#189: Alternative Investing: A Macro-Driven Approach
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Welcome back to another episode of The Richer Geek Podcast. Today, we have Ben Fraser, CIO of Aspen Funds, discussing their unique approach to investing. Aspen Funds focuses on "Macro-Driven Alternative Investments," leveraging macro trends to identify opportunities across various asset classes.
In this episode, we're discussing...
Aspen Funds leverages macro trends: They analyze the big picture to identify long-term tailwinds and invest in asset classes positioned to benefit.
Investment diversification: They invest in a variety of asset classes including real estate debt, private credit, industrial development, and oil & gas.
Oil & Gas as an Opportunity: While the current administration prioritizes renewable energy, Ben Fraser argues that limited supply and increasing demand will drive oil prices higher in the coming years.
Impact of Inflation & Interest Rates: Ben discusses the potential for higher interest rates for longer and the implications for commercial real estate.
Investing During Uncertain Times: While the market may be volatile, downturns can present opportunities for investors with a long-term perspective.
Resources from Ben
LinkedIn | Aspen Funds | Invest Like A Billionaire Podcast
Resources from Mike and Nichole
+ Read the transcript
Mike Stohler
Hey everybody, welcome back to another episode of The Richer Geek Podcast. Ladies and gentlemen, we have Ben Fraser today. He's the CIO of Aspen Funds. We had Aspen Funds maybe three years ago, three and a half years ago, if you remember, if you go back there, we were talking about some notes. They have expanded. They have gone into a couple different phases. So we're going to talk to Ben. He combines his analytical nature with his passion for delivering outstanding client service strong returns through out of the box investments. He has a professional background that spans over a decade, and he's become an expert in the field of investment management and has worked for several reputable financial institutions. How are you doing, Ben?
Ben Fraser
Doing well, thanks for having me on.
Mike Stohler
Absolutely, absolutely. So I usually like to start the podcast with a little bit of history, where you came from, where you got your expertise, and how did you get involved in Aspen Funds?
Ben Fraser
Yeah. So you had Bob Fraser, he's actually my father, a couple years ago, so have some familial connections to Aspen. But before I joined, actually, about seven years ago, I spent most of my career in the commercial banking base. So was an underwriter, was a lender, been a good chunk of my career there for kind of joining Aspen. And seven years ago, the plan was, "Hey, come on board, and kind of could be the CFO in training." So I was going to kind of go down the finance path, but very quickly I came over, they said, "Hey, we actually need you to raise capital because, we're trying to scale you to raise more money, right?" So, like, "Oh, it can't be that hard and sure, I'll jump in and see if I can figure it out." And boy, didn't know how hard it was to raise capital when you know from starting out, but have since, we've found some things that have worked well, and our investors really like and have scaled to about quarter of a billion in equity that we manage now and multiple different asset classes, and I get to enjoy what I do every day and work with awesome investors and a great team. So it's been really fun.
Mike Stohler
Very cool. Now, you started out when I had your dad Bob on several years ago in notes. Are you still doing notes? What are you guys getting into and why the change?
Ben Fraser
Yeah, so kind of the genesis of Aspen was centered around the opportunity that was in the market at that time, right? Coming out of the great financial crisis. We started in notes over 11 years ago, and that was a big opportunity. We felt this pretty generational opportunity just buying into the single family asset class in a discounted way through the debt and a lot of reasons to like it, and happened to be right, and it was a good time to get into that, that space, obviously, single family home prices have skyrocketed since then, and it's been a great business. So we still operate that today. We have five different funds that are still active on the mortgage note side. Still have one that's currently open that we're raising capital for. And then one of the things we kind of realized as we evaluated, where our key strengths and where do we see opportunity is really understanding the big picture, what we kind of call the macroeconomic tailwinds that create opportunity. And so using the kind of framework for understanding the opportunity that mortgage notes provided a decade ago, we've used that same lens to look for opportunities that we think will provide better risk adjusted returns over the long haul to investors. And so that's kind of been our framework. We have a few different verticals that we focus on leveraging our experience in debt and mortgages. We have a private credit fund that invests in preferred equity mezzanine loans into commercial real estate. We've been doing that within our other funds for a while, but have kind of peeled that out. And there's, we think, a huge opportunity for the next few years. There's a pretty big dislocation of capital markets, real estate, values, lending availability, etc. Got a pretty robust industrial development arm, and also oil and gas. So a little bit of different things, but all kinds of the foundation of it, what threads it all together is where we believe the long term trends are going to provide, you know, massive tailwinds that help these asset classes do well over time.
