Having lost trust in traditional investment pathways over the past two years, Joe McGrath looks at the alternative investments that can add a different dimension to a portfolio.
Investors looking for a way to add some spice to their portfolio but without further exposure to the markets may want to consider one of many sport-based investments that have appeared through the economic downturn. The options are quite wide ranging, although not well known by investors familiar with the more traditional unit trusts.
Using a fund
Experienced investors may want to consider the newly launched Galileo Fund from Centaur Corporate, a sports investment specialist. This fund makes gains from using online sports exchanges to trade on the odds of different sporting event outcomes.
Traditionalists have long poured scorn on any ‘investment’ that sits near the spread-betting sector, saying that it is gambling rather than investing, but there are some points about this fund that may make investors take a second look.
While traditionalists may sneer, it would appear that the bigwigs at the large investment banks think it could be just
the ticket for their high net worth clients in equity markets awash with volatility and uncertainty.
What Investment understands that Goldman Sachs is currently running due diligence on the fund with a view to offering it on its platform while Coutts has held preliminary meetings with Centaur about the benefits that such a fund may hold to its ultra high net worth clients.
Investors should also recognise that this fund is regulated by the Gibraltar Financial Services Commission and is the first fund in the world to make gains in this way while also adhering to a regulatory regime.
Centaur as a business already runs five unregulated funds with assets of £15 million, which have produced annual returns around 40 per cent.
Tony Woodhams, managing director of Centaur, says experienced investors have embraced the Galileo fund as it has already attracted inflows of £2 million before marketing had even begun: ‘We are a quant fund which has an absolute return strategy that is stats based. We are not a betting or gambling business.
‘We are only allowed to market to experienced investors due to the nature of the fund but anyone who is from the investment, finance or trading world will understand the product. It is an emerging market and an exciting opportunity.’
Woodhams says that he expects investors to allocate no more than between 5 to 15 per cent of their respective portfolios into the fund given the ‘niche’ appeal, but he believes it offers a serious alternative to traditional asset classes.
He says, ‘There is so much low-hanging fruit in these markets and it presents an opportunity to generate healthy returns.’
Centaur is currently marketing the initial investment in the fund for retail clients as €25,000 (£21,894), although it says that it will consider smaller amounts for those choosing to invest through a discretionary management service.
Those wanting to redeem their investment in the first year are subject to a 5 per cent charge, although there is a stepped reduction in this charge each year by 1 per cent – year six, therefore has no charge.
Other fees to be considered are the management fee of 3 per cent (calculated monthly), administration fee of 0.15 per cent and custodian fee of 0.1 per cent.
All returns are also subject to a performance fee where the fund manager receives a performance fee of 30 per cent of the net profits including net unrealised gains and losses, net of the management fee.
Despite the various charges, there is no lock-in period or subscription fee to be paid. Aside from the interest already shown in this fund from Goldman Sachs and Coutts, Centaur’s marketing people claim to have attracted the attention of a certain big shot from the hedge fund world who is investing in the business. An official announcement on this is due sometime in May.
Investing in the professionals
For those who like the idea of sports investment but don’t like the idea of how Centaur’s Galileo fund is structured, there is an alternative.
Sillsport Sports Development is a company that uses investor cash to invest in professional footballers at the beginning of their careers. In order to develop its business, it is hoping to attract investors by issuing shares. The company plans to generate profits to investors by gaining contractual rights to individual young footballers at the start of their career. Investors make their gains from the transfer fee when a player moves from club to club.
For example, if Sillsport acquires a 40 per cent interest in a player, the remaining 60 per cent interest would belong to the club for whom the player is currently playing. When the player moves to another club, the company then gains 40 per cent of the fee paid by the new club.
Sillsport says that it has made modest projections based upon fees involving clubs in the lower English and European leagues and it is hoping to secure contractual ownership of 24 footballers from the initial round of investment.
It believes that these rights will cost between £5,000 and £50,000 per player, with an estimated average cost of £22,000 per player. The company says it is budgeting for a 58 per cent failure rate and gross revenue of £4.4 million over a five-year period.
To achieve this, the company would have to trade ten players at least once and procure each player at around £22,000 each.
There are a host of pros and cons for the Sillsport model that investors looking for a unconventional alternative for their portfolio may wish to consider.
The plus points are that the team picking the assets (the footballers) know their stuff and there is admittedly the potential for significant gains. Billy Seymour is one of four ‘player evaluators’ on the team. He gained ten youth international caps and played for Southampton, Blackburn Rovers, Norwich and Coventry City football clubs, among others, as a senior player before his career was cut short by serious injury.
Former Manchester City captain Kit Symons is another of the evaluation team. Symons played at international level 37 times and is senior scout and academy coach at Fulham FC. His previous career highlights include working as first team coach at Crystal Palace while the club was in the Premier League.
The company also employs three other consultant advisers who have either specialist or geographical knowledge of regions, clubs or leagues.
The downside, of course, is that Sillsport is not regulated by the Financial Services Authority and these investments are not, therefore, covered by the Financial Services Compensation Scheme.
There is the worrying risk, therefore, that an investor could lose all of their initial investment if things don’t work out as the company plans. Liquidity may also be an issue as there may not be a market to sell the shares, were the company to be wound up.
Despite this, Sillsport certainly offers something different to traditional sports investment through football club stocks and shares. And with many investors looking for alternative investment options right now, it may just be worth a look.