Alphabet Soup

According to popular folklore, the term "seeking Alpha" was first attributed to an investment analyst at Morgan Stanley in 2004, when a name was required to define an active investment strategy focused on a measure of excess over and above a benchmarked return on a risk-adjusted basis. Unpacking that in layperson terms, higher returns are always at least possible as you travel up the risk curve, but how do you justify taking those risks? Suppose you can calculate the margin between what you consider excessive or unwarranted risk and below that factor in a baseline return, an achievable return through passive investing, such as a popular index. In that scenario, wherever you land in that margin above passive, and below the pain threshold, is Alpha.

This popular mantra has become the holy grail for hedge fund managers seeking investment ideas with the potential to beat the market, securities or situations that generate excess returns or returns higher than a pre-selected benchmark without additional risk when added to an existing portfolio of assets. Greek letters and cool names sound like premium products; they enhance the perception from a client's perspective, so much so that Ray Dalio famously named a fund at Bridgewater Associates "Pure Alpha", which was essentially a diversified fund mitigating the riskier assets in it with bonds, the concept that some secret sauce is on offer here, is the allure. In the way that the carrots in the soup at the Michelin-starred restaurant are the same carrots on the shelves in the greengrocers, value is sometimes about how things are stirred up in the pot and presented. What are we trying to say here? Well, the question is, could investment in our asset class be quantified as an "Alpha Strategy" and have that same sort of instructional grade mass allure? Are we just the humble soup, or do we have something more refined on offer here?

You could suppose our asset class could be considered an Alpha Strategy because it can generate returns above traditional benchmarks, such as stock market indices or savings rates, without relying solely on broad market movements. Our approach aligns with the core concept of Alpha, which is about achieving excess returns relative to risk, as we have discussed above. While all investments carry risks, including the possibility of default or capital loss, the regulated nature of our industry helps distinguish it from riskier, unregulated ventures in emerging markets.

One of the main reasons our sector's lending activities can provide Alpha to investors is due to the inefficiencies in traditional lending markets. Banks and large financial institutions often have strict lending criteria, slow approval processes, and overhead costs that get passed onto borrowers. Platforms like ours operate more efficiently, connecting lenders directly with pre-vetted property developers seeking short- to medium-term loans, often secured against tangible assets. This efficiency allows investors to earn attractive interest rates that may outperform low-yielding bank deposits or even some stock portfolios, especially when adjusted for the specific risks involved.

Our platform emphasises due diligence and often works with experienced developers, which helps reduce the risk of defaults. This lower default risk, combined with relatively stable and predictable returns, makes it appealing to investors seeking an alpha-generating alternative that doesn't rely on volatile stock prices or market timing. Another aspect that supports its alpha potential is the low correlation to traditional financial markets. Our returns are generally not tied to daily stock market movements, making them less susceptible to sudden crashes or panic selling. This diversification benefit can enhance a portfolio's overall risk-adjusted return, a key feature of any alpha-generating strategy. Investors can capture steady income even during market volatility or economic uncertainty by reducing reliance on market trends.

Moreover, we can offer a relatively transparent and accessible investment process. Unlike hedge fund strategies that pursue Alpha through complex derivatives or leverage, we provide clear, straightforward investment opportunities with detailed information about each project and borrower. This transparency empowers investors to make informed decisions, contributing to greater confidence in the quality of the returns.

So, are we Alpha?

In summary, we certainly have all the correct qualities to be considered because we offer the potential for higher, risk-adjusted returns through efficient, secured lending that's less tied to market cycles. By capitalising on niche opportunities in property finance and providing regular, predictable income, we allow investors to outperform traditional benchmarks, meeting the very definition of "Alpha" in finance.

Invest & Fund has returned over £300 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com

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