Mike Stohler
It's interesting that you say that one of the things that you see that is the future and you're investing in is oil and gas. And given today's administration here in the United States, you know where they're trying to push that all out, where do you see oil and gas and what is attractive to you in getting into it?
Ben Fraser
Yeah, great question. And you actually set me up perfectly, because the reason that we really like it is for the exact reason that you said that the current administration and prior administrations have put a big emphasis on renewable energy, and there's nothing wrong with that. We're a percent behind renewable energy. I think it's a noble goal and a thing that we should strive for. The challenge that's been created is the benchmarks that they're acquiring different states in different industries to hit in a very short amount of time. And what most people didn't realize when I first got into oil, gas, investing a few years ago, because of the big push for, you know, renewable energy, and you've seen solar, you've seen wind, you've seen all these...
Mike Stohler
Cars like this.
Ben Fraser
Yeah, exactly which...Hey, I'm a big fan, so let's just be clear here. But I would have thought, "Hey, this is becoming a larger part of our energy supply and usage." And right now it's still only 15% of global energy production comes from renewables, and that's after several decades of investment into these different technologies. And so not to say that that's not going to continue, but I think where the misnomer is is the speed at which the adoption, in a mass way, will happen. And so what's happened is the push to renewable energy, which again, is a good push, has moved a lot of capital allocators through the incentives and the requirements of a lot of ESG standards for a lot of capital, allocators have to hit certain scores and their investing mandates, and so a lot of capital has left.
And if you think about oil and gas, it's a depleting resource. It's a limited resource, and as you're pulling it out of the ground, there's less that is left in the ground to pull out, so you have to always be drilling new wells to find a new supply in order to maintain current production, and it's a long time frame. So the short answer is, there's been a lack of investment. It's actually been a drop of about 50% of new capital expenditures into exploration over the past 10 years, and we believe that's going to create a pretty significant supply crunch that is not going to be easily turned on, right? Because of the multi-year development cycle, and down the road, maybe 20, 30, 40 years from now, renewable energy does make up the majority of our energy usage, but in the next 10 to 15 years, absolutely not. And there's still a huge reliance on fossil fuels.
Mike Stohler
Absolutely.
Ben Fraser
There is no energy source that is more energy dense and easily transportable than gasoline, than oil, and we've yet to find that, yet to have anything that even comes close to competing with that from a cost standpoint. And so I think there's a pretty big opportunity to be on the right side of the pump, so to speak, and to be selling oil when we believe supply is going to be lower. By most estimates, even the most left leaning, the most politically focused on renewable energy, expect demand to at least stay the same over the next 10 years. But most estimates predicted to be higher for fossil fuels as population continues in at least in the US. So we think there's pretty simple supply and demand. Limited supply, increasing demand. We think prices are going to be pressured to go to the upside. Meanwhile, we can acquire assets, producing assets at extremely cheap valuations relative to history, really nice yields for the risk that we believe we're taking.
Mike Stohler
Yeah. And people don't realize just how many things that are in day to day life that's made with oil.
Ben Fraser
Yeah.
Mike Stohler
And people just say, "Get rid of oil." And it's like, "Okay, well, you're going to get rid of 80% of everything in your household, plastic." Everything has something in it, that is, it's either oil-based or, I think that push for all electric cars by 2032 or something like that is just that has to be just for the pundits. I can't believe that anyone really thinks that 100% because here's the thing, we don't have the electricity. Yes, Elon Musk even says we don't have the grid. You can push for all this electric cars, and then you have forced shutdowns on your grid twice a day. No can charge your cars. And, yeah, we're not able to do that yet.
Ben Fraser
You know, we're out there. I think we're not a big disconnect, and it's going to take a long time to make the transition. And I mean, it's possible, depending on how conspiracy theorists you lean with. The political environment to get a narrative that's actually trying to force prices to go up so that it makes it go faster. That's a conceivable option. But hey, as an investor and someone that's investing politically neutrally, I'm gonna go take advantage of what I think is gonna be a pretty big opportunity. And so a great thing is, these are incredible investments, even at current prices. But if prices go to the upside, which we believe they will, we think it's going to be an even bigger opportunity.
