Hedonova's Suman Bannerjee talks about alternative investments

Suman Bannerjee, CIO, Hedonova

In today's time, what role does alternative investments play in managing one portfolio?

It reduces the risk a lot and increases the return a bit. The best way to think about asset allocation between stocks and alternatives is timing. It's best to invest in stocks when markets are at historical lows, and it's best to invest in alternatives when inflation is high. Investors who allocate 30% of their portfolio to alternatives see returns rise by 12% and volatility reduced by 20%.

How many alternative asset classes does Hedonova have? Can you explain some in detail?

We invest in 10 asset classes. Some of the interesting ones are equipment finance, litigation finance, music royalties and carbon credits.

Equipment finance is a type of financing that is used to acquire equipment for a business. This type of financing allows a business to acquire the equipment it needs without having to pay for it upfront. Instead, the business can make monthly payments on the equipment over a set period of time. This can be a more affordable option for businesses that need to acquire expensive equipment, such as machinery, vehicles, or computers. Investors earn a monthly return and get tax benefits as the equipment depreciates.

Litigation finance is the practice of providing financial support to plaintiffs and defendants in legal proceedings in exchange for a share of the proceeds from the case. This type of financing can help individuals or businesses pursue legal action that they might not otherwise be able to afford. Litigation finance can take many forms, including loans, advances, and investments. The goal of litigation finance is to provide a source of funding for legal proceedings, allowing plaintiffs and defendants to pursue their cases without being held back by the high cost of litigation. Investors earn 70% to 80% of the settlement money.

Investing in music royalties is a way to earn money from the sale of music. When music is sold, the creators of the music are entitled to a portion of the profits. This is known as a royalty. By investing in music royalties, you are essentially purchasing the right to receive a portion of the royalties generated from the sale of a specific piece of music.

A carbon credit is a tradable certificate or permit that represents the right to emit one tonne of carbon dioxide or other equivalent greenhouse gases. Carbon credits are a tool used by governments and businesses to help reduce greenhouse gas emissions and address climate change. They can be bought and sold on carbon markets, and the proceeds from the sale of carbon credits are typically used to fund projects that reduce greenhouse gas emissions. For example, a company that wants to emit more greenhouse gases than is allowed by its emissions quota can buy carbon credits from another company that has reduced its emissions below its quota. This helps to reduce overall emissions and incentivizes companies to invest in clean technologies. Carbon credits are trades just like stocks on various exchanges across the world.

What have been the challenges and opportunities that the pandemic has posed for your sector which according to you will have a lasting effect?

Assets under managers for alternative investments have doubled since the pandemic. There were no major hedge fund blowups when the markets dropped 30% in April 2020. I would chalk that up as a win for the industry. Something to note here is that alternative investments like private equity funds held fort while the stock markets collapsed.

There are umpteen investing opportunities in the markets, what sets you apart from the rest?

We offer a single point of entry into alternative investments. Most sophisticated investors can do what we do themselves but it taken an extraordinary time to research and spend a lot of money valuing assets and tracking them. Selling them takes a whole different level of efforts. We make this process easy creating a single mutual fund that invests in multiple alternative assets. What we've also built is a structure for investors to invest locally. We've set up feeder funds in almost every country. So, although we're a US firm, an Indian investor can invest in our Indian feeder fund, as if it's a local investment and pay local taxes.

What is the vision and mission of the company?

We're trying to provide a tool for people to invest in anything, anywhere they want. It's quite silly that an Indian cannot invest in Korea, or a Frechman cannot invest in South Africa. We're offering a single place for investors to get access to many alternative investments, globally.

https://www.hedonova.io/