space, it’s all going to be about space. How much space can you have, and how much stuff can you fit inside of that space? But I said this at the beginning of 2020…the beginning of the pandemic. I always say the beginning of 2020, but the pandemic started in April.

But when COVID hit, and everybody went home, and everybody was worried about this WeWork situation, and the office spaces and everything, I said, “I think that the opposite is going to happen. I think people are going to get crazy in their houses. And more people are actually going to go find an office space than stay at home, because they just don’t have the space in their house to separate their life from their professional life.” I worked from the home for 10 years before COVID, and it actually drove me into the office.

We’re taking more phone calls on the phone, and on the computer, and you can only manage your dogs for so long before they think that you’re talking to them. And so, it created a huge opportunity. And every place that I’ve looked and have been in since I moved out into an office space has been fully renovated, fully leased.

Andy: But you are in Texas, right? So, there’s also…

Kelly: We’re in Texas. We’re an anomaly, so it’s a little different than the rest of the world. But we didn’t really shut down, and a lot of businesses are moving here because we have the space and the opportunity at state space. But the opportunity is coming. The problem is that even the rates aren’t scaring people away, especially from the residential in Texas. I’m going to talk about Texas only. But because even if your home prices went up 10% or more, and then your rates are 6%, 7%, 8% now, people are still buying it because no one cares. They literally don’t care. They’ll buy it. They’ll pay the mortgage because they’re expecting the house price to keep going up crazy.

And if it doesn’t, they’ll just live in it forever. And they’ll just refi when the rates come back down. So, there’s nothing making them afraid enough to stop doing that, which is what the feds are trying to do by raising the rates. They have to go to 12%. If they don’t go to 12%, everyone’s going to continue doing whatever they want.

Andy: So, the residential, the consumer demand, that demand creates a floor, at least in the residential market. Yeah, I think I agree with that. Okay, so we’ve talked about some of the headwinds with energy, and just in the overall economy. I want to talk about banks and the financial system without giving away everything that we were talking about before we hit record. What are you noticing right now with what Warren Buffett’s doing, with our banking system? What should high net worth investors and family offices be looking at in that context?

Kelly: So, if you have not read the headline about Warren Buffett, he’s sold several billion dollars worth of his stock in U.S. Bank, and this is like 50% of his share of that company, which is a little ridiculous. And when Warren Buffett makes those kinds of moves, it’s because he’s going to come back in when there’s blood in the streets. I mean, he’s literally quoted for that. So, if somebody like that is taking money out of the banks, he knows something that we don’t know. And just from my experience of working with a lot of banks, either holding our money from our fund, or trying to work on larger deals, is that banks aren’t in the mood to lend, but they have to.

So, they’re really picky about their deals, but they won’t take the deals that make sense because it’s too risky. So, they’ve really tighten the reins on what kind of things they’re going to lend to, even though they have to lend. I mean, the rates are really high, but no one wants to borrow from banks because they’re not friendly to borrow from. So, it’s going to be really interesting because I don’t think the banks are going to start…I don’t think the banks are going to make any money. I think they’re going to become irrelevant, especially when you have more and more people becoming private investors, investing less on Wall Street, doing hard money loans, doing loans with their friends, family, and IRAs, and real estate.

Real estate has really been the one who’s been ringing the bell about, “Take take care of your own financial freedoms through real estate investing. And become your own bank.” That’s where it started. So, you have a lot of people that built a lot of wealth in real estate who are now just like, “I don’t need a bank to do this. I’ll just do it myself.” And you see that investing across the board in the private investment space.

So, unless banks start getting better at lending money out to businesses, they’re going to lose a lot of money. They’re not going to be able to handle all the cash that’s sitting in the banks. So, if you have cash, put it somewhere else. Because even though… I get a lot of feedback from investors, they’re like, “Well, I’ll just put it in a CD, and it’s insured, and guaranteed. I know it will be there.” I’m like, “Well, it’s insured up to $250,000, and you’re talking about buying $1 million CD.”