Mike Stohler
Yeah, and we'll leave it with this. Yes, it's hard to sell electric cars when gas prices are low exactly. I like it because I love the speed, I love the tech and it's kind of cool plugging into your garage. That's all I like. I don't disagree at all. So other than that, I don't care about any of that other stuff. Anyway, we'll get off that, I just want to know a little bit about oil and gas. So this is another kind of, like a political leaning type of thing. But let's talk about what you're seeing in just the world right now, with the inflation interest rates, everyone that I know is having a hard time raising capital. We're having a hard time finding assets. Those of us that invest, because there's a disconnect between the buyer and seller. I know it's election year and just things can be topsy turvy. What are you seeing on your platform?
Ben Fraser
Yeah, absolutely.
I mean, it's been a really wild 18 months, right? I think no one really expected to be where we are. And if you look at expectation of where, what the Fed was going to do with rates, at the end of last year, they were expecting, I think, at least six rate cuts in 2024, and at this point it's looking like one rate cuts going to be geared toward that, if now potentially a rate hike. I don't think that's conceivably out of the question, given where inflation's still at, and what's caused all this is inflation, right?
We've seen that. We've talked about that a lot. There was a kind of an evolution of thought of what was this just transitory? Is this just exacerbated with all the extra stimulus money that was thrown into the economy? We've been talking about this a lot in our podcast for the past two years, and we actually believe there's a bigger structural issue, or multiple issues, that are underlying inflation being higher, the two big ones, one we already talked about, which is energy. And as you mentioned, oil is in everything. And if you think about the price of oil and gas going up, that's extremely inflationary to our economy, right? Because then it makes everything else cost more, if the input cost is higher, and then you have the other big structural challenges, labor. There's a massive labor shortage, kind of, across the country right now, in a lot of different areas, and that's also very inflationary. And meanwhile, you have a very strong consumer that's flush with cash. We have strong employment, strong real, real wage growth. And so all these things are contributing to inflation, and so the Fed has been trying to stymie that by keeping the rates high, which slows down economic activity. But where I think a lot of people have been slow to adapt to is, is this going to be higher for longer? And if it is going to be higher for longer, what does that mean? So we've been saying for the past 18 months, higher for longer, higher for longer, even when everyone's expecting race cuts to come down right away because of these bigger structural things we don't think are easily solved, and are really going to put a lot of pressure to keep the Fed, to have to have the interest rates higher, because where inflation is at if that's the case.
And we look back at the history of interest rates in the US, in the rates that we had in years past, and past 3, 4, 5, years, those are historically absurdly low rates that everyone got used to and felt that was the new normal. But what if a 5% Fed funds rate is the new normal? And that's actually pretty close to the long term average, and so it's possible that what we were in in the prior cycle was an abnormality, versus what we're in now is an abnormality. And I think that mindset shift is taking some time. People want to go back to where it was a little bit easier, right? Prices that we saw in 2020, and 2021, I mean, those were, those were great cap rates on all these assets, and so it's been challenging, but I think there has to be a reset, right? I don't think it's going to go I think cap rates will come back at a certain point, but there's a lot of other challenges going on in commercial real estate, where if people are trying to hold on to make it through before their debt matures, and trying to hit their certain cash flow targets, so that they're not going to have to be foreclosed on. I think we're in the early innings of some significant distress in commercial real estate because of some of this maturing debt, and people are very caught off guard and don't have a plan B.
Mike Stohler
Yeah.
Ben Fraser
I think it's still early innings.
Mike Stohler
Yeah. I definitely see that in the hotel space where, like, we were talking prior, the sellers are now trying. It's like, "Look, it's worth 4.5 times gross." I'm like, "Yeah, it used to be for the last 10 years, other than the past three, two or three years. And so they're stuck." And as buyers are sitting there, it's like, "Look, my debt is almost twice." What yours was when you bought it seven years ago, not twice, but 30-40% and the NOI and the debt yield and the DSCR and, I mean, all that just doesn't make sense. I'm seeing some hotels for sale that are negative DSCR. The debt doesn't cover it, but the seller's stuck. He's like going "This is what it's worth?" You know? So we're kind of like, what you're seeing now is, I think we're at the beginning of that realization, because, like hotels and other commercial real estate, you have the five year flip in interest rates. It might be a 10 year loan, but it flips in five years. There's a refinance. And I think we're going to see a lot of distress on assets that make money, right?
