Last updated on December 15, 2022
This podcast episode brought to you by Covey — Covey is designed to find, reward, and train the next top investment managers —from any background—that anyone can copy, so everyone can win.
Kyrill Asatur, co-founder and CEO of Centerfin, joins the podcast to discuss his view on asset allocation going into 2023: why he is bullish on hard assets like energy and bearish on fixed income — and why the inflationary environment is likely going to stick around.
Content Highlights
- How Centerfin was set up coming into this year and what went into its contrarian decision to avoid fixed income (4:06);
- Current views on the market after a tough year (5:25);
- Centerfin’s take is to be long hard assets, including commodities and commodity-linked equities while continuing to avoid fixed income like bonds (7:44);
- The environment is different now. There has been a regime change since 2017. Inflation can’t just be exported anymore (9:48);
- There will likely be a recession. Once we emerge from it, leading industries will probably be different than they were in past recoveries (11:18);
- Why Centerfin is bullish energy and how they are playing it (12:55);
- Their chosen ETF to get exposure to clean energy (14:48);
- There is no need to buy international (ex-US) energy stocks (16:36);
- Short discussion on the concept of introducing different prices for different uses of energy (18:48);
- Re-shoring from China with Apple (AAPL) moving all its production out of the country and how to potentially play that trend (20:46);
- Background on the guest and what got him to start Centerfin (25:53);
- Distressed investing remains out of reach for most investors but Centerfin is considering ways to change that… (30:52);
- The bullish case for copper (39:13);
- How best to gain exposure to uranium (40:00).
More on Kyrill Asatur and Centerfin
- Website: Centerfin.co;
- Twitter: @WallStHobbes;
- LinkedIn page;
- Facebook: CenterfinHQ;
- Instagram: @CenterfinHQ.
This podcast is for informational purposes only. Nothing here is intended as investment advice. Do your own research, make your own decisions.
Quick Video Highlights From Our YouTube Channel
Transcript
Nathaniel E. Baker
Kyrill Asatur, co founder and CEO of Centerfin in New York. Kyrill, thank you so much for joining the contrarian investor podcast today.
Kyrill Asatur
Nat, thank you so much for having me.
Nathaniel E. Baker
I’ve known you for a while. But you’re you have this new venture that we’re going to talk about in a bit. But I want to first get your views on the market, because some of these are quite contrarian. And you’re a little bit cautious about the volatility here in the short term, as I believe most are, but longer term, you say are a little more constructive. So talk me through that. Tell me about it.
Kyrill Asatur
Yeah, so you know, really, the the name of the firm comes from the concept of balance and balance, I think is important in everything in life. And managing money is one of those. And so when we kind of think about where we are today, and this is, you know, we’ve been in this for two years managing money, actually, for about a year, little over a year, we have to take a time horizon, that’s, that’s consistent with our clients objectives, which is usually, you know, given the age of our clients, it’s 20, 30, 40 years. So it’s a very long term time horizon. That being said, we cannot ignore the significant macro kind of headwinds that we’re facing that we have been facing really, for the last, you know, year or so. And our goal is to, you know, try to protect against some of that volatility as as we experience it, but still maintain that longer term time horizon, which, you know, I think continue, you know, go back over long periods of time, you know, generally wants to be bullish risk assets, but it’s a matter of kind of, what sectors and what industries and what companies you’re exposed to, rather than just being, you know, long stocks or long bonds, or long, you know, some combination of the two, we actually think the long, you know, the 6040 kind of stock on approach that’s, you know, the most widely available to to individuals out there is just not going to work for the foreseeable future in this environment. So we have a very different approach.
Nathaniel E. Baker
Yeah, it certainly hasn’t worked this year. So of course, this begs the question, what you think of the market environment heading into next year? And what you think will be the leading industries, I guess, or sectors?
