[Digital assets, like most emerging asset classes, have been on an inexorable march through fits and starts, scandals and successes, to be acknowledged and accepted as a legitimate financial asset class and major positive disruptor for many industries across the planet. Through the trials, tribulations, and noise, a very strong pattern of maturity has been forming with experienced players and leadership from other industries pushing the blockchain and digital assets industry into the mainstream. They are addressing the pitfalls and where the strategic focus and legitimate needed investments in this industry need to be centered to propel it forward.

To learn about the evolution of investing in blockchain and digital assets as a legitimate asset class, we spoke with Ruairi Hanafin, PhD, Chief Investment Officer, Jim Hwang, CFA, Chief Operating Officer, and Jay Vyas, CFA, Chief Strategy Officer of Firinne Capital – an investment firm with a vision to create a trusted investment space to bridge the gap between the emerging world of digital assets and traditional finance. Their name Firinne is Gaelic for “truth” which they chose to emphasize that digital assets are underpinned by the immutable truth of blockchain technology.

Their Firinne Liquid Digital Assets Fund provides its Limited Partners the opportunity for capital appreciation and income generation by investing primarily in a diversified portfolio of digital assets. Their investing strategy and research offers a unique combination informed by the experiences of early and ongoing digital asset adopters with the disciplined, measured hand of institutional investment management expertise. Recently winning the 2024 Hedgeweek Award in performance in the Directional Fund (1+ Years category), their goal is to ensure every investor has the opportunity to be part of this groundbreaking revolution and generational growth opportunity in blockchain and digital assets.]

Hortz: What exactly is the generational growth opportunity in digital assets?

Jay: Jim and I have been in the institutional investment industry for three and a half decades. We have seen that every 10 or 15 years something comes along, either a new technology, which could be a new industry, or a new risk premium that eventually becomes part of the investment landscape, occupying a space that did not exist previously. The people who recognize it and invest in it early have an uncommon opportunity to reap exceptional returns, but nothing is ever a straight line. Everything has risk.

The internet had a huge ramp up in the 1990’s and then a crash. But, if you look at where it is now, it has become ingrained in everything we do to the point that would have been inconceivable to people back in the 1990’s. That is an example of a type of a once-in-a-generation opportunity for participation. We will use the language of modern finance and call it an emerging risk premium. But you could call it a new technology that becomes an industry. And that is what we are seeing here with digital assets and the underlying technology called “blockchain”.

With the early internet era you could buy internet-based companies, but you could not invest in the underlying plumbing. What is really fascinating about this period of time we are in with the blockchain and digital assets is that you can invest in the underlying blockchain technology as well as the digital  projects that sit on top of it. This is actually novel in terms of investment opportunities.

Blockchain technology is not going to go away. It is a technology that has myriad uses in banks and insurance companies, in payments, in digital identity, and that is barely scratching the surface.

Hortz:  Why are you so confident about the growth of this new technology and investment risk premium? How do you see blockchain and digital assets will be accepted and deployed?

Jay:  There is a growing mainstream acceptance of digital assets as an investment choice in a global portfolio of risk assets. As a recent example, we have seen large investment organizations releasing digital asset investment products like Bitcoin ETFs. Ten years ago, investing in digital assets was a high-risk proposition or venture capital opportunity. Exact figures are hard to pin down, but we have seen some surveys that indicate that the percentage of people who own crypto now is not far from the percentage of people who own dogs. Suffice it to say, crypto is becoming more and more mainstream.

So blockchain and digital assets went from an anarchist or libertarian tool to a multi-purpose technology with great utility in many areas. Look at the idea of smart contracts on the Ethereum and similar chains. They allow us to do things that we could not do before, such as creating autonomous organizations. These growing applications give you the sense that this will be lasting. Regulations are also moving in a positive direction, and governments are talking about adopting digital assets as reserves. This all points to increasing stability or the fact that this will remain in the landscape of investment options. It is well beyond just a flash in the pan.

Ruairi : Just a little bit extra on those points. Looking at a chart of the market capitalization of crypto over the past decade or more, you can see it growing through orders of magnitude every couple of years. If you look at what the total addressable market growth is, crypto may start becoming commonplace with regular usage and adoption of stable coins and other applications. If you just continue that trajectory on that Market Cap Chart, you can reasonably imagine where it could go over the next decade or two. There is plenty of room for growth, I would say.