Ben Fraser
100% agree. I mean, we're starting to see it. So we've started seeing several assets. We've been investing with our funds, where a big debt lender got very aggressive at the end of the last cycle here, and they have some stress. They were foreclosing on one of their assets, and they ended up bringing in another operator that they had experience with, very experienced operator, incredible track record. I said, "Hey, we don't want to really go into foreclosure, but we're going to basically sell this asset to you at less than the prior buyer owed us." And you come in, you bring a little bit of equity we'll lend to you again with a new loan. And basically they came in at a 25% discount, right to the price of just like two or three years ago, and all of a sudden the numbers make sense, right? Because a lot of times it's just, it's a basic problem. It's too high a value that these properties were purchased at in the last cycle. And so we're starting to see some of that matriculate down. But I think the challenge is, if sellers can hold on, they are holding on because they don't want to realize the loss that's currently unrealized right now, and they're hoping they can make it through, or at least stem the bleeding. But I think we're going to start seeing opportunities like that. And from my perspective, I think the next few years are going to be an amazing time to be buying assets at a new basis, at a lower basis, as something that makes sense in today's numbers, and then as interest rates go down, as cap rates come down over time. Now you're in the right position to benefit from the direction of those two factors.
Mike Stohler
Yeah, I've seen some syndicators now do kind of like a, I don't know what you call it, like an open syndication, where they're not specifying a certain asset because they're trying to collect that money, and they're starting to collect that money for then they can pounce.
Ben Fraser
Yeah.
Mike Stohler
Okay, you know, they're not looking, I want to buy this asset here. This is the one we're going after. They're just raising money and telling the investors, saying, "Look, we gotta be ready because it's coming."
Ben Fraser
Yeah.
Mike Stohler
And then we'll say this is the type of asset, and this is the area these types of things have the requirements, but they're not doing a specific asset. So as it's a little bit different from what we've been seeing, it's almost kind of like an open fund type of a thing, where they're just collecting money. So let's get into Aspen Funds itself. Again. It's Ben Fraser, everybody, aspenfunds.us and when they click on it, what do they see? You can register your education. What can they find on your website?
Ben Fraser
Yeah, so our tagline you'll see right at the top is Macro-Driven Alternative Investments. That's our tagline. And really, like I said at the beginning, the way that we view the investment landscape is intuitively, investors understand there's better times than others to invest in different asset classes, right? Because every asset class goes through cycles, so it's important to know where you're at in the cycle for that asset class. And so that's the kind of cool thing with our model, is we can pivot to where the opportunity is, and we're not have to be locked in on something and write it through a down, a downward trend, right? That's the benefit from an education standpoint.
We have a podcast. It's called Invest Like A Billionaire. You can check that out. And we're doing a lot of education around investing, around these kinds of macro trends. If you're interested in economic stuff, we do a lot of that. And yeah, we're trying to provide as much value as we can to investors, because, as you mentioned at the beginning, investors are spooked a little bit, right? They got into some investments that may have capital calls or maybe starting to trend towards foreclosure, and they might risk losing some or all of their original investment. And that's not fun, and that is not a fun place to be. I think there's a lot of a lot of the hype that was around syndications is it's kind of normalizing, a little bit of like, oh yeah, if we don't do the basic due diligence or get with the right people, then there's some risk there that we didn't expect. And so I think it's important for investors to understand. To me, the good thing is, I'm a huge believer in the long term trend of capital coming off Wall Street into Main Street. I think that's a trend that we have seen. It's going to continue in every data point you look at. More and more investors are wanting to diversify into alternative investments and out of mutual funds and stocks, and so I think that trend is going to continue. I think we're a little bit of a blip. People are some of the actual hard realizations of doing that are hitting right now, but it's also, don't let that fear stop you from seeing the opportunity for the next upswing in the next cycle, right? And this is the best time to make any investments when it feels scary or when there's blood on the streets. That's the best time to be investing, because that's when you get the best value.
Mike Stohler
That right, yeah, I forget who said there's some famous billionaire who actually said that it's "you invest when people are scared, because when people aren't scared, then everyone's in it."
