Asset Trip with Aryan Birla: Building the Infrastructure for Alternative Assets to Take Over

Do you get a lot of clients who are already familiar with alternatives or have some exposure to it, or are you often their first exposure to alternatives?

A lot of our customers are the early adopters. So they have invested in something like Masterworks or Vint or Vinovest. Those are the three popular names.

Can you tell us a little bit about what Hedonova provides to these investors who are looking to add more alternatives to their portfolio?

Obviously we have a low minimum, so it's easy for investors who are looking to get started in alternatives to get access to [them]. They don't have to shell out $10,000 on [one platform] and another $2,500 [on another platform].

They want to invest in different things. So for example, when someone wants to invest in the stock market, they go and buy an ETF. But when they're entering the alternative investment space, there's so much that they can do: They can buy NFTs, art, wine, real estate, so many different things, and they want to allocate to all these different asset classes. Now they don't get that [diversification], because they have to go to multiple different platforms. It becomes inconvenient. So we serve that use case too, where an investor can invest in multiple alternative asset classes in one single fund. We make it easy via a single point of entry.

What kind of clients do you think stand to benefit from adding these alternative funds into their portfolio?

Someone who's already invested through their IRAs or directly into stocks and mutual funds. Alternative investments are definitely not for the first-time investor. We are definitely serving the mature investor, not the first-time investor.

For these mature investors, what kind of diversification benefits does this fund offer to their portfolio?

Mostly everyone's looking for uncorrelated returns to stock markets. Everyone has had money in stock markets and cryptos. People invest in cryptos thinking that is going to be uncorrelated to the S&P, but as we've seen, it's not. Cryptos and stock markets have become very correlated. So now they're looking for options so that they can have non-correlated returns.

So a lot of alternatives historically have been available only to institutional investors or very wealthy investors. And now, thanks to Reg D, all these platforms have opened up access to your average retail investor. Do you get a lot of these investors who would previously not have had access to these assets?

Almost everyone would not have had access. Although there are accredited investors, it's not likely they would've shelled out a million dollars to invest in one particular asset class [before Reg D]. So almost everyone would not have had access to these asset classes otherwise.

How do you see this changing the investing landscape for your average retail investor in the coming decades?

The bullish case that we have here is that alternatives would become parallel to the stock markets. Now, just like the stock markets, the alternative space requires more infrastructure. For example, it requires more funds like us. It requires ETFs. It requires an exchange. The regulatory regime does allow you to trade alternative investment shares. However, no one has built an exchange yet. There are actually technology companies out there who have white-labeled exchange solutions. I am surprised that no one has done it. So that's something that I'm sure is going to happen. Someone is going to do it.

For investors who are really interested in just one or two alternatives, maybe they really want to get into crypto or fine art. Do you see a valid reason for them to shift their perspective toward a more diversified fund if they really are just gunning for those one or two alternative assets?

Not really. If someone wants to get allocation to art or wine, it's because they're making a passion investment. They understand the space, or they understand wine. They like wine. Most of the people I speak to tell me that they're investing in wine because they like wine. They understand the market. It's familiar. It doesn't make sense for them to invest in an alternative fund. They're actually better off investing in particular offerings.

So it sounds like Hedonova is best for investors who are looking for a more passive option where they don't necessarily have to become an expert in these various asset classes.

Yes. That's another use case here, actually. U.S. regulations allow foreign investors also to invest. So 30% of our investors are from Europe and Asia. Individually these investors would not be able to invest because it requires an SSN or a U.S. bank account. So we become a gateway for them. We have feeder funds in India, Singapore, and Luxembourg to serve European markets and Asian markets.

I'm curious about how you personally got into the alternative investing space.

I worked for two hedge funds before, and I used to trade emerging market currencies. After that, I was working as a trader under a portfolio manager, and we used to run a sub-fund which used to invest in alternative assets. This was focused on alcohol assets and green real estate. So essentially we used to buy small tracts of land, small parcels of land, in rural areas in Europe. And these would then be leased out to windmill operators because windmills don't require too much land.

Could you talk a little bit about what your own investing strategy is and how you allocate your assets accordingly?

So, I do a 45/45/10. Forty-five percent is invested in growth assets like startups. They can be late-stage startups or early-stage startups as well—early-stage through platforms like Republic, and late-stage through direct investments in unicorns, all in secondary transactions. Obviously, I invest in cryptocurrencies. I've been angel investing quite a lot. I'm originally from India and I've been investing in a lot of Indian startups. And I live in France, in Paris, so also in the European tech space. So that's 45% of my portfolio, which is for growth assets.

Then another 45% of the portfolio would be income-generating assets. So I've made some investments in land given out for lease. I used to buy physical land, but in the last year I've changed that approach to buying land NFTs. Not metaverse land, not virtual land. Real land, but they've tokenized it and put it on the blockchain.

And how has that been for you? Sounds like an interesting investment experience.

Land return returns have been around 8% to 9%, which is great, which is in line with expectations. The best part is that I can just sit on my laptop, connect my Metamask wallet and make the investment. I don't have to go through an escrow, a broker, none of that nonsense. I connect my Metamask wallet, I make the investment, I buy the land, I get the title in my name.