Andy: Yeah. Well, at least buy the CD from four different banks, right? I mean…

Kelly: Yeah, exactly. And you get your 2% or whatever. I think that people just need to be more…take a little bit more risk and invest in better stuff, because you’re a better investor than your bank. Your bank is not a good investor. They did in 2008. They’re still doing it now. They don’t know it. They just are uncreative, I think, with their lending.

Andy: Oh, I have to agree with that. Do you think given that, as you said, they don’t want to lend, are private credit funds…private lenders, do you think they can really absorb, can they fill that gap if banks aren’t lending? Is there enough capital in private credit funds? And just in general, that the economy will [crosstalk 00:26:32]

Kelly: I think they’ll have a hard time finding deals because when you become a…you have a lot of deal flow within your network, but there’s a lot more money than there are deals inside of your little community. So, it really takes work to get outside of that and find better deals. And again, you’re trying to beat inflation. Or they’re borrowing money. You have to beat that rate. And if they’re borrowing money 8%, where can you put it that beats 8%? And if inflation’s 12%, 15%, or 17%, where can you put it that’s beating that? So, I think deal flow is going to be the biggest problem for a family offices and people with a lot of cash right now. So, it’s just going to take a lot of work and due diligence to find that opportunity.

Andy: Understood. So, you referenced 12%, 15%, 17% inflation. Do you think the CPI is understating true inflation?

Kelly: Oh, yeah. I mean, first of all, they separate food and energy out of that. And again, it goes back to reality. I don’t think that anybody who’s posting numbers on Wall Street or the feds have any idea of what a real person’s life is like. But when you have pork products, it used to be given away at the grocery store, that now costs $15 and $20 for a pork chop, that’s a reality for people. And when their grocery budget was $100 for the last 5 years, 6 years, and now they’re going to the grocery store, and they’re spending $300, where’s that other $200 coming from? It’s going on their credit cards. So, the reality of people’s expenses has gone up significantly.

I mean, gas here in Texas is still around $3. But a year and a half ago, it was $1.75. Groceries are two times what they were. Our electric bill for June, August…June, July, August, September was $300 when it should have been $100. So, these are things that are going to catch up to people. And that’s the reality for normal Americans. And I don’t know why they’re not publishing that because it’s confusing to people. I call it gaslighting Americans into thinking that inflation is 8% when it hasn’t even been 2% for years. So, they’re saying, “Oh, inflation’s been 2% for 2 decades.” Like, no, it hasn’t. So, you have to play catch up, and then get into the reality of what inflation is today.

Andy: Well, yeah, I can only agree with that. I mean, when they talk about the strong job market or wage growth, if nominal wage growth is not keeping pace with inflation, and that’s even talking about the CPI, not true inflation, maybe as you would call it, then I hate to break it to everybody, that’s negative wage growth in real terms. And as you said, with the data, we’re seeing personal savings, I think even in the last quarter has plummeted. So, are we…I’ve already been saying that we’re in a recession. Everybody kind of frames that a little bit differently. But do you think we’re entering or going into a deeper recession going into 2023?

Kelly: Yeah, I do. And what people need to be aware of is that the private equity space aren’t borrowing right now. They’re buying things in cash. They’re just avoiding leveraging it all, because they don’t want somebody to call their note, and they have the cash to buy it outright anyways. So, you have a lot of these acquisitions being made in cash without the leverage. And so, it’s an interesting thing to see. We’ve always done that. We don’t have any debt in our fund. I don’t leverage anything in the fund to buy anything else. We buy it all in cash and own whatever our percentage outright. And that’s because I just…I don’t want to have to report to anybody.

If we’re going to make a buy, we’re going to make buy. And we’re going to have the most negotiating power because we don’t have to borrow for anything. We come to the table with the money that we’re going to spend. And you’re going to make the deal today with that money or you’re not. And I think a lot of other private equity companies and family offices are doing that as well.