Crypto assets market cap, as of 13-Mar-2025. Source: CoinGecko

Jay: There are plenty of new application ideas where people who are issuing bonds or offering custody are saying, Hey, we can replace our existing process with something on a blockchain, and it’ll be more reliable. It’ll be immutable. It’ll be more secure. That is all true. There is a growing interest of replacing what we do now operationally with something that uses a blockchain.

What is more exciting is that we also have a new generation of young people who will grow up not knowing a world without blockchain. They will come up with ideas for projects that somebody my age would never have conceived of, and it is those innovations that can be supported and be brought to fruition to reality by the blockchain and by digital assets. This is a key driver that led us to move from TradFi to digital assets. There is a certain amount of optimism in what we say. We will be honest. But the blockchain and digital assets have definitely grown from a fringe tech idea to a mainstream technology   whose impact is just beginning to be realized as well as a legitimate investment option.

Hortz: How exactly does your asset management firm combine the blockchain and digital asset innovation experience with an institutional investment management perspective?

Jay: Jim and I have been in the institutional investment management space since the 1980s, and we have managed significant AUM at Barclays Global Investors, say north of $80 billion in actively managed strategies, and at the CPP Investment Board with $24 billion in global market neutral portfolios. When you are running money in these types of sophisticated organizations, you are always thinking about risk management from all angles – operational risk, investment risk, counterparty risk. Relative to the exciting growth and development of the crypto space, risk management seems really quite boring, but it is critically important in institutional asset management.

With our team, each member has institutional investment management and crypto experience. That gives us a unique perspective. Jim and I have seen a million things that can go wrong in investment management, and Ruairi, who has a long history in the space, has seen all the bumps and crises on the rise and implementation of blockchain and crypto. Compare this to managers who only have experience since the global financial crisis where markets have basically gone up, or to people who jumped into crypto just a few years ago.

We have also all worked together before at a global investment firm and have risk management in our joint DNA. We perform a lot of due diligence on what we are going to invest in and who our partners will be, which has already helped us avoid major blowups in crypto like FTX and 3 Arrows Capital. In short, we are very skeptical in our investment selection process and sensible in our execution.

Ruairi: The funny thing is our performance – for all its defensive and institutional risk management approach – has still been in the top bracket of performance in our investment space of crypto and blockchain. I think the key to this space is that you know you are in a space that is developing and rising exponentially. It is very important not to take excessive risks to try and boost performance by a few percentage points. There are a lot of options to reach for short-term performance which generally have worked out poorly.

Jim: Let me add that our focus is on what we call informed risk taking. One of the things we talk about, when we think about investing is What is the investment horizon needed to realize investment returns? This is particularly important to us. As Jay mentioned, when we came into the crypto space, we saw other investors that were focused on the really short-term horizon. I am referring to orders of magnitude of within one to a couple of days. These managers were looking to arbitrage the pricing inefficiencies among the different exchanges. But, by doing so, they were not focusing on the long horizon returns that one can capitalize on – looking for Who are the builders of this new infrastructure? Who is laying down the pipes? Who is building the useful applications? So that is a competitive difference in our thinking, and how we are considering investment decisions.

Given this starting point, we then attempt to add to alpha by also capitalizing on short term inefficiencies. This is something we bring over from traditional finance where you actually layer different strategies together to form a complete portfolio. That becomes a form of diversification and risk control across different time horizons. It is not clear that a lot of people in crypto investing think about horizon diversification.

Hortz : Another component of your management style is to manage the portfolio to generate some income. Can you explain your strategies for yield enhancement?

Ruairi: There are a number of ways in crypto to generate yield on assets and boost returns. One of them is participating in what is called staking. It is essentially the consensus mechanism for these blockchains which we participate in. Another is called liquidity provisioning which is basically supplying assets into automated market makers. We participate judiciously and carefully in some of these activities. Let us just say, via these types of mechanisms, we are making more efficient use of our portfolio’s capital. We are managing the liquidity aspect of the portfolio. It is a form of multi-dimensional management, looking at all different aspects of the portfolio.

Hortz: What is the backstory on the benchmark you chose?