Kyrill Asatur
Yeah, no, that’s a great question. So, you know, to take a step back going into this year, we were reflecting on the environment. And this is, you know, this 12 months ago, if you recall, the tenure was trading at one and a half, right? We’re trading at three and a half, but it got as high as four and a half. But the tenure a year ago, trading at one and a half seems like a very risky proposition to us, right, because you’re taking a lot of duration risk, and you’re not really getting any return in terms of yield for it. And so our view was given that the inflation environment, which at the time, if you recall, was, you know, everybody was still discussing it being transitory, that was the narrative in the market. Our view is that if there was some not insignificant probability, that the inflation would not be transitory, and in that environment, the kind of obvious thing to do, and there’s never really obvious things to do, but it’s, you know, it seems to be common sense thing to do, which would be just get out of fixed income, right? Because inflation is going to be first and foremost worse for fixed income. And so we made a conscious decision to basically pare back, you know, any and all traditional fixed income exposure and client portfolios on instead, instead, replace it with commodities and commodity related equities. And in hindsight, that proved to be the right decision. But at the time, you know, it felt like, again, it felt like, you know, it was a common sense thing to do, if, if you were to, you know, be concerned that inflation was was more than transitory. And so that was a year ago. Now, we’re sitting here today, and obviously, it’s been a tough year. And we actually, you know, if you look at the stock market, where, you know, on broader indices, you’re down 15%, on the s&p 500, you’re down, you know, north of that, obviously, on NASDAQ, which has been kind of the leading stock market for the for the last decade or so. So it’s not terrible, but I think it feels terrible, because along with that you have, you know, the bond portion of client portfolios, again, which is what most individuals are allocated to, is down just as much, and that’s not supposed to happen, right. And that’s kind of the problem that we foresaw and that we can pull continue to be a problem, which is that, you know, stocks and bonds this year have been correlated, and we think an inflationary environment, which I think will will be in for the foreseeable future in a kind of a structurally inflationary environment. You’re not going to see the negative correlation between stocks and bonds that you were used to. And so our view is that you still want to be long stocks, but you want to be weighted towards them. certain sectors, and particularly, we think it’s more hard asset industries like energy, like metals and mining like industrials. And we think that you also want to have exposure to, you know, the commodities themselves, maybe to a lesser degree. And we think he, you know, for now, anyway, it seems like, you know, it’s best to avoid traditional fixed income. So, you know, there’s, there’s other ways to get yield instead of portfolios. But traditional fixed income seems to be, you know, even with the massive move that’s happened, unless, you know, we’re heading into, you know, a deeply deflationary environment, which some people are calling for, but it’s just hard to see that, it feels like that’s not a good place to be. Now, that could change, which is why, you know, it’s very important to be paying attention as to what’s going on and being active and not be wed to to your movements, kind of in this kind of market.
Nathaniel E. Baker
Wow, that’s interesting that you just gave us a bunch of stuff there for us to unpack. I mean, first of all, so it sounds like you’re kind of the same setup almost as the beginning of this year, in terms of staying out of fixed income, and staying long commodities, and that whole space, but this is, I mean, oil and commodities have run up pretty much this year, and fixed income has dropped a bit, which would normally be when people might consider reversing course, but you think it has further to go that same trend?
Kyrill Asatur
Yeah, we don’t think inflation is, you know, again, you know, we’ll kind of see how the situation develops. But we think we’re more likely in a more persistent kind of higher than average inflation environment, in which case, you just don’t want to be long, traditional fixed income assets, and you want to be long things that benefit for inflation. You know, equities is one of those things, and kind of real asset industries is another one of those things. We think the big difference between today and kind of pre 2021. Right. So, you know, we kind of had this, you know, getting big regime change, we had post 2008, you know, United I think met right around that time, post 2008, we had that big bust. And the Fed came in, and they offered a bunch of liquidity to the system. And that liquidity, everybody was worried if you were to call about inflation, because you’re printing all this money, it’s going to cause inflation and the inflation, everything. And the reason now with the benefit of hindsight, and I don’t think anybody has a perfect explanation, but I think a reasonable explanation is that the globalization that we’re going through, right, which is basically, you know, working with, you know, the the western countries working with Eastern countries and the Western countries kind of using the cheap labor of the Eastern countries, namely China, amongst others, that was the in itself a massive kind of disinflationary force. And so it was helping keep keep a lid on inflation, even though we were doing all this monetary stimulus, right, all this all this money printing that was doing now fast forward to, you know, the big, you know, that that was beginning to roll over in 2019. Because if you recall, under the Trump administration, he completely changed our stance towards China, probably rightfully so. And, again, with benefit of hindsight, Biden hasn’t changed anything since coming into office either. And so we have a different relationship with China. Now, we’re no longer kind of we’re, we’re more frenemies, than we’re friends at this point. We kind of need each other still. But I think each country is kind of focused on their own specific needs more so than cooperating with each other. And so you don’t have the benefit of globalization to be disinflationary anymore. Needless to say, we’re not doing trade with Russia, and we’re not, you know, importing energy from them anymore, either, right? And so you have a very different environment where you could not have, you know, the common response to any kind of blips in the economy, in the post financial crisis, pre 2022 period was the Fed, just, you know, we turn around and start easing and printing money, and everything would be okay. Can’t do that anymore. And so that’s why we think that, you know, this this tightening cycle is, is real, we think the federal continue until they see, you know, real signs of inflation coming down, but we don’t think inflation is just going to go straight back down. 2% just doesn’t seem likely. Maybe none of their projections, you know, to date have been right, and it doesn’t seem likely they’ll be, they’ll be right this time, either. And so what we think that means is that, you know, you want to be long things that are, that are going to benefit from that kind of environment, and you want to be active in how you adjust your exposures as things move around. Because, as you know, you know, things move quickly these days. And you can’t just be, you know, set it and forget it, you know, robo advisor or auto balance or all that stuff that doesn’t work in this environment. That was the prior decade. Today, you need to be much more cognizant of what’s going on and help them. So yeah, so we would recommend, you know, and again, none of this is financial investment advice. But we generally would think that, you know, being long commodities and commodity related companies and industries that benefit from this environment is kind of the right way to position and we think that is probably going to be once whenever we have a bottom and whenever this You know, recession that is, you know, the most telegraphed recession I’ve ever heard of. But whenever we get this recession, which it most likely will happen, whenever we, you know, the market usually bottoms before the recession actually, you know, finishes. But the leadership coming out of that period will be very different than it was in the last decade. So we think it might be some of these harder asset industries, like industrials, like metals and mining like energy. And so that’s that’s how that’s how we’ve been repositioning portfolios.