Andy: So, then if we are going into that deeper recession next year, does it change anything about your investment strategy? I mean, aside from…I’m imagining you’ll continue to avoid debt, leveraging pieces of the fund, or individual assets against other assets. But is there anything else about the strategy that might change, or are there certain sectors that are more relatively appealing than others?

Kelly: So, we are going to close the diversified fund out, so we’ll stop taking investment into that at the end of January. So, we’re not going to…we have a couple more acquisitions we’re going to make before the end of the year, and that’ll be it. So, there’s not going to be a change in strategy there. We’ve already committed to those things. but we aren’t launching new funds in 2023, which will have a bigger focus on most likely real estate because we know that the opportunity is coming. So, we’re going to be a little bit more patient with our asset allocation for real estate, because we are going to pick up these properties for nothing, because people are just going to want to get them off their books. And we have the connections in order to make those bank relationships to buy notes off the bank that they just don’t want to hold on their books anymore. So, I think that might be the biggest change of strategy of what we have now because we do very little in the real estate space now.

Andy: So, you’re talking about credit deals?

Kelly: Mm-hmm.

Andy: Okay. And so, the banks just want them off their books. So, realistically, those are returns that could exceed the inflation rate. Because I mean, that’s my thing with credit is you hear about 9%, 10% return. It’s like, “Oh, that sounds great.” But if the inflation rate is 8%, it’s not it’s not really that strong, at least on an after-tax basis. Do you think you could be getting…is there going to be a more spread, I guess, to be had in the years ahead?

Kelly: Yeah, I think so. I think the deals are going to get a lot juicier. And if you have the dry powder to make a move, it’s going to be really significant. And that’s what…you can see the bigger investors doing that. Buffett’s doing it right now. He’s just liquidating things that he knows is about to go on fire for sale. That’s what he’s done since the beginning of time, all this time is that. He pulls his money off the table. He waits for a bloodbath, and then he comes back in and saves the day.

Andy: So, that sounds deflationary to me. See, this is what…I get it all mixed up in my head, okay? And I just get stuck. So, Kelly, you have to help me get this unstuck in my head, because I agree with you. The normal consumer, John and Jane goes to the grocery store. Inflation is absolutely higher than they’ve said that it is. And there are these structural reasons that it’s not going to just reverse, or even necessarily moderate down to 3% or 4%. So, we have this higher inflationary floor due to structural reasons. But then on the other hand, and I don’t disagree, the idea that you want to have dry powder to go asset shopping, buy assets at a discount, but that dry powder, it’s losing value at a rate of 1% a month, or something. So, is this a paradox, or am I just not smart enough to…?

Kelly: Well, it has a lot to do with timing. How long are you going to be sitting on dry powder? It used to be that some family offices and larger funds might sit on money for a year, maybe 18 months before they would make an acquisition. And now, you see them waiting just a quarter, maybe six months. And I think that’s what you’re going to start seeing is these really quick turnarounds. So, I think that, yes, Buffett just liquidated $4 billion. But I bet he spends it in the first quarter. I think he’ll spend it in the first quarter of 2023. I don’t know on what, but we’ll see.

So, the one thing that I kind…I was trying to buy a pipeline in 2020 with a friend of mine. And it was crazy because I was also buying Occidental stock in 2020 in April when oil went to -40. So, I bought a bunch of Occidental stock, because I like Occidental as a company. And then you had Buffett buy a ton of Occidental stock beginning of the year. So, I’m up 350%. He’s bought a bunch of stuff, but in 2020 he wasn’t buying Occidental stock, he was buying pipeline. And so, he bought basically all the natural gas pipelines in the United States, are now owned by Berkshire Hathaway.

Andy: I did not know that.

Kelly: I don’t know what he’s buying with those $4 billion, but I bet he does it in the first quarter.

Andy: Okay, so you’re expecting some…what’s the word? Some pretty healthy market activity, market disruption, price corrections, distressed asset sales, and so on, in Q1 as soon as Q1?

