Is 2020 A Good Time To Start A Fund?

Boom, people, welcome back to the show. Today, we're going to talk about is 2020 a good year to start an alternative investment fund? Alright, so I was recently on a coaching call where I was coaching one of our guys in our mastermind group and we were sitting down, we were talking, and he brought up this point. He says, Bridger, I have a great idea for a fund. I'm excited, I got this all, and he actually really did have a really good idea for a fund. He goes, it's 2020. I think it's going to be very hard to raise money. I don't know if anyone will believe in me. I don't know, right? Is it all gonna work? And I thought it was an excellent question and I think a lot of people have that this same question, right, of 2020. We've got hornets, whatever, killer hornets, what are those called, murder bees or whatever it is. We've got earth, I mean, we've got everything going on, dust clouds, earthquakes, we got protests, riots, I mean, we got an election year. This is a wild year in the markets for every reason out there. And his question was pretty simple, was I don't know if I can raise money right now. Maybe I should wait a year or 2 to go out and launch my fund. So what I told him, and I wanna tell you guys as well, 'cause I think it was worth making a podcast episode about this, is what's currently going on in 2020 and what can happen for your funds. So first thing is the stock market, right? Right now, a lot of money's in the stock market. We are not in a bear market. We're not in a bull market. We are in a kangaroo market. Like, boing, like, okay, it's like bouncy. It's like up and down, right? So bears are down, market goes down. Bulls, the market goes up. Kangaroo, the market's going up and down. So right now we are in a kangaroo market. So I'm gonna put stock market here, and then we have a kangaroo market. Okay, now I was reading a recent report from Goldman Sachs before, and a lot of their economists had put together this report of looking at stock price and revenue, okay, and what correlation they had. You would think revenue goes up, stock price would go up. That's not true right now. They looked back over the last 100 years through all stock market history they had. They looked through stock price and revenue, and they found that right now in 2019 and 2020, stock price and revenue have the least correlation they've ever had in the history of the stock market. Currently, depending on the report you read, It's between 5% and I think 6% correlation. So, you would think revenue— you're running a business, your revenue goes up, stock price should go up. There is a 5% to 6% correlation that that will happen right now, and that comes back to the point I've said this before, stock price is not determined by your revenue or your company. It is only determined by how many buyers and sellers you have for a stock. More buyers, stock will go up. Less buyers or more sellers, stock price will go down. That's the only factor that affects stock price. So ta-da, there you go, right? Stock price will go up if you have more buyers. So first point is stock market is wild right now. Fortunes have been made and lost this year in the stock market. You've seen these massive funds do very poorly. You've seen Robinhood traders— by the way, I love Robinhood, love what they're doing helping young people get into trading with a couple hundred dollars. I think it's, I think it's awesome what Robinhood does. You see these Robinhood guys though making kill— not killings, but they're making good returns on their trades and they've been able to get in and they've been able to just buy the dip in a lot of these markets. Is that gonna last forever? Probably not. But I think it's cool to get young people in, in the stock markets, in trading, and get moving there. So what you see though in general right now is the stock market is all over the place and investors hate that. They hate volatility, they hate uncertainty, especially as a passive investor. I have a broker trading my money. I, I I don't want to be up all night thinking the stock market's gonna fall 15% tomorrow morning. And that is why you have seen this trend towards alternative investments. At the beginning of 2020, we had $1.5 trillion in dry powder, is what it's called, okay? Dry powder to private equity funds, so PE funds. Now, what does that mean? Dry powder— and really quickly, I know some of you guys know this— but dry powder is capital committed To funds but it's not— hasn't been called yet. So you raise a $100 million fund, you're probably— you can't deploy $100 million day 1. So what you do is you say, hey, you know, our fund is— let's call it a fund that goes out and does loans. Like, I do loans. The first month we believe we're gonna do $10 million of loans. So we're gonna call $10 million of capital from our $100 million that's been committed to the fund. So the other— so we call $10 million. The other $90 million that's sitting there just waiting, I'm waiting to call it once we have good deals, is called dry powder. That's just money waiting to be called into these funds. One $1.5 trillion right here is waiting to be called into private equity funds. And that number has risen in 2020. And they're coming out with their new report here soon. I'm excited to see what it's— but it has risen in 2020 because investors are sick of the traditional stock market volatility right now in a kangaroo market. They're looking for alternative investments like private equity. Now, what is alternative investing? I gotta explain this before. Alternative investing and why I think it's a good time for alternative investments to take off in 2020, it's pretty much anything alternative the stock market, that's an alternative investment. So, you have real estate funds. Now, some people argue real estate isn't alternative, but if you have a value-add real estate fund or a