In a world of low interest rates, you are desperate to identify new sources of income, but naturally, you are wary of taking on too much risk. At OMNIA, we have observed the change in the alternative finance market over recent years, such as P2P, crowdfunding and the corporate bond market, and we fully understand why some of the more attractive headline offers have been greeted with such cool reaction.
Often, too much risk is taken with investors’ capital, and in the world of corporate bonds, the security offered to investors has been inadequate. It led us to ask ourselves whether investors really can have their cake and eat it, and we believe they can.
At the same time, high net worth investors tend to have much of their capital tied up in passion investments – may that be art, classic cars, diamonds or wine– and whilst many of these investments have been made for reasons of passion, investors are hoping for some capital appreciation over time. And they have been right; over the last ten years, classic cars have yielded 487% and fine art has yielded 252%.
The issue with such investments is that they do not pay an income - or rather they did not until now.
Performance of passion investments
Sources: Art Market, Research – Furniture, Chinese Ceramics, Jewellery, Watches, Art. Stanley Gibbons – Stamps, coins. HAGI – Classic cars. Wine Owners - Wine. Fancy Color Research Foundation – Diamonds.
“Over the last ten years, classic cars have yielded 487% and fine art has yielded 252%.”
Fine art as the best performing asset class
As this chart shows, a USD 100,000 investment in a theoretical portfolio of the top 500 artists in January 2004 would have yielded USD 413,000 by December 2013. The best-performing asset class, the S&P 500, would return only USD 197,500 on USD 100,000 invested during that same period. Real estate continues to be the weakest of all asset classes with an average return of just 2% per year.
Generating cash flow against your high value assets
At OMNIA, we have been raising capital secured against these high value assets to generate a regular income stream for a number of years. We raise an agreed proportion of the asset’s value – never in excess of 50%, and we then use the finance raised to fund the investments we are making through OMNIA Private Equity AG, paying the owner of the asset an interest of 3% per annum for underpinning our bonds.
The model is not something we have come across before, so it is something that we are very excited about, and which we believe to be the best way to structure capital for our private equity investments while satisfying the market. We have been keen to use the alternative finance market to fund our investment activities for some time, and that got us thinking – whether we could deploy our proven model in launching a retail corporate bond.
Plenty of liquidity in the market
When creating investment offerings that have focus on the investor’s needs, you end up creating a different product than what the market is currently offering. Today, investors are focused on security, which is why, I assume, they accept zero and less than zero yield of those USD 12.6 trillion that currently are invested in zero or sub-zero fixed-income.
“With USD 12.6 trillion of government and corporate bonds currently trading worldwide with nominal yields below zero, we think it is safe to say that there is a huge market for secured and asset-backed high yielding bonds.” – Daniel Hansen, Founder and CEO, OMNIA Global
Usually, when investors look for security, they turn to real estate - even though it has had the lowest yield over the last ten years compared to any other asset class. In Denmark, you can obtain a mortgage loan (F5) with a negative interest of -0.17%, while the real estate market has only yielded a total of 2.3% over the last five years. A Danish mortgage loan carries a leverage of 80% of the market value.
For OMNIA to supply the market with a bond of security and yield, we must secure our investors’ capital with those asset classes that have yielded the most. Compared to real estate, fine art (top 500 artists) have yielded 61% in just five years, and growth and buyout-based private equity is currently the best performing ordinary asset class on the market.
“With our investments in the highest yielding asset classes, we are able to offer 7,25% coupon on our bonds while it is being secured by the highest yielding collateral. We believe that is what the investors want.“ – Daniel Hansen, Founder and CEO, OMNIA Global
Private equity beats every benchmark
In other words, we are issuing bonds secured against fine art and other high value assets. We then use the funds raised to invest in buyouts within the micro-cap market of growing, healthy businesses through our private equity company.
According to data compiled by Cambridge Associates, an investment consulting firm, nearly every major category of private equity matched or exceeded the strong double-digit one-year gains racked up in 2013.
“In the Asia-Pacific region, the combined returns for buyout and growth funds surpassed public market gains over all investment periods.” - Forbes
With our private equity model, we have now created an opportunity for investors to enjoy a highly competitive and fixed rate of return. Our five-year asset-backed OMNIA Bond will pay 7,25% gross interest per annum over five years, paid semi-annualy, with a minimum investment of USD 100,000 and the investors’ capital returned in full on maturity. The bond is listed Frankfurt Stock Exchange and freely transferrable.
Our investment approach
At OMNIA Private Equity AG, we identify companies with the right culture and business model – one that will benefit from our unique approach to value creation. We primarily invest in companies in the SME sector – companies generating EUR 1-10 millions in earnings before interest and tax, that can demonstrate annual growth in excess of 20%, and which we believe we can scale rapidly through increased funding and marketing. We only invest in businesses where the management team has a proven track record and has focus on fast-moving sectors such as technology, entertainment and fashion.
Being successful in private equity, especially within the SME market, requires a different approach than to the middle market. SMEs are almost always founder or entrepreneur-driven, which means the decision-making process is different from larger corporations being run by sophisticated management teams. The entrepreneurs focus on creating something to be proud of, and they are generally looking for partners with a similar mind-set who can help them create that. Therefore, adding value and being a partner rather than being an investor is the key to succeed in the SME market.
Our way of adding value is two-sided. On one side, we offer the companies access to a massive marketing platform as well as endorsements, content marketing and product placements in the entertainment industry. This is usually the greatest expense for a growing company. On the other side, we offer a way of capitalising on their success without selling their business by taking the company public. As we are not an investment fund with a set exit date, we can keep being invested in the companies as long as we like, and our strategy is to buy-build-and-hold.
We strive to build a portfolio of companies with great synergic effect among them. The bigger the portfolio, the greater the toolbox for our portfolio companies; a portfolio of best of breed entrepreneurs and minds roaming the entrepreneurial space.
“The bigger the portfolio, the greater the toolbox for our portfolio companies; a portfolio of best of breed entrepreneurs and minds roaming the entrepreneurial space.”
Have your cake and eat it too
The OMNIA Bond creates an opportunity for investors to follow the journey of successful, fast-moving companies without participating in the risk of their future. We are excited about expanding our business and having found a way of satisfying the needs of our high net worth private clients and prospective bondholders in a way that we believe is truly unique.
It really is possible for asset owners to earn a residual cash flow off the value of their assets without having to sell them – and for investors to access an investment with an attractive rate of income and security.
You can read more about OMNIA Private Equity AG and the companies that we invest in on omniape.com
By Daniel Hansen, Founder and CEO, OMNIA Private Equity AG