Nathaniel E. Baker
I guess the caveat being that these be Western slash US or North American, ideally, energy producers, right?
Kyrill Asatur
Yeah, that’s absolutely right. So yeah, we’ve, we’ve significantly like, you know, there’s been a bunch of different things we’ve done over the course of 2022, one of which has been significantly reduce our exposure to Europe, and that was done early 2022. People from Europe, even Western Europe, yeah, we think Western Europe is probably ahead of the US in terms of the economic weakness, they’re also more vulnerable to the energy crisis, which, you know, we’re kind of plodding along. But it’s still a problem. But to your point about, you know, being positioned this way, the pocket of the world population, I think, in November, just hit 8 billion, the population is growing at, I think 1% a year globally, that’s 80 million people add it to the population globally. We need energy, you know, it to have a functioning society, you know, East West, it doesn’t matter, we need energy. And so we think that there’s an there’s been a, you know, it’s it’s now not contrarian to say, I guess, but I don’t think a lot of people are speaking about it in this way. But there’s not been a lot of investment in energy, particularly in North America. And we’re going to need to do that. And so we have, we have exposure to clean energy, we have explored traditional energy, we have exposure to uranium, which benefits from, from nuclear, culturally coming online as an additional source of energy, which we think is a very logical thing to do. And I think, you know, largely has been Shawn, because of political reasons, rather than fundamental reasons. And so those are those are kind of those are areas that we think will benefit in the in the coming environment.
Nathaniel E. Baker
You mentioned political stuff, there’s a, obviously a lot of politics that can play a role here, especially when it comes to that stuff. And it hasn’t the Biden administration been pretty opposed to, you know, new investments and energy and kind of trying to squeeze the energy sector here and been very unfriendly to the whole US energy sector. And isn’t that a concern?
Kyrill Asatur
It is, and that’s, you know, like, that’s, unfortunately, you know, political risk is part of, you know, these types of industries. And so that’s why I say you have to kind of pay attention to what’s going on, because, you know, there are there are these additional risks that you need to be aware of, and the Biden administration has been, you know, unfortunately, I don’t really, it’s hard to understand where this message is coming from, because, you know, from from one side of their mouth, they’re saying, you know, that they want to shut down, you know, traditional traditional energy sources. On the other side, they’re saying that we need to produce more in order to lower the price of energy. You can’t have both. And so, so I think I hope that, you know, whatever leadership is kind of in charge of this and the Biden administration, they they come around to a more balanced view, because it’s not, it doesn’t make any sense. It’s the two are in conflict with each other, and energy companies are not going to invest in their business. If if there’s, there’s a risk that, you know, there’s going to be more regulations and taxes and whatnot coming down the pike. And so we need to get clarity on that.
Nathaniel E. Baker
How do you play the clean energy boom?
Kyrill Asatur
Yes, so we’ve had, we’ve had a position in, in an ETF that has exposure to kind of the clean, clean energy companies. And there’s, there’s, there’s some, you know, uranium miners in there, there’s, there’s solar companies, there’s wind companies, there’s, you know, some energy utilities in there, it’s something that we’ve actually had as a core position, you know, pre 2022, that we feel like, again, kind of, if you think about our timeframe for our clients, 20 3040 years, that’s definitely going to be an area of investment. Right. And so, that’s been a core kind of allocation of ours, going back since inception.
