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Asset Classes

Status
Work

Asset class lifecycle:

  1. Organized in a “system of record”
  2. Valued
  3. Financialized (traded, insured, bundled, etc)

Some asset classes, like crypto, speed run this process because they are already organized, literally on a ledger, and have built in pricing / valuation, so it’s easy to become highly financialized. Some asset classes take decades to develop. So where is the best place to invest or build?

  1. Build the system of record “picks and shovels” business. For example, Zillow for Real Estate, CME for Commodities, CBOE for Derivatives, Carta for startup stock, etc. These are all effectively vertically integrated software businesses that have built a monopoly.
  2. Get really good at valuation, either as a service provider doing the spreadsheets, or as a professional investor arbitraging valuation insight and buying the asset directly. Basically, Deloitte or Berkshire are the two ends of the continuum for this one.
  3. Create new financialization in an established asset class. There are only a few options here:
    1. Make it easier to trade the asset
    2. Make a derivative or a structured products of the asset
    3. Lend / borrow against the asset AKA securitization
    4. Insure / hedge the asset

So that means, with any asset class there are really only SEVEN total options. Each asset class can be broken down, based on maturity, to better assess where in the value chain to invest or build.

Some hypotheses I’d like to test / backtest:

  1. SoR businesses are wildly undervalued in the first decade-ish of their rise
  2. You should NOT ever buy assets directly unless you have a material edge
  3. Investing in the leading service businesses doing valuation offer the best risk-adjusted returns
  4. Investing in the emerging fund managers targeting the asset class offers the next best risk-adjusted return
  5. Building or investing at the financialized level is the hardest and most competitive, but most lucrative