Jim: Related to traditional investment management, we brought an index into the picture so our fund can be compared to a market benchmark, and we can aim over time to beat that performance. The Bitwise 10 Large Cap Crypto Index represents a capitalization-weighted index that tracks the largest crypto assets including established giants like Bitcoin and Ethereum, as well as some up-and-coming assets. The benchmark has 10 names, but we can invest in names outside the benchmark. We typically stay to the largest 50 or 100 names in the crypto space. Remember for context that there are millions of tokens available for investment. Our universe is going to be the largest and most-in-play names that will comprise 80 or 90% of the portfolio. We use the index as a guide, not a constraint.

Ruairi: I think the point is that we wanted to choose a benchmark that we felt was as fair as possible, and given that Bitcoin and Ethereum together represent well over 50% of the entire crypto market cap, we picked one that gave us relatively broad market exposure. We believe that the crypto market is one of the most inefficient markets that we have seen in our careers, and we want to take advantage of that for our investors. I personally would never passively invest in a market cap weighted index in this space. I think you can, in the long run, do quite a bit better than passive investing in crypto.

Hortz: How would you explain to advisors and asset allocators your differentiated value proposition?

Ruairi: We are a conservatively run fund in a space that is anything but conservative. It is a rapidly evolving technology and asset class that is appealing by offering a generational investment opportunity as we discussed, but there are concerns and fears in the back of many investors’ minds as to the growing pains and abuses of some players they read about along the way. Investors need to know that the high-profile collapse of FTX was not a digital assets issue. It was good old-fashioned fraud that we avoided with our thorough due diligence and risk management processes.

That is an important aspect of our value proposition that our combined investment expertise from crypto and institutional expertise will not allow us to swing for the fences, because sometimes in this space, if you swing for the fences, you might have the ball just come up and smack you in the face.

We are the tortoise in the “tortoise and the hare” race. It is a dynamic and evolving space, but we remain humble, and we remain diligent. We clearly have far-sighted vision of where the technology and asset class opportunities can take us, but we carefully look out for excesses and traps along the way. Our differentiated approach backed by two dimensions of management – crypto and institutional investment expertise – is what we feel will help our investors be able to participate in this generational investment opportunity.

This article was originally published here and is republished on Wealthtender with permission.

About the Author

Bill Hortz

Founder Institute for Innovation Development

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

[With the accelerating rate of the financial industry’s ongoing evolution and new product development, it is interesting to explore how this process of creation and innovation happens. Far from being a mystical process or coming from the realm of scary smart people in R&D departments or initiatives, innovation is more of a human process driven by an open mindset that looks for new approaches and solutions. Any change that makes things better can be an innovation. It also does not necessarily have to be technology driven, but it does have to be client-focused and meet client expectations and needs in order for the solution to be accepted as “innovative”.

To better understand this innovation mindset and an innovative product development approach, we were introduced to the MBX Group – a family office led by successful serial entrepreneur Manoj Bhargava who is behind 5-hour ENERGY and other multibillion-dollar businesses. His efforts have expanded into financial services with MBX Clearing – a proprietary trading group specializing in SPX Options on the CBOE – and launching MBX Hedge Funds owned and managed by MBX Group. They are launching two new funds that are structured to prioritize the investor and challenge the traditional hedge fund structure by charging zero fees to the investor and offering returns that are backstopped with their own capital at work.

The flagship fund they are launching is called the TPlus3 Fund which offers investors a Treasury return, plus 3%. Investors receive fixed-income exposure through T-Bills with an SPX options overlay that generates the 3% plus return. In today’s market with Treasury yields at  approximately 4.3%, the fund offers over 7%. For equity exposure, they are launching the Plus2 Fund which provides investors with equity exposure through the SPY ETF with the same SPX options overlay generating the 2% plus return.

For both funds, MBX provides a 10% investment match, acting as a backstop that secures the plus returns. MBX capital is subordinated to the investor acting as a first loss piece absorbing any losses and offers 60-day liquidity. In a world of fee-based AUM growth and many funds having poor investor-manager alignment, these funds are unique.

We sat down with the Founder and Principal behind MBX Hedge Funds, Manoj Bhargava to better understand how a serial entrepreneur mindset works and how he applied it to building innovative hedge funds.]

Hortz: Not coming from an investment or portfolio manager background, what was your motivation in launching two very innovative hedge funds?

Bhargava: When we started this journey, we had no grand plans to innovate the wealth management industry. We had our own family office and we were not satisfied with investment options that we saw as empty promises. We asked ourselves, can we do better? The purpose was just to have our money invested better and provide us – the investor – with clarity and more certain expectations. When we found out that we could do better, we realized that we could offer our investment strategy to other qualified investors, family offices, etc.