Nathaniel E. Baker
Now you know, I’m gonna ask you about the ETF, of course. Right? And with the understanding that it’s not investment advice
Kyrill Asatur
Not investment advice. It’s I-Clean, ICLM.
Nathaniel E. Baker
Okay, cool. Any reason you took that one, as opposed to that, I mean, there’s a bunch of these, right?
Kyrill Asatur
Yeah, there’s a bunch. We like this one better, they also better than the others. They also rebalanced it at the beginning of this year, to make it less it was a little bit it had a little bit more exposure free 2022 into more speculative kind of clean energy plays. And they rebalanced to to more, I guess I’d say less speculative value play. So it’s a more, you know, there’s a little bit more of a utility like element to it, which we also like because we actually don’t have, you know, we don’t have a ton of traditional utility exposure because it’s just not a sector that we think of track from a valuation perspective. And so we like it from that perspective.
Nathaniel E. Baker
Okay, what do you think of other other sources of energy, other countries that produce energy other than Russia? And, I guess, the Middle East, and, yeah, and places like that, because one of the, I’ve seen some coverage here. And I had this thought, actually, when the Russia thing has started that Europeans might have to go to Africa, in particular, there are a lot of countries in Africa and Nigeria, Angola, and others that produce a ton of oil. So have you looked at that at all? or South America to like Brazil? As have? Yeah,
Kyrill Asatur
yeah. So, you know, the good thing about the United States is we actually have all of the energy that we need, right? We just need to, we just need to produce it, and it just have not invested in producing it. And I think that, ultimately, that’s a better answer than going, you know, again, make the mistake that Europe made, and we did so to a lesser degree, you know, if you think about it, relying on Russia, for cheap energy, when Russia is a dictatorship, that is at the whim of, of one, one person that can change their, you know, view in the world and change everything overnight. That was a risky thing to do. And I think that was a, you know, again, not to dive into politics, but my understanding is a lot of that was led by politics in Western Europe. And so I think we just need to, you know, to my point earlier, we need to have the government leadership, you know, lay out the ground rules for what this looks like, but not for the next two to three years, but for the next, you know, decade plus, and we need to have a more thoughtful plan about how to slowly transition into cleaner sources of energy domestically, we don’t really need to go outside of this country. And that’s the beauty of it. You know, it is an interesting thing that I, there was a podcast that I listened to actually, this week, or last week, I forget, but somebody was making the point that, given that the the world is, you know, going to continue to grow from a population perspective, and your world needs incremental energy. And, you know, the transition to clean energy is not happening overnight, you know, the concept that I thought was super interesting, which I don’t know how to play this at all. But I just, you know, throw it out there as an interesting discussion point. But the concept was introducing different prices for different uses of energies that have sources of energy. So for instance, the example that they made was, okay, so, you know, if you want to stream, you know, binge watch a new Netflix show, like I did with my family, the new, the new, Tim Burton thing on Netflix, with my kids this past weekend, well, that’s a pretty, you know, quote, unquote, frivolous use of of energy, right, you’re still using a lot of energy because that, that data sitting on data center data centers, using a lot of energy, you’re using your TV, that TV is using energy, right, you’re using energy to do that, versus, you know, let’s say heating your home in the wintertime in the Northeast, and in the United States. That’s a different use of energy. And so why is that energy all priced the same? And it kind of like makes sense to me, maybe this is a mechanism if we can figure out if somebody could figure out it’s the government, I don’t know. But if somebody could figure out a way to price energy at different levels, based on how we consume it, that could be a nice way to transition us eventually into clean energy regime, but it’s still gonna take decades. It’s not gonna happen overnight.
Nathaniel E. Baker
Yeah, I mean, one way, maybe, I mean, it probably would involve some legislation, which, you know, good luck. But maybe if you have some kind of way to kind of incentivize cleaner energy, like you take the train, you get some credit, right? And then you can use that for washing your streaming thing or something, versus if you own a car, and you’re, you’re buying gas, that’s, you know, for all the reasons is more harmful. And I mean, they’re too good luck with that, because there’s bound to be all kinds of fighting. But maybe that’s one way of doing it. I don’t know. Well,
Kyrill Asatur
I think that that’s a more I think that’s like, like your example, a great example to write it’s like it’s just a more common sense approach to solving this issue that we clearly need to get on top of, but it’s just again, you know, just curtailing or getting rid of traditional energy supply is just not a it’s not a solution. It’s not realistic. Right.
