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How do you select an asset class in order to diversify your portfolio?
There is no bad asset class, but there are asset classes which are misplaced
in your portfolio. In my venture capital fund I take calculated risk, however,
when managing my prívate capital I adopt a more prudent and risk-averse
strategy. I diversify my portfolio by investing in as many asset classes as
possible. I think the focus should be on "Asset Allocation" rather than on
"Stock Picking". The truth is that there are few asset classes that I do not like.
I invest a limited amount across all asset classes, but what changes is the
weight that I allocate to each one dependent on the risk profile.
How do you decide the weight you allocate to each asset class in your
portfolio?
According to Harry Markowitz and other economists, the weight that you want
to allocate to every assets class in your portfolio depends on your aim, if you
want to increase the level of risk (and therefore to increase your returns), you
have to invest more in variable asset classes and less in fixed. As a golden
rule you should not allocate more than 25% of your capital to alternative
assets. When I speak about alternative asset classes I refer to a new type of
assets that have traditionally not been considered to be a part of an
investment portfolio, such as investments in real estate or in commercial debt
through platforms like NoviCap.
Today we are talking to Luis Martin Cabiedes, investor and partner
at Cabiedes & Partners, one of the most important venture capital
funds in Spain. Cabiedes participated in NoviCap's seed finance
round in 2015. He also invests his private capital in invoices (shortterm debt) traded on NoviCap's platform. During the interview,
Cabiedes shares his vision as an investor and explains why he
decided to invest through NoviCap as part of his portfolio. This
decision is in line with his overall diversification strategy. For Luis
Cabiedes, NoviCap is a short-term investment opportunity, with
high profitability and moderate risk, it is "one more asset in a superdiversified portfolio."
How do you scout for new asset classes?
I am speaking as a private investor and not as a venture capitalist. I keep
myself informed, reading and looking for new investment trends. Scouting for
new asset classes is a game of finding roles in your portfolio. You have to
analyse what type of asset it is, its risk profile and how it can fit within your
portfolio. The aim of including alternative assets in your portfolio is to increase
profitability, as these assets tend to be riskier and earn you higher returns. To
mitigate the risk of the entire portfolio, I diversify investments in different types
of asset classes: real-estate, venture capital, emerging markets and direct
lending, and I limit the exposure to each one.
Why are you interested in investing in short-term assets?
lnvestments in invoices, currently represent a small portion of my portfolio but
as a short-term investment it allows me to maintain a high level of liquidity.
Apart from diversifying across different asset classes, you have to diversify
over time. There are three main criteria to analyse an investment: profitability,
risk and liquidity. NoviCap features high yield, moderate risk and high liquidity.
lnstead of having funds on a current account with a return close to zero, you
can invest your excess cash through NoviCap with a net yield of 8-10% per
annum. This way you can place the most liquid portions of your portfolio as a
deposit with NoviCap and invest in invoices. However, I would never invest
more than 5% of my portfolio in liquid assets.
Why do you think there is a growing interest towards investing
through marketplace lending platforms?
Marketplace lenders emerge as a response to an unsatisfied demand in the
market. Only an automated and technological process allows you to access
a certain type of asset class, which would otherwise be much more
expensive and complex in the traditional form used by banks. Far example,
when investing in commercial debt, a professional investor does not have
the time nor the risk analysis instruments to be able to analyze an X
number of invoices. NoviCap solves this problem by enabling automated
trading in hundreds of invoices, grouped and arranged according to the risk
profile.
When did you first find out about NoviCap?
As a manager of a venture capital fund focused on tech investments, I am well
acquainted with the alternative finanance models that have emerged in the last 10
years, starting with Prosper in the US. I was introduced to NoviCap though the
SeedRocket Accelerator and today I am a "double" investor. I never use the
products or services of the firms in which I am an investor, but with FinTech firms I
make an exception. In NoviCap and Kantox I am both an investor and a client. lt is
very different to value a company as an investor or as a consumer. For example,
as a client you can like a gourmet restaurant for the gastronomic offer or far the
ambiance, but as an investor, a fast-food business model such as McDonald's can
bring greater profitability. Warren Buffet claims he only invests in companies of
which he is a client, but in my case it's the opposite. A company can create value
but one must look at where that value is chanelled. We can find another example
in the airline industry, it has created an immense value far the consumer, but not
for investors. As an investor it is easy to get confused between these two
perspectives.
What are the risks of investing through NoviCap?
When you are investing in a diversified way you protect your portfolio from
individual risk, therefore the risk incurred is cyclical, it depends on the economy
and macroeconomic conditions for SMEs in Spain.
What are the advantages of investing in commercial debt?
lnvesting in invoices is attractive due to the high returns, the moderate risk and the
short-term nature of the investment opportunity. NoviCap gives you access to an
asset-based investment secured on outstanding invoices issued to high-quality
debtors and recourse is taken on the SMEs in the event of default or trade dispute.
Which are the key advantages and limits of investing in invoices
through NoviCap compared to other asset classes?
NoviCap is one of the first Spanish platforms to offer access to a new asset
class with high liquidity. The great advantage is that it is growing rapidly,
and the drawback is that it is still in its early days. The more registered
SMEs, the more invoices discounted, which will result in a more diversified
investment opportunity. For an investor in NoviCap the best strategy is to
begin with an initial deposit, and gradually increase it as the volumes traded
on the platform grow. lt works like a Network Effect, the more people
participate, the better far everyone.
Do you use the automated trading feature to invest through NoviCap?
What are the advantages?
The time and cost needed to analyse a single invoice is not cost-effective,
therefore the automated trading feature is the best solution for investors looking
into diversified short-term corporate debt investments. The automated option
allows you to select your investment criteria and easily diversify your portfolio. In
my opinion the strategy is to invest small quantities in the maximum number of
invoices - diversification of the portfolio is the only strategy, that allows you to
increase profitability whilst maintaining the risk levels adjusted.
Do you invest in any other asset class which yiealds an annual return
between 8-10°/o, as is the case with NoviCap?
Yes, other assets classes, such as the stock market, have a similar return range
however the difference is that it consists of a long-term investment (7-8 years).
Similarly, investments in Venture Capital have high returns but they are not a
liquid investments.