Ben Fraser
Yep.
Mike Stohler
Right? I think that holds true. And again, ladies and gentlemen, what Aspen Funds invest in real estate will always come back. I'm not gonna say always, most of the time. I don't want people 10 years from now, you always said.
Ben Fraser
We'll see about the office. That's the way I'm a little bit...
Mike Stohler
Offices. Yeah. You know that? I think that's the one, because we're getting into so much the Zooms and the telemarketing, and no one's flying anymore. You just don't have to try to receive so much money, and people don't need you to know, what I heard about offices is everyone's leaving the big cities, and they're doing these little submarket office spaces that are around. They're not doing these big, 20 story headquarters anymore, so if you're going to go into the office, I think that might be the one to go into more of a neighborhood type office space. So let's talk about who's allowed to invest. How do they invest in any minimums you know they want to get into, like venture debt, oil and gas?
Ben Fraser
Offerings are limited to accredited investors. So that is one of the limitations we have just kind of regulatory requirement. But yeah, we try to keep our minimums low. So it ranges anywhere from $50,000 to $100,000 minimums, depending on whether funds or syndications are out there, but that's usually the starting point. And we have an investor club that you can sign up to get access to deals and before they kind of go to the public. And we have several offerings open right now.
Mike Stohler
And one thing I wanted to get onto, I just hit it on a little bit is kind of new to me, and it's probably not new is venture debt. Talk a little bit about what it is that you guys do with venture debt.
Ben Fraser
Yeah. So just to be clear, venture debt is a little bit different than what we do venture debts, generally making debt investments into startup businesses, or kind of growth businesses. We're kind of private credit is kind of the broad term that does encompass venture debt. What we do is private credit for real estate. And so part of what we're seeing is kind of the trends we talked about earlier, like this, one example of the lenders foreclosing, they bring in a new operator at a discounted price. This new operator, all of a sudden, the numbers look really well. We're investing preferred equity alongside these operators into what we think are really good values, into kind of current cash flow streams. So the great thing with that is we can get a combination through kind of a private credit investment, we have priority over their equity. So we get paid out first.
We also get priority in cash flow. So we get a cash flow stream right out the gate. We get a back end profit accrual that builds as the value increases, and then we're in a capital protected position, so our last dollar in is much lower than the actual value of the property, and so we have some capital protection availability. Have springing control rights, is what it's called, to where we can take over the asset, if needed, if they're not performing, and force them to sell the property if they're not performing. We have different triggers, similar to a lender, that we can enforce to protect our position as well. So we think it's a great way to invest in commercial real estate in a lower risk way. But the yields right now, because the availability of capital is very limited, we can generate really strong yields that we can pay to investors in a kind of diversified fund way that also captures the advantage of the market right now.
Mike Stohler
Yeah, and of course, we're seeing that because a lot of banks are saying no to pulling back from commercials right now, because they're kind of scared. They don't know how feasible different asset classes are. So I can see where that is. What I say just I think it's a good thing that the different asset classes, if they want something and they see it, they can go to you instead of these community banks, and forget about the big base, they don't even touch right?
Ben Fraser
Yeah.
Mike Stohler
They won't even touch it, unless it's under $100 million or something like that. They don't even talk to you. Ben, before I let you go, is there anything that I miss, anything that you want to talk about to our listeners that I might have missed?
Ben Fraser
No, this is a great conversation. Appreciate you having me on, and hopefully it was valuable for the listeners and appreciate it.
Mike Stohler
I think that our topic is very viable to what is happening today. I appreciate the insights. And everybody, it's Ben Fraser, aspenfunds.us, thanks for coming on, Ben.
Ben Fraser
Thanks so much. See ya.
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ABOUT BEN FRASER
Ben Fraser is the Chief Investment Officer at Aspen Funds and co-host of the Invest Like a Billionaire podcast. With over a decade of experience in investment management, Ben specializes in alternative investments and delivering strong client returns. Prior to Aspen, he worked as a Commercial Lender at First Business Bank, handling SBA and USDA loans, and as a Credit Underwriter at Crossfirst Bank. He also contributed to asset growth at Tortoise Capital Advisors. Ben holds an MBA from Azusa Pacific University and a BS in Finance from the University of Kansas.