Nathaniel E. Baker
Now, you taught the whole, you know, reshoring thing from China, we had news over the weekend that Apple is apparently going to be moving all their production out of out of mainland China, I believe, which, somewhat surprisingly, didn’t really affect the stock, at least not from what I’ve seen. Do you have your thoughts on other themes, other ways of playing that? I saw that the Vietnam index shot up today, maybe as a result, because they’ll get a lot of business that China isn’t getting a manufacturing? So that’s maybe one obvious one, but you have other other things that you think are ways of playing that?
Kyrill Asatur
Yeah, I mean, I do think that that’s going to be a trend for the next, you know, for the for the next at least decade, if not longer, because I do think we’re moving away from this prior, you know, kind of globalization regime and I find that it’s, it’s actually surprising but not surprising, because, you know, one of the things that I used to, you know, when people used to bring up the concept of ESG, which, as you know, is kind of a very popular topic, talk about my response was always like, Okay, well, how do you, you know, pretty much everybody owns Apple, right? I mean, everybody owns Apple, Apple manufactures, all of their products, or most of their products in China, that China runs modern day concentration camps based on religion. How was that governance? Like? How does that stuff? How’s the social element of that ESG going right, when you own apple? And so I was glad to see what they were, what they were doing, because, you know, there’s been protests and all sorts of things going on in their plans. And so I do that will continue. I mean, you see it with semiconductors, right. Semiconductors is almost like a national security thing. It’s almost like energy from that regard. Right. Where, you know, the chips act that they passed recently, I think is a is an Asian that probably more of that type of things come where the government is going to help subsidize the development of these industries in the United States. And I think that’s a positive for for the country.
Nathaniel E. Baker
Yeah, no question. No question. But no, no specific way you can think of playing in Vegas. I mean, the obvious, you know, the domestic chip manufacturers that’s already been priced in, I assume, at this point.
Kyrill Asatur
Yeah. Although they’ve all gotten caught up, you know, in the in the downtrend in that in that sector. But I think kind of coming out of this again, it’s too early, probably at this point. But coming out of this, there might be you know, we haven’t done the research on it yet. But there might be a handful of ways to play it.
Nathaniel E. Baker
Cool. All right, Kyrill Asatur of Centerfin, I want to come back and ask you some questions about yourself about your firm that you started. But let’s first take a quick break. And hear from our sponsors. If you aren’t a premium subscriber, you do not get the break. Don’t go anywhere. Don’t touch the dial. We’ll be right back. In fact, we already are.
Nathaniel E. Baker
Welcome back, everybody here with Kyrill Asatur of Centerfin. Kyrill, this is the section of the show where we ask our guests to tell us more about themselves, and about how they arrived at this station in their career. And you’ve had a pretty long career on Wall Street. Again, I guess when we started talking, you were at a hedge fund as part of my hedge fund coverage to resell Goldman, I can’t remember. But yeah, tell us about that. And then how you came to start the centerfin?
Kyrill Asatur
Yeah, no, thank you for asking. So yeah, so I’m originally actually from the eastern part of the Ukraine around that is, is currently under pressure. And you know, where the wars is going on. At the second largest city called [unclear], my family and I moved here when I was a kid in the late 80s. and settled in Queens, and eventually Long Island. I got interested in finance just on my own. Because, you know, when I was in college in the late 90s, we had the first internet bubble, if you remember.
Nathaniel E. Baker
Yeah I do.
Kyrill Asatur
And so I like everybody else thought I was a genius with, you know, borrowed some money from my dad opened up an E trade account, you know, doubled my money in a couple of days. And, you know, thought that, you know, I was the next Warren Buffett, you know, quickly learned my lesson when everything first and I lost most of it. But it didn’t lose my, my, you know, interest in the industry. And so, got my foot in the door at Goldman Sachs, right at undergrad migrated my way into the prime brokerage business there, which is the business that deals with hedge funds, I was very fascinated with hedge funds, I felt like all the smartest people seem to be starting or are going to work at hedge funds. And I want to kind of align myself with that. So I was there for eight years, a client of mine, also to ex Goldman, distressed investors hired me in 2009, to help them grow the business, join them, I was there for five or six years, still very close them, still very friendly with them. And then I got recruited into a couple of roles, none of which worked out for reasons outside of my control. And so started my own advisory practice focused on hedge funds and alternatives. In 2016. In 2019, I started to shape what is now or start to put the pieces together for what is now center fin. So the idea was basically, you know, in my whole career, 20 years on Wall Street, anybody who does work in finance, and some people that do will come to me and ask me advice as to what to do with their money. And I just had no really good answers for them. I felt like, you know, if you have a lot, a lot of money, you can, you know, go to a private bank, but these you’re paying, they’re probably, you know, probably too high. And you’ll get some access there but you’re still paying fees and fees and fees. If you don’t have a lot of money, and there’s really no good options, and you’re gonna get some version of a 60/40 portfolio and you’re probably going to pay too much for it. And so the, you know, as they say, you know invention is the necessity is the mother of all invention. And so I decided to start with Centerfin to kind of address that need because you know, now Now when people come to me friends family, and you know, other clients asking for help, we built the solution for them. So the idea was to replicate to the closest of our ability. And it will certainly evolve with time as we grow a approach that’s more more akin to professional institutional investors, like family offices, endowments, foundations, where, you know, there’s an asset allocation element where they outsource certain portions of the portfolios to external managers. That was the idea. That’s what we set out to build, we started building boom, COVID. Pretty timing, as always, by me, and and then we launched, like I said earlier, you know, earlier this year, and so we’ve been onboarding clients and managing money for for the better part of this year.