Are there any alternative assets you aren't currently invested in but you've been curious about?

I'm very interested in Southeast Asian art. Art from Indonesia, Java, Sumatra. Also a lot of African art. I actually started my career in the art space. I started at the Guggenheim Museum in Bilbao as an art researcher. So I've been interested in the space, obviously. What I've noticed is that there's a lot of demand for Southeast Asian art and African art from China. So just to learn about the space rather than from a financial point of view, I've been buying some Southeast Asian and African art, and I've been connecting with Chinese art collectors to sell them. And I'm trying to study whether there is an investment opportunity there or not. I have about 50 works of art myself, just collection, not for investment—mostly Western European and Asian art.

When did you start investing? How old were you and do you happen to remember what your first investment was?

My first investment was Louis Vuitton. Louis Vuitton stocks. I sold it very fast. I shouldn't have, but that's a different story. So I've been investing since I was like 18 or 19.

That's pretty young, younger than your average investor. What led you to get started in the investment space so early on?

It's very interesting, right? It's neither a science nor an art. There's something mystic about it because it's something that can't be solved. If it was a math problem, you can solve a math problem and get on with it. Your curiosity is done for. But the markets just make you curious. You want to keep solving it, but at the same time, you don't want to. So I guess it's the curiosity part of that which kept me going.

Yeah, it's a never-ending challenge. Can you name your biggest investing win and your biggest investing loss?

Yeah. Let's talk about alternatives because stocks are pretty common. I obviously got into crypto early, but I wouldn't really say that's the win cause that's a lot of people. I actually made an investment—I bought a painting from an Indian artist called V.S. Gaitonde. And he is among the top three artists from India. Contemporary artist, makes abstract work. So I used a significant part of my net worth at that time, probably more than 50%, to buy that painting. And that really worked out well, gave me like a 1400% return. Went for a private sale with Christie's London, exited on that in 2018. Made the investment in 2013 or 2014, sold it in 2018. Solid return over there which was not something that was expected. Because of that, my investment thesis in art, or in alternative assets in general, has been cemented.

Wow. That's incredible.

Another one would be carbon credits. I've been, um, interested in the carbon credits cause I did a college project once on the energy markets, on how energy grids are inefficient. So I came across carbon credits at that time. The markets were very immature. This was back in 2012. I made an investment in carbon credits in 2015, and that has risen like 900% since. So those two have been really good investments.

And what would you say your biggest investing loss has been?

Surprisingly, my biggest investment losses have been in real estate, which is not normally the case. Now, when you're buying real estate, you should always get a mentor or use professional help. I did not. I just went ahead and bought land in Sri Lanka because there was land available at that time right by the coast, something like 12 acres of land. It was extremely cheap. And I just thought that it was undervalued. But it was not undervalued. There were a lot of problems with that land. So, I bought that land, and then it just got forcibly taken away by the government because the Chinese government wanted to make a port in Sri Lanka. So the government just acquired that land. I bought it on pennies on the dollar and the government took it on pennies on pennies on the dollar. It was really bad. I lost like 97% of the value.

Lesson learned. Real estate is complex. It seems easy. It's not, it's complex. You should always get professional help or mentorship before you invest.

Oh no! That's rough. Any advice you've extrapolated from these experiences that you can leave our readers with?

So for the physical assets, how you can actually make money is by understanding where profit comes from. For a stock, it's simple. You buy a stock, it rises in value and that's how you profit. But when you're investing in alternative assets, like art or wine for example, where does the profit come from? From a macroeconomic point of view, the profit comes when your money makes the supply chain more efficient.

Let me give you an example. Let's say that there is a winery and they have produced a batch of wine barrels. Now all the wine, it is money, is stuck in those wine barrels, which now have to sit in a warehouse on which they have to pay rent for the next four to six years and wait for the wine to mature, which means that their money is stuck for six years. It's very capital inefficient. Now as an investor, if we can buy those wine barrels at that moment, we buy it off their hands. They get the capital, they now have the money for the next lot of produce and an investor can bear the cost of keeping the barrel in a warehouse and pay the rent for the next couple of years. That's when the price of the wine is rising a lot because it's maturing at that time. So the addition of capital made the supply chain more efficient, and that's how profit is generated.

That's a great way to put it.

For stocks, it's as simple as liquidity. More money goes into stocks, stocks rise in price, you make money. But for alternative assets, when it's a physical asset, you have to really look at where the profit comes from. And if you can understand that, 'okay, my money is making the supply chain more efficient, that is why I'm making a profit of it,' then you should definitely go ahead with that investment. But if you're not able to be sure of, 'what is my money really doing? Am I waiting for someone else to come in and then purchase it off my hands?' That works in the stock markets, but it will not work in alternative markets because there's not enough liquidity. There will not be another person who will buy it from you at a higher price.

Take your own Asset Trip

If you're interested in investing like Aryan, you can check out these platforms:

• Hedonova: A diversified fund of alternative asset classes - art, wine, music, students, startups, and more.
• Yieldstreet: Yieldstreet is a crowdfunding alternative investment platform that helps you invest in a wide range of asset backed investments.
• MicroVentures: MicroVentures connects accredited and non-accredited investors with highly-vetted startups that are looking to raise funds.