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The Capital Markets:
Public and Private Sectors

 

Many individual investors participate in the public markets with vehicles ranging from stocks, bonds, money market funds, and other vehicles traditionally sold in retail investment channels.  These vehicles can have a role and many 401k or other qualified programs offered by employers are often limited to them (given custodial requirements and costs, Asymmetria only works with non-qualified dollars).  Equities / stocks are one of the most common vehicles given their historically higher return potential in comparison to investment grade bonds, CD's, or other "safe" vehicles.

 

Investors should always consider traditional risks, returns, and costs but they should also consider underlying fundamentals of their investments.  For example, publicly traded stocks – with the exception of illegal insider trading – generally lack any information or price arbitrage / advantage for buyers or sellers yet they can become irrationally priced (high or low) based on market momentum regardless of fundamentals.  Or, prices become reflective of the overall economy or a sector – particularly with mutual funds – as opposed to the underlying strength or weakness of the firms represented. In technical terms, there is high-beta risk and low alpha-opportunity with stocks and other retail instruments.

 

These instruments can also have significant costs to support the large infrastructure selling and servicing retail investors.  Often fees are based on assets under management despite a questionable relationship with actual costs.  Other fees include trading costs that are passed onto investors. These activities may also create tax consequences even if no actual income is provided to investors.

 

These are some of the reasons why Asymmetria avoids most retail vehicles (distressed debt is an exception) and why Asymmetria has created its client model.  Rather than investing in vehicles with high-beta risk and low-alpha opportunity, Asymmetria participates in a sub-segment of the public sectors (distressed debt) and within the much larger private capital markets.

 

The size and make-up of these markets creates more asymmetric investment opportunities.  Large institutions represent a large proportion of those participating in these markets so many individual investors aren't familiar with them.  They also get much less media attention and less information may be publicly available as it is often tightly held.