fund that's real estate funds very niche, I would call that an alternative investment. My fund does microloans. I have a friend that buys and sells almond farms. We have a guy that buys and sells Amazon businesses, microfinance companies. I have a friend that does loans in Uganda. These are all alternative investment funds and people are looking for yield. They are looking for a return right now. Okay, currently in Europe, this is as last year, we had $13 trillion. I can't even imagine what that looks like. I mean, just imagine $13 trillion in negative interest rates, which is essentially you are guaranteeing a loss on a negative interest rate. And I remember we have other episodes about this. I go very deep in negative interest rates, why that matters. What you see is like essentially a bond right now in the United States like 0.5% or you know, in the My grandparents, they would buy government bonds for their retirement, and they were hoping, you know, they had a million dollars saved up for retirement. They would buy a government bond, and they were hoping to get 4 or 5% for the rest of their life, and they could live on that, right? That's 40, 50 grand a year they could live on the million dollars, and that's a good retirement. Now, governments have lowered that interest rate so much, 4%, 3%, 2%, 1%. Now they're in the negative range, meaning you are guaranteed to lose money when you buy that. It doesn't make a lot of sense. One quick example I'll give you. My dad was actually telling this. He has a friend in Denmark. Flew out there, we met with him and stuff. He has a mortgage. It was a variable rate mortgage, okay? So it'd vary on the prices of interest rates. The interest rates went negative, okay? So he owns a house, borrows money from the bank. The bank pays him every month like $23 a month to have a mortgage from them. You understand like how wild that is? That just one thing I just said. Money is so plentiful right now that we have negative interest rates in Europe. $13 trillion trading negative right now. Now, there's lots of reasons for this. We'll talk about this in Another episode. Back to our thesis. Can I start a fund in 2020? The answer is a resounding yes. Okay. Yes, you can. It's actually a very, very good time to do this because investors up here in the stock market are looking to get out. They're looking for people like me and you that can find yield in the marketplace, in things alternative to the stock market. They want to diversify themselves away from the stock market. So for starting an alternative fund in 2020, I think it's a very good time to do this. My fund has raised $905,000 since COVID for alternatives. I've had the same conversation with people in the stock for stocks, right? I have a friend in our group, he just raised $15 million for their fund in 2020 and he's like, he's telling me, he's like, I think we can raise another $25-30 million for our fund. That is because there is first off, there's a lot of money out there. The Fed is printing more and more money every day and guess where that money flows? It goes to people and then it flows back to entrepreneurs, back to businesses. And it makes wealthy people even wealthier sometimes, and there's a lot of money in the markets right now looking to be deployed into yield. So your question on your end isn't, can I find money? That's the wrong question to be asking. You need to upgrade your question, okay, is can I find yield? Can I find a partner who can find yield? Can I find an already a system that I can plug into? And maybe other people that don't believe they can raise money in 2020, but they have yield, go and find yield. Yield with them. And you guys have seen our stuff before. I've talked about this of very famous funds. You have Paul Tudor Jones, you have KKR, Blackstone. A lot of these funds launched and were accelerated through market downturns. The market downturn is what caused them to be the brand and name they are today. You've heard my dad's funds before, that's the same thing. They used the 2008-2009 crash to their advantage. They said, this is the best opportunity in the history of the world to buy real estate. Let's go buy a lot of real estate, and they were able to raise hundreds of millions, billions of dollars to do that. If you guys don't— if you haven't heard, my dad is a co-founder of a $20 billion family of real estate funds. If you've heard my story, you can listen to it later. They launched a fund out of the crash and did very well, and then they raised more money and more money because they could find yield. It's money is not the problem. Everyone, when they want to start a fund, is, oh, can I find investors? Investors is not the problem. There's so much money in this world right now. It is bonkers how much money there is. If you find yield, if you find a good investment, money will find you. And if you see our fund launch formula, that's kind of what we talk about, and we go more in depth. Obviously, it's not going to just flow to you right You got to go meet and talk to investors. There's a whole strategy behind that. But if you have yield and can prove that yield, it's actually not too hard to start a fund, especially in 2020 when people are fleeing other investments like the stock market. There are so many things going on in the world. People are nervous. They're scared of the volatility. They want to find alternative investments like me and you they can dump money into. All right, that's it for today's episode. If you guys have any questions, send me a DM on Instagram, @bridger_pennington. Let me know your questions. I'd love to get feedback on what we're talking about and hear your guys's questions, and I want to give you answers. Let us know how we're doing. Send us a review or subscribe, whatever you want to do, whatever platform you're watching on, where we can talk more. Okay, see you guys next episode. Peace.