The innovation came from taking a different perspective and taking out the parts of the hedge fund investment structure that we saw as “not good”. In other words, you innovate for the better; you do not innovate for worse. We just wanted to invest well, and then we unintendedly created a business, which is to say, we can do this for other people.

Like many innovations, our hedge fund business was created almost as an accident. It all evolved from asking a question and trying to solve a problem of how do you make this better?

Hortz: How exactly did you go about building and designing your investment products to be innovative? What initial steps did you take?

Bhargava: One of the first things I looked at was that anybody can make money in a good market, except for that bad day which wipes away a meaningful part of your investment. So, I started looking at how do we make money through different markets; up, down, and sideways and have a strategy that can lean in and take advantage of those bad days, in particular. I did not accept the old mantra in the investment world that higher risk equals higher return. I was looking for something unique that offered attractive returns with limited risk.

I was not bound by constraints that restrict traditional fund managers. There was no specific mandate we had to adhere to, no set return hurdle, no bias on where to invest. We were willing to try different things, invest in different asset classes across different markets. We were working with our own capital. We took an entrepreneurial mindset to developing the right investment strategy.  I think all of this worked in our favor.

Early on, we took advantage of dislocations in traditional debt and equity markets and although we had some success, it was not exactly what we were looking for. It was when we began to pivot to options and develop our strategy around index options that we knew we had found something different. What we developed offered us the returns and consistency of returns we wanted, and it was scalable. Similar to a business, we built around it. We set up a formal trading team putting the right risk parameters in place. Two years into it, we established a self-clearing broker dealer, which is not an easy feat for a family office, and today we are one of the largest traders of SPX options in the world.

From there, we were able to develop our funds that we can offer up to outside investors.

Hortz: What specific approach did you have in building your hedge funds that helped you address some of the problems you saw in the wealth management industry?

Bhargava: Like many other industries, the wealth management industry loves to make everything so complicated. On the other hand, I am a student of “simple”. We have an invention shop on our campus called the Obvious Factory where we develop different products, where I say, if you do not get it down to simple, you have not finished yet.

Our key decision overall in addressing the industry was to make everything focused around “simple”. You build around a simple proposition to the customer – offer a clear, stated return and do not lose money. For us that means offering a product where the investor gets paid their return first, and our invested capital acts as a backstop and gets paid last.

Additionally, in our fund, the investor pays no annual fee and no carried interest on profits. I do not like to pay manager fees when I invest so we removed traditional complicated fee structures and prioritized the investor. All of this seems like simple and obvious things to do but is rarely, if ever offered. Similarly, when it comes to liquidity, I do not like to tie up capital. For this reason, our hedge funds are designed to offer the investor good liquidity, 60 days. Again, simple stuff.

This philosophy of keeping it simple is everywhere in our organization, not just our product offering but in the way we fundamentally operate. A good example of this in practice is in our trading. We have a team of six-traders; however, they do not operate independently in silos doing different things. They work as one cohesive unit. They decide on a single trade, together. We have a simple system that says we will make large trades, but they are going to be well thought out and each one runs through our risk models before we execute.

We do not believe in the need for high speed, algorithmic, or technology driven traders, using AI, etc. We use technology as a tool to direct us to the most favorable trades, but people decide and transact. I frequently say to people, I am still looking for real intelligence, not artificial intelligence. It Is important to know what the right questions are. All the algorithms in the world can give you great answers, but if you ask the wrong question, the answers are irrelevant.

Hortz: What would you say are some of your main product differentiators?

Bhargava: Probably the biggest difference in our hedge funds comes from the fact that we are fundamental thinkers while most hedge fund managers tend to be very technical in their thinking. Our specific design decisions helped us address the problems we saw in the asset management industry. One of the biggest is paying large fees regardless of outcome. We structured our hedge products so clients do not have that kind of experience.

It is well understood that hedge funds make most of their money on their industry standard 2% fee. Whether they make any money or not for the client, it does not matter. Hedge funds get their 2% and are then supposed to be responsible for making the client money. That makes no sense to me. From my perspective, your fee should be paid from what you make – if you are any good at it, if you have any confidence. Otherwise, it would be saying in any other profession, like a plumber, give me a thousand dollars and I may fix the leak, I may not, but I want my fee. That is the typical hedge fund approach, which is a great approach for making money for hedge funds, but it is not for the client.