Nathaniel E. Baker
Cool. So how does it work? Is it like a traditional advisory where you, you get I guess, you know, custody of the of the funds, you charge a small fee or something, and then you invest on their behalf?
Kyrill Asatur
Yeah, so we are registered investment advisor, where you Sherry to charge a wrap the one half of 1%, which is you know, a fraction of what a traditional advisor is, we manage the client portfolios to their kind of risk tolerance and time horizon. And like I said, we don’t utilize a, you know, we’re not wedded to any one approach. But we certainly have felt, as we were talking about earlier, that the 6040 approach is certainly not going to work in this environment. And so we’ve taken a very different way, a very different approach, we actively manage it. We also are, you know, as time goes on, as we grow our plan, and some of this is already in progress, but to introduce kind of, you know, real alternative strategies into client portfolios, we have some right now, but, but there’s going to be more and more to come as we get as we get bigger. So. So yeah, so it’s a very different because you’re familiar, I mean, it’s very different than, you know, than what most individuals have access to today.
Nathaniel E. Baker
Yeah, 100%, you know, your background distressed? Is there any, any kind of way, that’s one of these asset classes that you can’t really get access to as a individual or non high net worth? Right?
Kyrill Asatur
Even if you are? Yeah, that’s, that’s definitely something that’s, that’s definitely something that we think makes sense. So distressed investing, for those listening that are not familiar is basically, you know, it’s buying into usually the debt of companies that are going through some sort of, you know, restructuring or under, or under financial pressure in so, you know, usually buying into the debt at some fraction of, you know, pennies on the dollar for lack of, you know, for simplicity sake. And, you know, generally speaking, there’s lots of different potential outcomes, but in a traditional kind of situation where a company is in good business, but it’s a bad balance sheet, as they say, otherwise known as taking on too much debt, then what happens is that you as the debt holder, become, you know, with a company that’s restructured and you become the equity holder, and then you know, now that the equity in this is good business with a better balance sheet, you know, is less levered, it can then, you know, potentially get into more traditional investor hands, including, you know, mutual funds and ETFs, and whatnot. And so is that recovered, usually distressed investors exit. And so that’s kind of, they serve almost like as a proxy and another proxy, like a transitional investor, from between, you know, healthy companies, and when he goes, you know, to when he gets into trouble, and when it becomes healthy
Nathaniel E. Baker
I had somebody on the show, maybe a year or two ago that was talking about doing that, from a retail perspective, and his idea was to buy the equity, which I think is pretty, pretty risky, because that gets wiped out. That’s the first thing it gets wiped out. So yeah, we thought about how you would play that.
Kyrill Asatur
Yeah, I think we would do it in partnership with someone.
Nathaniel E. Baker
Okay.
Kyrill Asatur
Yeah, we would not try to do that ourselves. And we strongly believe, you know, look, I mean, we, I think we’re where, you know, we’re smart enough to figure out kind of the bigger picture and, and figure out, you know, kind of what’s going on and follow what’s going on and allocate our exposure to change our exposures to that, but within certain verticals, or certain parts of the client portfolios, you know, similar to, like I said, like the family offices down in foundation model, you know, we’re going to outsource certain things to other managers. So that’s how we, that’s how we would do that. Very cool. I find the equity find the equity of a of a, you know, distressed companies.
Nathaniel E. Baker
He had some views on it. Some I forget. Exactly. I forgot I should actually go back and check that out. But he didn’t have an answer to that when I when I asked him about it. But anyway, that’s really interesting. So I mean, obviously it’s tough to start any company and then to start especially, you know, when we’re the space is pretty crowded. So how do you differentiate yourself in this other than, I guess doing podcasts like you are now?
