Don’t Put All Your Eggs in One Basket – The Case for Multi-Asset Qualified Opportunity Funds

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You’re sitting across the table from a Financial Advisor who is about to present you with his proposed allocation for your portfolio. You’ve spent the prior meetings going through a discovery phase, your wishes for your family’s wealth, your plans regarding inheritances, and the legacy you’d like to leave behind. Now comes the moment of truth. The Financial Advisors puts his presentation up on the screen, giant accomplished grin on his face, but something looks off. There is only one stock in your entire portfolio!

Harry Markowitz said, “diversification is the only free lunch”. You wouldn’t build your equity portfolio with a single position, why would you view your investment into a Qualified Opportunity Fund any different? The benefits of diversification are well established by now. The goal is to minimize the risk of loss to your overall portfolio, expose yourself to more opportunities for return, hedge against adverse market cycles, and reduce volatility.

There has been much debate regarding which structure is more appropriate for investors of Qualified Opportunity Funds. The short answer, it depends. It depends on the investor and what their goal is when making an investment to a Qualified Opportunity Fund. At Opp Zone Capital, we take the stance that a multi-asset Qualified Opportunity Fund is the route for any investor looking to diversify geographically and across asset classes. To reap the full benefits of the Opportunity Zone incentives, an investor must hold their interest for ten years. In an ever changing world, we don’t like the risk involved in holding a single asset, within a single market, and in general, in a single sector of the real estate market. A certain market or asset class may be thriving today but show deteriorating metrics ten years from now. We have seen the drastic effects that the Coronavirus pandemic has had on certain parts of our country and the destruction it has caused to the hospitality, retail, and office sectors.

Multi-asset funds also come with the added flexibility of being able to sell an asset during the life cycle of a fund so long as a reinvestment is made within twelve months. We believe that having the capability to make portfolio adjustments based on our analysis of constantly monitoring market conditions and changes in trends as paramount to success in Opportunity Zones.

This view isn’t limited to the real estate side of program. Multi-asset funds are the gateway for Venture Capitalist to make numerous allocations to operating businesses located within Opportunity Zone census tracts. This could lead to investments outside the traditional focal points of VC’s and spark job growth in these under-served communities. A VC who might have been hesitant to make an investment in a certain company may now be willing to take on the extra perceived risk in exchange for the potential to capture the additional tax incentives afforded by the program.

As always, investors should consult their tax and legal counsel before making an investment in a Qualified Opportunity Fund. As an Opportunity Zone fund sponsor, manager, and advisory firm, Opp Zone Capital is always open to answering any questions you may have about the program or our funds. Email us at info@oppzone-capital.com for any guidance you may need regarding the program.

 

 

Cover photo credit: Viainvest.com