In building a business, I always think from the client side first. I built an investment product, a hedge fund, where I am plainly saying upfront that you are making a profit and what that profit specifically is – which is our stated payment of 3% over T-bills in TPlus3, which we pay the client. I can do that because we are confident, through years of trading and our own expertise, that we can make a profit beyond that, but we put that risk on us, not the client. If there is any shortfall, it is made up by us, not the investor. I know that is unique in Wall Street where targeting returns and delivering returns are two different things. We, on the other hand, give you a specific promise and then we stick with it. We are sort of old-fashioned in that regard.

As in all the businesses I built in different industries, you have to meet the expectations of the client. Do not put out there crazy expectations, alluring return goals, because no matter what, clients are going to be disappointed and going to be mad at you. Then what you have to go through is churn and hope that the client has too much inertia to move their money. You have to admit you had a bad year and you just pray that the client feels that next year will be much better based on the slew of reasons you can provide them with. If I am the client, I would want somebody to put their money where their mouth is. Are you going to stand behind your product or not?

Hortz: How did having a very successful serial entrepreneur mindset help you through this product development and determine how to redefine what investors can expect from hedge funds?

Bhargava: I built three companies that are worth over a billion dollars and in completely different industries. The one thing I have seen consistently is that you go into an industry and all the incumbents say, What do you know about it? What I say is Well, I don’t know a damn thing! And that is my advantage.

It is so easy to come into an industry and see what and how things are being done and then ask Why are you guys doing things this way? And usually, industry players do not have an answer except that is the way they have been doing it for years. And so, you can come in and look at it and go, that does not make any sense.

We approach it from a common-sense point of view. Our investment clients will be Qualified Investors who are more inclined to common sense than they are to the alpha, beta, algorithms, standard deviations, and all the buzzwords that the bigger players love where they need to check all the boxes. We are meant for those who just use common sense. They want a simple product with a stated return and a manager that is willing to put up their own capital: T-bills plus 3%  with a 10% backstop. There are some details to that, but it is really that simple. It is not like Wall Street always making it more complicated or making it seem more complicated. That is not the answer.

Hortz: Can you further explain your backstop feature and how it works?

Bhargava: The backstop is us putting money where our mouth is. We are confident in our ability to execute but if there is a scenario where we underperform, the investor should not be impacted. After all it was not their fault. We as a Manager should absorb that and protect the investor. That is what the backstop is about. It acts as a first loss piece, offering downside protection for the investor. It is what we would want from an Investment Manager who is managing our money.

For our funds, it is established on Day 1 through an investor match. For every dollar the investor puts in, we match 10% of our own capital. That 10% is funded in cash from the beginning and acts as a backstop for the investor. If there are any losses, or shortfalls in achieving stated returns, the backstop is there to absorb that. It is fundamental in what it offers, but it is also critical in what it stands for to our investor, that we are accountable.

Hortz: How would you see that financial advisors and asset allocators can employ these hedge funds in their client portfolios?

Bhargava: The TPlus3 is for those investors looking to increase fixed income returns with zero fees and good liquidity. They want the stable return that fixed income provides but with something that consistently beats inflation. It can be used for something as basic as cash management given the ability to redeem within 60 days but can also be seen as an attractive alternative to some of the more traditional fixed income products out there such as investment grade or high yield bonds. In today’s market our TPlus3 Fund yields over 7% materially beating yields offered in many of those products. In some cases, it can compete against higher yielding private credit funds when fees are netted.

The Plus2 Fund is an equity product. It is for investors looking for enhanced returns within equities again at a zero-fee cost and with good liquidity. It is perfect for investors that are looking to gain exposure to a passive index, such as the S&P 500, but want to beat the market every year. The Plus Return(2%) in our fund acts as the alpha kicker to the underlying index, and through the power of compounding, can add material value over time to investor capital. Again, given its redemption features, it is especially attractive for investors that want flexibility of capital within equity investing.

Both funds can be used as first loss strategies in any portfolio given the backstop. They could also be used as part of interval funds given the attractive liquidity features. We view them as versatile and frankly we are still learning all the ways they can be applied to a broader investment portfolio. In all cases these products are for qualified investors only.