Kyrill Asatur
Yeah. So, so it’s been very organic to date. So we have we have kind of issues also mentioned that and this is more recent. So this is not not as widely known, but we have kind of two kind of parallel paths to market. So we have, you know, direct consumer right to where we’re targeting individuals to, you know, move over existing accounts, whether it be mutual taxable accounts, retirement account, 401, K, rollovers has been a very active source of demand for us. And, and that’s been, you know, that’s we’ve been doing that organically, largely through our network, word of mouth, you know, these podcasts have given us a great exposure. And that’s been kind of slowly growing over the course of the year, a couple of months ago, and this is, it’s been ignored for longer than that. But we were approached by a handful of people just organically in our in our network, again, that are existing RAs and other existing RAS with kind of captive client bases. And basically, the the reason that they reached out to us was because they said, Look, you know, what we’re really good at as a as a financial advisor is the advice piece, right? Like, so our clients come to us, and we want us to help them figure out, okay, I have two kids, they’re this this age, you know, I need to save for college, I want to buy a house and they have this much money, I, you know, maybe they already bought a house, they want to buy a second property, whatever it is, right. So that financial kind of planning and real, real financial advice piece is very valuable to clients, but the way that it works in financial advice, advice industry, in the you know, kind of retail industry is you pay for both of those things with the, you know, for managing the money, right. So you pay a fee, it’s usually, you know, over 1%, I’ve heard, you know, I’ve seen actually, as much as three percentage, it’s kind of crazy, but, um, but you basically pay an asset management fee and the asset on the management fee on your money to the advisor for that advice and for the investment. And so, so firms came to us people that we know, came to us and said, Listen, we’re really good at like managing the client relationship and helping them with their planning needs. You know, and then we really outsource the investment piece to, you know, external firms, or we use whatever we have off the shelf, you know, as part of the whatever platform we’re a part of, but it doesn’t seem like it’s that differentiated. And when they, when they hear us talk about how we manage and what we offer, it is differentiated and so they can actually, you know, more clearly or easily tell the differentiation, because there is they’re a little bit more knowledgeable than the average person. And so we will probably announce this, hopefully this week, but we’re rolling out a whole kind of b2b, go to market strategy, to where we will be offering what we do for individuals to other advisors for their clients. And so it’s almost like a b2b to see strategy, depending on how we choose to work with them, or how they choose to work with us. But, um, but that’s something that we’re pretty excited about, because that’s, that’s something that, you know, kind of in the back of my head, I always thought that would make sense, but I thought it would come later in our life. And, you know, just just, you know, kind of anecdotally, like, where people started to approach me asking me for, you know, potentially being able to offer it, it just just also made sense to do it quicker
Nathaniel E. Baker
Yeah, that does make sense. I mean, it’s interesting that you, you know, you got this nice share in the whole financial investment advisory thing, but it does make sense, like you said, because a lot of these wealth managers are great at wealth management. But when it comes to investing, they just like, don’t, it’s just not their thing, really.
Kyrill Asatur
So yeah, it’s a lot, a lot of it even even for the wealthier clients. For the bigger firms. A lot of the investment piece of it is still tied to a 60/40, like a 60/40 portfolio. Maybe not exactly 60/40. It’s some combination of stocks and bonds. And they and they very much managed to that 60/40. And they might, it might, there might be some differentiation here and there, and they might use some alternatives here and there, but mostly, they’re just trying to now not underperform that 60/40 mix.
Nathaniel E. Baker
Yeah
Kyrill Asatur
And what we said is, you know, look, our, our role as a fiduciary is to do what’s right for the client, not to, you know, not not to stick to a benchmark, right. And so to my example, earlier, which I think is the right approach, you know, fixed income at the end of 2021 Seems like a risky proposition. But if you were to follow what a traditional model will tell you, or a traditional financial adviser will tell you based on, you know, let’s say your age and risk profile, let’s say you’re on the older end, closer to retirement, they would say, you know, a lot more in fixed income plus in equities, and that was, that was a bad that was not the right advice. And, and they just, you know, a lot of traditional firms just won’t do it, because that’s kind of, you know, they’re, they’re designed to just do you know, what’s, what’s been done for a while.
Nathaniel E. Baker
So okay, so that does take us kind of full circle here to the various investments that you have you mentioned ICLN as a way to get exposure to clean energy. And what other kinds of exposure do you have/recommend now?
