The Direct Private Investments Show

When I was 19, I returned to what had been my family’s ranch outside Calgary

to work for our neighbors, the new owners. What I remember most, aside from Myra’s home cooking, was the amount of work that went into preparing for the next season, welding broken machinery, sharpening blades, stocking seed, and hundreds of other small but necessary tasks.

Investing in private markets, while less physically demanding, can be a challenging and complex task. With so many industries, sectors, and investment opportunities available, it can be difficult for investors to know where to start. However, Carofin, a direct private investment bank, has been successfully navigating this landscape for over 27 years, raising capital for small and medium-sized businesses and structuring and supporting private debt and equity investments for high-net-worth individuals, family offices and private funds.

In this article, drawn from an episode of the Direct Private Investments Show, we explore Carofin’s approach to building a diverse, direct private investment portfolio and the insights they offer to investors looking to
do the same.

A Generalist Approach

According to Bruce Roberts, Carofin’s approach is simple: take a generalist approach to investing in private markets. Bruce notes that while this may sound straightforward, executing this approach can be challenging due to the broad range of industries Carofin covers.

However, Bruce believes that diversity is key to building a successful direct private investment portfolio. By exposing investors to a diverse range of industries, Carofin tries to help them insulate themselves from major, unexpected events and market changes. Additionally, Carofin notes that the private investment market, by its nature, offers a chance to diversify market risk as it tends to be less correlated to the public  market.

Building Industry Expertise

While Carofin takes a generalist approach to investing in private markets, they also recognize the importance of industry and domain expertise in making successful investments. Bruce notes that, after three  decades of investment banking, Carofin has found certain sectors that naturally show up in their deal flow due to their extensive experience and deep network of industry contacts.

By leveraging their network and assembling a team of specialists, Carofin can get up to speed quickly on a specific industry, identifying appropriate investment opportunities within it. Carofin, recognizing that each industry has its own unique set of factors, often seeks to select an issuer with past industry experience; someone who has gained that critical knowledge can contribute significantly toward a successful investment opportunity.

The Role of Private Capital in Certain Industries

Traditionally, commercial banks and the public markets have been the financiers in many industries. Fortunately for private lenders and their investors, this is no longer the case, creating relatively new and potentially lucrative opportunities. For instance, Nash Roberts, Carofin’s VP of Sales and Syndication, notes particularly that conventional lenders have closed the files for all but the largest agricultural operators. By supporting small and medium-sized farmers with working capital, private lenders have filled the gap. These same individuals, while helping farming families purchase seed
pre-season, or buy equipment, fertilize fields, or install water systems, they are bridging farmers with short-term loans that to be paid off with cash flows generated from selling product post-harvest. In the process, investors seeking yield can obtain a compelling return in a meaningful pursuit.

Additionally, Nash notes that, as larger institutional capital sources shrink from financing coal projects (even for metallurgical purposes, private investors are stepping in. Understanding that metallurgical-grade coal is used to make steel, for instance, private investors have the opportunity to invest in this and many industries shirked by traditional, commercial lenders or the public markets, providing more yield opportunities and less competition.

Conclusion

Building a diverse direct private investment portfolio requires a combination of a diversified approach, industry expertise, and the opportunity to invest in industries where traditional lending and public
markets have pulled back. Carofin has successfully navigated this complex landscape for over 27 years by leveraging their extensive network of contacts, assembling a team of specialists, and recognizing the unique set of contributing factors to succeeding in each industry.

Agriculture and mining are just two such industries that Carofin has become proficient in and has built a network of experts to support its endeavors. If you are considering expanding your portfolio of direct private investments, we encourage you to view our investments here.

Timestamps:

0:00 – Introduction and guest backgrounds
1:25 – 3:11 Importance of a generalist approach in private investments
3:11 – Examples of industries Carofin has worked with
8:02 – Leveraging industry expertise to make informed decisions
11:58 – The role of private capital in agriculture and coal
13:20 – Benefits of investing in less competitive markets