This article was originally published here and is republished on Wealthtender with permission.

About the Author

Bill Hortz

Founder Institute for Innovation Development

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

[A rare but distinctive business structure crafted by certain investment management firms warrants further exploration – the “vertically integrated” business model. The operational and strategic synergies of this business structure can provide unique competitive positioning and investment advantages over other more traditionally structured investment managers. The due diligence question that comes to mind is how should you weight vertical integration as a differentiator and a potential contributor to the investment process?

To learn more about the structure and advantages that this business model brings to the private real estate market, we were introduced to Christopher Cameron, CFO of Rincon Partners, LLC – a vertically integrated, full service real estate investment and management firm. We asked him questions to share how they built their firm to provide competitive advantages across the full real estate lifecycle and stronger risk-adjusted returns for their investors.]

Hortz: What do you see as the competitive advantages of being a vertically integrated real estate firm?

Cameron: Our vertically integrated approach allows us to control and optimize every aspect of the real estate lifecycle – from acquisition to management and eventual disposition – resulting in enhanced returns and reduced risks for our investors. Some of the competitive positioning advantages include:

Enhanced Market Intelligence – Integration provides us with comprehensive, real-time market insights across all stages of the real estate lifecycle. This deep understanding allows us to identify promising investment opportunities that others may overlook and make more informed decisions throughout the investment process.

Operational Efficiency – Managing all aspects of our investments in-house can streamline operations, reduce costs, and allow us to respond quickly to market changes. This operational agility gives us a significant edge over competitors who rely on third-party service providers.

Quality Control -The ability to manage for quality outcomes across the full real estate lifecycle enables us to maintain consistent, high-caliber standards across all our properties and services. This level of control is crucial for maintaining tenant satisfaction, property values, and ultimately, investor returns.

Hortz: Can you go a little deeper into the particular investment advantages of being vertically integrated?

Cameron: As to the investment advantages, the following applies:

Cost Savings – Our integrated model allows us to benefit from economies of scale and eliminate intermediary costs. These savings translate directly into improved returns for our investors.

Risk Mitigation – By controlling all aspects of the investment process, we can better manage and mitigate risks. Our comprehensive oversight allows us to identify potential issues early and address them proactively.

Value Creation Opportunities – Our in-house expertise in property management and construction allows us to identify and execute value-add strategies more effectively. This capability is particularly valuable in our multifamily focus where strategic improvements can significantly boost property values and rental income.

Accelerated Timelines – With all necessary expertise under one roof, we can execute projects and implement strategies more quickly than firms relying on external partners. This speed-to-market can be a crucial factor in capitalizing on market opportunities and maximizing returns.

Aligned Incentives – Our integrated structure ensures that all teams within our organization are working towards the same goal – maximizing investor returns. This alignment of incentives leads to more cohesive strategies and better overall performance.

Also strategically important, our vertically integrated approach at Rincon Partners not only optimizes our competitive positioning and  investment returns but also significantly enhances the living experience for our residents. By controlling all aspects of property acquisition, renovation, and management, we can create multifamily communities that truly meet the needs and expectations of modern renters, fostering long-term satisfaction, and loyalty among our resident base which translates to more consistent and growing revenue and investment payouts for our investors.

Hortz: How is your real estate deal process different from other sponsors?

Cameron: While many steps in our process may be similar to other sponsors, there are several key differences that set Rincon Partners apart:

Vertically Integrated Approach – Our in-house property management and construction teams are involved from the beginning, providing valuable insights into operational improvements and renovation costs.

Data-Driven Decision Making – We utilize advanced data analytics and proprietary market research to inform our investment decisions, allowing us to identify opportunities that others might miss.

Focus on Secondary Markets – We specialize in identifying opportunities in secondary markets with strong economic fundamentals, which may be overlooked by larger institutional sponsors.

Value-Add Expertise – Our team has deep experience in executing value-add strategies in the multifamily sector, allowing us to accurately assess and plan for property improvements.

Relationship-Based Sourcing – Our strong industry relationships often allow us to access off-market deals or get an early look at properties before they hit the market.

Flexible Investment Criteria – While we have defined investment parameters, we are able to consider unique opportunities that might not fit the rigid criteria of larger institutional sponsors.

Hands-On Asset Management – Our asset management team is involved from the initial stages, ensuring that our business plans are realistic and achievable.