Kelly: Yeah, I do. It’s something that he’s probably been paying attention to. And I’d have to do some more research on what he’s been doing. But when he makes a big headline like that, it’s usually because he is prepared to go do something else within the next six months.

Andy: Okay, so let’s take a high level then. From a smaller family office, or I’m an LP, I’m a high net worth accredited investor, maybe rebalancing my portfolio as we head into the end of the year. Disclaimer, I’m not a financial advisor. Kelly’s not a financial advisor. This is not financial advice, but realistically, what does an investor do then? Rebalance portfolio? Maybe let some ride in stocks and bonds? Obviously, you don’t want to kind of go from one extreme to the other. But I’m almost thinking of the…what is it? The 25% portfolio model, where 25% is in cash, 25% is in alternatives or real assets, and then stocks and bonds. I mean, is that the kind of model that people should be looking at right now?

Kelly: Yeah, I think that the traditional 60-40 is…I think now that people have more exposure to the alternative space, we have podcasts like this, we have the internet, there’s more publication going on about the different types of opportunities. Reg D offerings, 506(c)s, which you have the general solicitation exemption. And so, you’re seeing a lot more information about other opportunities outside of Wall Street. So, I think that there’s going to be a shift. There should be a shift. And conservatively, depending on what your age is, and risk tolerance, and everything, again, I’m just a crazy person that manages money. I’m not a financial advisor. But you should consider doing somewhere between 10% and 20% in something non-correlated.

And a lot of people will take that as, “I’m going to put 20% in real estate.” It’s like, well, all of that 20% should be diversified, not just 20% plopped into something, one asset. This should be exposed to that space completely. It’s the same way as…you don’t have 60% of your portfolio in one stock, right? You have it spread across a bunch of different stocks. So, same with alternative allocation. If you’re going to be in the alternative space, be allocated across a bunch of different alternatives with that small portion of your portfolio.

I think now is a great time to recalibrate how you’re invested, and you should really think about tax strategies, because we just printed a lot of money, and they have to get it back from somewhere. And so, the first place they’re going to go is your…where’s your taxable money coming from. So, we have a lot of people moving into retirement. We have a lot of people that are going to be passing away and passing down legacies. So, what is your state tax situation? If you have things that are in a traditional IRA, do you have the capability to making that into a Roth IRA? And what’s your strategy from that?

Do you have money in real estate? Do you want to sell your real estate? Do you want to know what other options are besides 1031 exchanging? Because all that does is kick the tax bill down the road. And it was meant for tax savings. You would save that until taxes were lower, and then you could take your gains out. Your situation now is that taxes are only going to go up. So, the more cash that you can take off the table in a tax-efficient way, the better. And that’s what we like to focus on at Alternative Wealth, because I come from two parents that were CPAs and tax accountants. So, when we make investments, we try to make…

Andy: It’s in your blood.

Kelly: Yeah, it’s in my blood. I was doing my taxes at 15. So, everything that we do is tax efficient. We try to make sure that we’re buying assets the most tax-efficient way possible. Or we work with clients, because I have a CPA that sits on my board. I work very closely with an estate attorney. It’s a team effort here to make sure that if you’re putting money with us, is it the most tax-efficient way possible? Is there a part of your portfolio that could benefit from these types of assets that might help you move money around? It doesn’t mean that you’re necessarily going to dump all that money in with us, but it does help you invest with us later on when we could save you $2 million in your IRA. Which we did for one client, so.

Andy: All right. Well, tax efficiency is one of those things, it may not be that exciting. Although, I think, Kelly, you find it exciting. But some of us find it exciting. But it’s like guaranteed…I almost want to call it alpha, right? Tax efficiency is like a guaranteed return booster.

Kelly: Well, yeah, it definitely boosts your returns. I know we go back to oil and gas a lot, but especially in oil and gas, when you’re talking about…you put $1 million in oil and gas, and if the majority of that is your intangible drilling cost, you’re talking about lowering your taxable income by $1 million. If you’re in the highest tax bracket, that’s $300,000 worth of savings. What could you do with $300,000 that you’re not paying to Uncle Sam?

