The Direct Private Investments Show
Industry Themes
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

Introduction

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
with Matt Brown, 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 factors that
contribute to success in each industry. For more information, please see our
episode of the Direct Private Investments Show here (link to video).

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.

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