Hortz: What does going “full cycle” on your properties look like and how do you create value along the way?

Cameron: Going “full cycle” on our multifamily properties involves a comprehensive process that spans from acquisition to disposition and focusing on creating value at every stage. Process steps include:

1.Value Creation – Once acquired, we implement our value-add strategy, which typically includes property improvements to justify higher rents and improve the overall tenant experience, operational efficiencies that our in-house property management team implements to reduce expenses and increase net operating income (NOI), and market positioning where we reposition the property through targeted marketing efforts and community engagement to attract high-quality tenants and improve occupancy rates.

2.Asset Management – Throughout the hold period, our asset management team closely monitors property performance, market conditions, and investment metrics. We make data-driven decisions to optimize operations and adjust strategies as needed.

3.Refinancing – When appropriate, we may pursue refinancing opportunities to take advantage of improved property values and favorable interest rates. This allows us to return capital to investors while maintaining ownership of the appreciating asset.

4.Disposition – As we approach the end of our targeted hold period, we evaluate market conditions and property performance to determine the optimal time for sale. Our team prepares the property for disposition, ensuring all documentation is in order and the asset is positioned to attract qualified buyers.

5.Full Cycle Completion – The full cycle concludes with the successful sale of the property. At this point, we distribute the proceeds to our investors according to the predetermined waterfall structure, realizing the full value created throughout the investment period.

Hortz: What kind of returns have you been able to achieve on average on your properties and how does that competitively stack up?

Cameron: Rincon Partners has consistently delivered strong returns for our investors across our multifamily portfolio. Since our inception in 2015, we have acquired 25 multifamily properties and achieved an average gross IRR of 39.1% and an average gross multiple of 2.25x on our realized investments.

These returns significantly outperform industry averages. Typical multifamily syndications aim for 15-20% IRRs and 1.7x-2.5x equity multiples over a 3-5 year hold period. Our average 39.1% IRR and 2.25x multiple places well above these benchmarks.

Our success stems from our value-add strategy approach across carefully selected markets with strong growth fundamentals and leveraging our vertically integrated platform where we are able to closely control the execution of our business plans and maximize returns.

While past performance does not guarantee future results, our track record demonstrates our ability to consistently outperform in the multifamily sector.

Hortz: What investment strategies and vehicles do you offer?

Cameron: Rincon Partners offers a range of investment strategies and vehicles tailored to capitalize on opportunities in the multifamily real estate sector mainly in the Southwestern and Southeastern United States. This regional specialization allows us to leverage our deep market knowledge and local relationships to identify attractive opportunities. Here is an overview of our key investment strategies and vehicles:

Value-Add Strategy – Acquiring well-located Class B/C multifamily properties built between 1980-2010 with potential for repositioning to Class B+ by implementing strategic renovations and operational improvements to enhance property value.

Core-Plus Strategy – Acquiring high-quality, stabilized properties in prime locations implementing minor improvements and operational enhancements focusing on steady cash flow and moderate appreciation.

Investment Vehicles include Single-Asset Investments in individual property acquisitions, providing targeted exposure to specific assets and markets, Joint Ventures for larger institutional investors, and Multi-Asset Funds that invest in a portfolio of properties, providing diversification across multiple assets and geographic locations including the Rincon Multifamily Fund II that we are currently in market with and is available to accredited investors.

Our focus on value creation, strategic improvements, and operational excellence underpins all our investment offerings, aiming to deliver solid risk-adjusted returns across various market conditions.

Hortz: What do advisors and their clients need to know about your private multifamily real estate investment approach and how it may benefit an overall investment portfolio?

Cameron: For a more comprehensive understanding of the current landscape and opportunities in private multifamily real estate investing, advisors should refer to our “Investing in Private Multifamily RE Today” white paper. This guide provides up-to-date market analysis, trends, and strategies specific to the multifamily sector, which can be invaluable for advisors looking to incorporate these investments into their clients’ portfolios.

By understanding these aspects of private multifamily real estate investments, financial advisors can better assess whether this approach aligns with their clients’ investment objectives, risk tolerance, and overall financial strategy. It is an investment vehicle that can potentially enhance portfolio diversification, provide steady income, and offer attractive risk-adjusted returns in the current market environment.

This article was originally published here and is republished on Wealthtender with permission.

About the Author

Bill Hortz

Founder Institute for Innovation Development

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.