They’re some of Wall Street’s most connected players. And most resilient — bull or bear, rain or shine… they make millions no matter what.
They are “a select and secretive group of investment firms,” says Zach Scheidt, the latest addition to our team. “These firms won’t mail you an advertisement asking you to open an account with them. Unless your net worth is $100 million or more, you’ll never be able to have them manage your money.”
Don’t get the wrong idea. We’re not here today to tell you how you’ll never be able to play with these high rollers with the hideaways in the Hamptons while you’re doomed to a pathetic existence in a subdivision that’s gone to seed.
“A few years ago,” says Zach, “all of these funds would have been off limits to individual investors. But I’ve found a way to profit from the tremendous competitive advantages they have.”
“Titans of Finance,” Zach calls these players. And with them, you can pull down income of 5.6%… 8.6%… even 14.4%. That’s what they generated last year.
A darn sight better than a 10-year Treasury note (yielding 1.76%) or the S&P 500 (1.98%), don’t you think?
How do they do it? “They have a unique and lucrative business model,” says Zach, “that I call the ‘triple dip’:
- “Similar to mutual funds, these private investment funds charge management fees associated with operating and administering the funds. For example, if a firm manages $1 billion for its clients and charges a 1% management fee, it will receive $10 million per year in management fees
- “But unlike mutual funds, they also make money from what’s called ‘incentive allocations.’ If a customer invests $100 million into your fund and the fund earns a 25% return that year, the customer makes $25 million in profits. And the fund manager then receives 20% of those profits — or $5 million in revenue
- “They also invest their own capital alongside the capital of their clients. If a firm has $10 million of its own money in a fund that returns 25%, then it will make an additional $2.5 million in investment returns on capital.”
At this moment, you might be wondering: Why wouldn’t super-wealthy investors opt for individual stocks or mutual funds? Why fork over all that money to these private investment funds?
Simple answer: Performance. Zach offers these examples: “Stanley Druckenmiller of Duquesne Capital generated annualized returns of 30% for 30 years until he closed his fund in 2010. David Tepper of Appaloosa Management averaged more than 27% per year for more than 15 years. He also booked a gain of 132% from his savvy investments during the financial crisis.”
So how do you, the retail investor, get a piece of this action? A handful of these Titans of Finance have issued shares to the public… pulling in new streams of cash with which to invest and pull down more profit.
“Why would these Titans knowingly open the door to us?” Zach asks rhetorically. “It all boils down to them making more money. What a shock!”
Zach named three of these Titans this month for subscribers of his entry-level newsletter Lifetime Income Report. We’ll share one of them today…
This Titan has been growing its assets under management at an 18% annual clip… which translated to income of 5.9% last year.
It’s Blackstone Group (BX), managed by Stephen Schwarzman — No. 42 on the Forbes 400.
“Blackstone’s funds profit from diverse sectors of the market,” says Zach… but it’s the real estate sector that has his attention now. “During the depths of the financial crisis, Blackstone struck some key real estate deals with large ailing U.S. banks.”
The banks were sitting on millions of foreclosed homes with no buyers in sight. “Blackstone bought more than $8 billion worth of individual homes,” Zach goes on. “And because the banks were so desperate, it paid only pennies on the dollar. Blackstone still owns a majority of these homes, and it rents them. And the value of those homes has increased dramatically from the crisis days of 2008 as the housing market has recovered.
“With pent-up profits in its portfolio of homes, this year looks to be an ideal time for Blackstone to cash in. The company can book tremendous profits and use the cash to scoop up bargains in a beaten-down sector such as the oil and gas industry.
“When Blackstone books profits on the sales of these homes, it will trigger huge incentive allocations — the portion of customer profits that Blackstone is entitled to.” And its dividend is based on those profits. With hefty proceeds from those home sales, “I expect the company to boost its dividend payments for 2015,” Zach concludes.
[Ed. note: A yield of 5.9% a year… and rising each year… is certainly nice. But what if you could pull down a yield of 1.22% in only 24 days? That’s like garnering 18.6% in a year.
That’s the idea behind a strategy Zach employs week after week — something we’ve come to call “the ultimate retirement loophole.” And the strategy is surprisingly low-risk.
You do need at least $20,000 in capital to get started. But once you do, you can pull in hundreds of dollars with only a few minutes’ effort. Follow this link and see how easy it is.]
To the markets, where the big story is crude — now below $44 for the first time since the spring of 2009.
Energy shares dragged down the major indexes yesterday, but today they’re hanging in there despite the energy weakness: The S&P 500 is up fractionally, at 2,003.
Gold isn’t getting any love: The Midas metal is down 2% as we write, to $1,256. And silver is down 6%, at $16.87.
The Federal Reserve delivered little surprise with its policy statement yesterday. In deciding when to start raising the fed funds rate again, the Fed said it would exercise “patience” and use the economic numbers as its cue.
