Identifying, funding, and supporting emerging companies in the technology (“tech”) space is an integral part of the Carlton James Group ABC (Alpha, Balanced, Core) investment strategy, and should be a strong consideration for family offices and their clients. Core and Balanced look to assure capital protection for our fund investors and Balanced to support the ability to provide them with a regular income over a defined period. These two contributors, when carefully managed, help us deal with the consequences of economic turmoil and recessionary shocks on a global basis. Weighting in Balanced and Core is an acquired science (sometimes I wonder if there isn’t an element of art involved!) and the associated expertise and ability to implement the selected strategy is what distinguishes one investor from another.

In its way, Alpha is a rather more exciting part of the overall investment strategy. Technology is a word that excites people and is where they expect to see the “sizzle” in a portfolio diversified by asset class and geography. We’re not looking for income at the time of investment – albeit investors are often grateful if it becomes a part of a total return equation at a later date – but for upside, equity growth, or rapid increase in shareholder value. Added to this is the all-important exit. When is the investor likely to be able to cash in via a trade sale or an IPO? Investments in tech are the icing on the portfolio cake and where the “oomph” to growth in the value of assets under management comes from.

Talking about a tech investment strategy is the relatively easy part; successful implementation, or picking the winners, is entirely another! Not only that but the timing of the exit is not always clear. I don’t know anyone, after many decades in the investment business, who has not suffered from deal fatigue or the short-term slam dunk that has not turned into that rather longer term investment proposition.

The past 10 years have witnessed a burst of growth in incubators, venture capitalists, financing intermediaries and the proliferation of tech start-ups across the globe. How can one possibly succeed when, as an investment manager, you are overwhelmed with approaches from so many wanting to highlight the investment attractions of their particular company or their clients if the message is being delivered by an intermediary, the competence of many of which, I’m afraid to say, is very questionable. I have recently noted some conversations on LinkedIn with family office executives commenting on the plethora of calls – uninformed, rude, aggressive, exaggerated – that they receive every day. Bit of a nightmare I am sure you would agree.

So, what should family offices keep in mind when seeking out opportunities for alpha technology investments?

  • Tech is an important vertical and desirable component in any investment strategy apart from the most conservative
  • It provides an injection of growth potential not being initially focused on capital preservation or production of income
  • Try to develop relationships with a few capable, trustworthy and consistent intermediaries and/or with a select few professional tech investors who may want you as a co-investor
  • Think of focusing on a few industries and develop a basic knowledge of what’s going on in those verticals. You don’t need to speak to everyone with any number of ideas and proposals. Energy, media and healthcare provide a very large range of attractive tech investment opportunities. They are also more likely to offer the scalability so important in the tech world
  • Be focused on the quality of the materials, i.e. business plan and financial summary with which you are provide • Take into account the global potential of the tech investment opportunity that you are reviewing
  • Assess what assistance you may be able to give the company in question in implementing their strategy. Constructive involvement can be mutually rewarding
  • Always be aware of the exit. Trade sale is the cleanest; IPO the more uncertain

Tech is the icing on the cake when it comes to implementing a diversified investment strategy. It’s what gets the adrenalin flowing and if executed successfully can provide very satisfying rewards and not just monetary.

Tony Moore is the Chairman of the Board of Carlton James Group, and has more than 40 years’ experience in the global financial services industry.