Host: Morning. Right now I’m thinking about alternative investments because I’m looking at a rate environment where I’m not sure where I’m going to get a return here, certainly not in the treasury market. I’m not sure about the equity markets given the big move in 2021, so I might need to think about alternative investments. Our next guest thinks about that as well, CJ Follini, managing partner of Neak Capital. CJ, thanks so much for joining us here. What alternative investment ideas or areas are you talking to your clients about as we enter 2022?
CJ Follini: Well, again, great to be here. Hello, Taylor. Hi, Paul. We are focused on real estate, and we have general themes, and then we execute within those themes, primarily supply chain and logistics. It’s so exciting to talk about the cultivating topic of supply chain and logistics, which, for the past five years, you didn’t have 27 mentions, and we’ve had 27 mentions on the general business channels today thus far.
Host: All right, so talk to us about the themes that you’re looking at. We’ve been talking about supply chain being a big one, right? Investing in warehouses, some of these mobility hubs. Where are you looking at right now?
CJ Follini: We have a diversified approach. This includes dry industrial, but especially cold chain infrastructure. Cold storage, also known as mobility hubs, is more of a development and a value-add play. We believe, as does SoftBank with their $1 billion investment about 18 months ago in Uber Eats and DoorDash, that large structured parking garages are going to be underutilized for parking in the future. They’re well-located, they’re in downtown MSAs, close to population, and they can be repurposed for micro-fulfillment. So as a theme, micro-fulfillment will be discussed just as much as the ship docked off the LA Port is right now. You’re going to have cloud kitchens on the roof, you’re going to have cold storage pods on Deck Four, and you’re going to have Amazon and other lockers where you can do drop-off and pick-up. We have to rethink what supply chain really means in this country.
Just a quick aside: nation states are becoming more xenophobic. Globalism was attacked mercilessly under the last administration. Every developed country has to build sustainable, vertically integrated supply chains within their own boundaries. That takes years; it’s really hard. Amazon is building an airport network under executive Dave Clark just to do that. Their own airport network. We believe that there is a version for the middle market and small business that has to be built from the ground up, and that is what we’re discussing in supply chain and logistics, and more importantly, micro-fulfillment.
Host: So CJ, where are we seeing this? Give us some examples of this micro-fulfillment, because I know there is that thought that we need to onshore more of the supply chain. Where are some good examples that you’re seeing?
CJ Follini: There are two versions; it’s a barbell approach. You have the legacy, the older regional large massive distribution centers that are more hub and spoke. That’s fine, but people are dispersed. They’re moving out of cities, so you have to deliver where they are. For example, there’s a company called Americold. Yes, it’s publicly traded, and it’s a REIT. They are buying what would have been an average of a 100,000 square foot regional distribution for the cold supply chain. Now it’s 15,000 in a borough of New York City, which is within 20 minutes of the mass of the bell curve of the population. So if you can’t bring organic or frozen produce to the largest portion of the population within 20 to 30 minutes, you’re in the wrong location for cold.
Host: Interesting. I’m also taking a look at your bio and your early stage investor in SpaceX and supporting growth for female entrepreneurs. Talk to us about the female entrepreneurs, some of the ideas and some of those investment opportunities that you see.
CJ Follini: I wish I could say that I was more pressing on that. I learned from some very smart people, Jesse Draper of Hen Ventures, Steve’s daughter, but a phenomenal investor in her own right. They gave me a very simple thesis: there is maybe a gross underinvestment or underallocation of venture capital and family office and RA capital in female founders, to the tune of maybe 60-70%. If anyone thinks that there are not capable female executives who can create unicorns to that degree, they are grossly mistaken. That reallocation of capital is going to realize that they have to deploy capital in these companies, and they’re going to do it quickly. Those people who are there first are going to benefit from understanding that distortion in the allocation of capital in under female founders. I do it both direct as well as through people, as I mentioned Jesse Draper of Hen Ventures. It’s across the gamut of fintech, a lot of CPG, which we love because of its cash flow and scalability. There are investment clubs for the smaller investor; Golden Seeds is a great way to invest less than $10,000 in a female-founded company, and they are open to everyone.
Host: CJ, what percentage of an individual’s portfolio do you think should be allocated to alternative investments? Because the argument can be made that most investors are underinvested in some of the alternatives.
CJ Follini: Excellent question, and unfortunately, we only have seven minutes, but I’ll try to parse it. Yes, it is something I rail against non-stop: that investors of every size and stripe, whether it’s billion-dollar family offices or the retail investor at a $500,000 level or $220,000 level, we are all underinvested in alternatives. Now, within alternatives, there are varying categories. I would argue that private real estate investments, private REITs, should be up to 38% of your alternative allocation—alternative 25% of your portfolio if you want a rule of thumb. There are many disagreements on that. I follow Rob Swenson, the legendary late investor of Yale. If anyone proved the return power of private investments, it was Mr. Swenson, and I follow his lead.
Host: All right, CJ, thank you so much for chatting with us. Really fascinating stuff. We probably need to talk more about alternative investment opportunities as opposed to that 60/40 traditional equity-fixed income portfolio. CJ Follini, managing partner at Neak Capital, giving us some thoughts here and talking about some of the logistics supply chain issues and investment opportunities there. So pretty fascinating stuff. And again, alternatives, I think for a lot of investors, are probably not representative enough in the average portfolio for the average investor. Maybe rethink that, particularly in a world of low yields.