Kyrill Asatur
Yeah, so we, I think you and I talked about it before, but we also have a position. So we’re bullish on copper in general, as a as a theme, as kind of part of this clean energy, the steaming transition of, of supply of energy into into cleaner, cleaner sources. Copper is a big input to that. It’s a huge that and, and there’s not a lot of, it’s also something that is in short supply, and the biggest minor of copper in the US Supreme Court with Marin sex ticker, again, not investment advice, but we do have an allocation and a small allocation as part of our kind of commodity commodity equity exposure to Freeport McMoRan, because we feel like, you know, copper is one is going to be one of these things that does benefit from this transition to clean energy in addition to just being you know, even without it at towards the bottom. Okay.
Nathaniel E. Baker
And then other you mentioned uranium, do you buy any uranium ETFs? There’s a couple of those.
Kyrill Asatur
Yeah, so we have pumped upon a bunch of research, we chose an ETF called URA, which is we found to be a good diversified way to provide exposure to both the actual commodity and commodity and uranium equities. And so we like that one. Again, these are these are not sized in a huge way, I would say. And again, it kind of depends on the client portfolio, but shorter sides in a smaller way. But they are things that we think even in the longer term time horizon are going to have significant upside, just based on the just based on the kind of supply demand imbalances in those sectors.
Nathaniel E. Baker
URA or URIA?
Kyrill Asatur
URA.
Nathaniel E. Baker
Cool. All right. And then anything else? I mean, you mentioned alternative approaches, would you short, anything? Would you do short, ETFs, or anything like that?
Kyrill Asatur
No, I don’t think I don’t think our clients are really paying us for that. I think that I think if we if we chose to partner with a long short manager, and that’s the new they chose to express. And that’s how we get that exposure, I think, probably more likely than long, short, I think we would look to macro, we were pretty generally pretty bullish on the macro space in this environment. We think macro strategy, as I’m sure you’re familiar with rate has been very out of favor for a long time. And it’s because it’s just been very hard to generate returns in that in that strategy. Because the market has been, you know, this kind of one way market, right? Like, you know, if you were to go back, you know, if you were a time traveler, you would just go back to, you know, the end of the financial crisis by, you know, triple levered CPUs, and you would have done really, really well in hindsight, right. And so there’s, it’s very hard to make money, a lot of these more active strategies and these alternative strategies, but that’s, that’s one thing we would, we would consider. And we talked to regularly to macro hedge fund managers, because again, between I don’t think I mentioned this, but between my my background, my CFOs background, my CIOs background, you know, we we’ve all been in the kind of hedge fund or alternative investment industry for two decades each. So we have a number of relationships and, and we’ve talked to them on a regular basis. One thing that we were talking about recently, which I don’t know, if it’s something that we will do, but there’s there’s a different way to play, you know, if you’re if you’re if you think there’s potentially downside in the market, you know, what we’ve done is basically kind of de risked the portfolios a little bit as this year has went on, by going into, you know, short term treasuries, because, you know, short term treasuries don’t have a ton of duration risk, and, you know, at four plus percent yields, it seems like a good risk reward. And that’s just a tactical kind of allocation. As you know, as the market plays itself out, if we actually want it to maybe get, you know, make money as soon as the market goes down, or as the market goes down, you know, some of the trend following strategies like EAS and whatnot. And there’s some, some decent ones that are available that are kind of off the shelf, so to speak, that we’ve been researching. We haven’t made any decisions there. But that might be a way to do it also is to is to introduce something like that into client portfolios.
Nathaniel E. Baker
Yeah, yeah, they do. Well, when when there’s crisis, and when there’s bad stuff that that happens. Usually, again, you have to know the manager and know the fund and the strategy or the advisor, I guess. Cool. All right. Great. Um, anything else? I should ask you? Have you Oh, one thing obviously, I’m gonna ask. It’s just how to find you and stuff. And we’ll put that in the show notes
Kyrill Asatur
No I mean, that this has been a great conversation. I appreciate you having me on the show. I’m a fan of the pod.
Nathaniel E. Baker
It’s my pleasure. So finally in closing, maybe Kyrill. You can tell us and our listeners how they can find out more about you and about your firm and to get in touch. Sure,
Nathaniel E. Baker
it’s, you know, we’re on the web Centerfin.co. I’m also on Twitter trying to stay you know, trying to become more active on Twitter as everybody these days. I’m @WallStreetHobbes to ask you a different time with the meaning of that question. Yeah,
Kyrill Asatur
I’ll tell you. I was from 2009. And I’ve kept the same name.
Nathaniel E. Baker
Neat. Alright, cool. Well, I’ll put that on the show notes if you miss it, so you can get it there, if you like. Thank you, Kyrill, for coming on. Thank you all for listening. And with that, we look forward to speaking to you again next week.