The Fed meets next in mid-March. On that occasion, we’ll get the full dog and pony show, complete with Janet Yellen press conference. Yes, we’re tingling with anticipation.
For the record, Part 1: The United States has arrested its fall in the “Economic Freedom” rankings from the Heritage Foundation and The Wall Street Journal.
Indeed, America’s performance has improved a bit from last year… although in the rankings it’s still No. 12.
“That earns us only ‘mostly free’ status,” sums up J.D. Tuccille at Reason, “and puts us out of the running with economically more liberated economies like those of Hong Kong, Singapore, New Zealand, Australia and Switzerland. It also reaffirms the archaic status of socialist jokes about Canada, which slides in six whole slots above us.”
About the advantage we supposedly have with the “rule of law,” the report says this: “High levels of government spending and the expansion and complexity of the government’s regulatory agenda have increased opportunities for political favoritism and cronyism.”
For the record, Part 2: The Chinese renminbi is now the fifth most used currency for international payments, according to the global payments network SWIFT. Last month, 2.2% of all SWIFT payments were denominated in renminbi.
That vaulted China past Canada and Australia in the global rankings. The Japanese yen, British pound, the euro and the U.S. dollar remain in front. “Two down, four to go,” as our Jim Rickards tweeted last night.
Your tax dollars at work: The highest-ranking military officer in the United States is organizing… an essay contest.
Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, has put the Pentagon-funded National Defense University (NDU) in charge of a writing competition honoring the late King Abdullah of Saudi Arabia, whom Dempsey calls “a man of remarkable character and courage.”
“Gen. Dempsey and King Abdullah had a close personal relationship,” says The Wall Street Journal, “stemming from Gen. Dempsey’s days in Saudi Arabia in the early 2000s as a brigadier general helping to train Saudi Arabia’s military forces.”
All NDU students will be eligible to take part. Presumably, entries about the flogging of human rights activists and the beheadings of people who “insult” Islam will be disqualified.
“I get one every month too,” a reader writes of those emails from electric utilities detailing your electric use. “I always use more than my neighbors, even though I’m careful.
“In summer, though, it seems I’m a problem. I wrote back last summer on one of their notices: ‘Hey, I’ve got sprinklers and a pool. Tell the neighbors if they work hard, they too can afford more nice things and use more electricity! (I have a well, so sprinklers use electricity to pump the water.)”
“‘A single death is a tragedy; a million deaths is a statistic'” a reader intones after our hand-wringing over Ukraine yesterday and on Jan. 2.
“Whether Stalin said this or it remains a meme, it illustrates that the current Ukrainian-Russian violence did not start as a continuation of WWII but had its roots in the forced collectivization that occurred between 1930-33, where up to 5 million Ukrainians died. Perhaps this is why so many Ukrainians welcomed the Nazis with open arms just a decade later, seeking to overthrow the brutal Soviet regime that had murdered so many of its people… of course, only to find that the enemy of your enemy could be worse than your enemy…!!
“As an Irishman (yes, I am really in Ireland), people still talked about the British genocide around the Irish potato famine of 1845-47 — over 150 years ago..!! — which was remembered by all Irish in song, story and theater. However, my Ukrainian wife (born in the USSR, fluent in Russian and Ukrainian) knew nothing of the Holodomor, which occurred 80 years previous — all information which was repressed by the USSR/Russia.
“After the Holodomor that left these millions dead, Ukrainian opposition to USSR/Moscow/Russia was crushed, but it was never fully extinguished, given what we have observed over the last year and a bit… Whether it was Russia up to 1917 or a repackaged Russia in the guise of the USSR till 1991, the Ukrainian people, language, culture and, indeed, history have been dominated/demonized by their larger bullying neighbor. Perhaps this is why Ukrainians look to the West instead of the East, which in the guise of Russia has failed them over so many centuries.
“There is a lot of ‘what-aboutery’ when it comes to any war strife conflict. There were plenty of Russians who supported the Nazis during WW II, from the Hiwis to Gen. Vlasov, and indeed, one could argue that President Putin’s actions have fascist-like tentacles by inciting unrest in eastern Ukraine, denying any part in it (‘little green men’) and then acting as a protector of all Russian speakers. All anybody seeks are good neighbors… be it your own subdivision or between countries. Seventy years after D-Day, Germany is an excellent neighbor to everyone in Europe — even to Poland… can the same be said of Russia?
“In the end, all this strife, from Syria to Iraq to China, is indeed good for the ironmongers.”
The 5: All interesting history, for sure.
But we’re still puzzled by why so many people in Washington feel threatened when ethnic Russians living in eastern Ukraine demand some measure of autonomy from the junta in Kiev.
Best regards,
Dave Gonigam
The 5 Min. Forecast