Andy: Absolutely. So, I know we’re almost out of time, but I wanted to ask about that energy fund that you all…has that fund already launched, the new energy fund?

Kelly: Yes, we actually launched it last week. We’re raising $25 million for oil and gas development here in Texas, Oklahoma, and then North Dakota, Wyoming space. So the Bakken. We have some really incredible deals that are partnered with really big family offices. So, while we might come in with $1 million, the other half of that’s coming in with $100 million. So, what might seem really risky for us is just another check for a much larger firm. And so, that’s the kind of opportunity you get to participate in with the smaller check like $100,000, or $200,000. You’re playing at the same table as $1 billion oil and gas deal. So, you get that kind of support. So, it’s a kind of a cool opportunity. There’s a ton of tax advantages to that.

We separated the energy fund from our diversified fund because we already did drilling in the diversified fund. We had about $4 million or $5 million invested in drilling. Those successful wells, we now have the opportunity to do in full drilling, so drilling around that successful wells. So, just doing further development. And instead of doing that inside the diversified fund, where we already have that exposure, we’re just separating it, and putting it in the energy fund, so that it maximizes the tax return benefits for the investor while mitigating the risk because we’re everybody involved in these fields.

Andy: Absolutely. Are you seen a lot of excitement among individual investors for the energy space?

Kelly: Oh, yeah. Because I think that we’re running out of time with our tax benefit in that space. So, it really has a lot to do with who gets elected into office in 2024 of how vulnerable that tax break is. So, for now, we’re just taking advantage of it while we can.

Andy: Sense of urgency. Right? Never hurts have that sense of urgency. So, Kelly, where can our viewers and listeners go to learn more about both of the funds that we mentioned, as well as Alternative Wealth Partners?

Kelly: So, we are currently working on our website. So, if you just go to www.alternativewealthpartners.com, there’s a link in there that says Learn more, Invest, or Learn how to invest, or some button like that. It’ll take you to our dashboard, which is our kind of our deal dashboard. This is where the investors go. Once they’re invested, they can access the back end of it. But all of our funds are available on there, so people can go and click through there, and learn about them. And if they choose to, they can actually just click and invest right there.

We are also going to be featured on IRA Club’s marketplace. So, if you’re not familiar with self-directed IRA custodians, IRA Club is out of Chicago, and they are becoming a broker dealer. So, that’s kind of a cool thing. So, they actually have a self-directed IRA marketplace. So, we’ve been through all the background checks, and all of the…everything, so we’re going to be on their platform. So, if you have retirement accounts, you want to move into that. They’re a great custodian.

And then if you want to learn more about me, and everything that I’ve been on, then you can always visit my website, which is kellyannwinget.com. It has all of my podcast recordings, including our first meeting, Andy. And then any of the publications I’ve been in, which most recently has been “Forbes,” and soon to be “D Magazine” in Dallas.

Andy: Great. Yeah. And I should mention, Kelly, I see you everywhere across the web. I follow your LinkedIn and everything. And I always like talking with you just to kind of get your viewpoint on macro even, just from a little bit of a different angle. You’re always very professional and polished, but you also tell it like it is. You tell it straight and what you’re seeing with your deal flow. So, I absolutely love your perspective.

And I also want to mention regarding your funds that Alternative Wealth Partners and Kelly will be appearing at the Alts Expo, which is upcoming on December 8th. So, family offices, IRAs, and wealth managers, and accredited investors can register for that event. It’s free for advisors and investors to attend. And the Alternative Wealth Partners’ slot is at 10:45 a.m. Eastern Time. So, we’re looking forward to speaking with you again then, and learning more about your offerings at that event.

Kelly, thanks so much for coming on the show today, and sharing all of your insights with us.

Kelly: Thank you, Andy. It’s always fun to talk to you.

Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.