Peer-to-peer lending markets like So-Fi and LendingTree have stepped in where banks stepped out and now offer Pagnato’s clients a differentiated source of return.
Micro-lending’s performance tends to follow the consumer cyclical sector, but with little correlation to equity or fixed-income markets overall. Pagnato targets an 8 percent to 9 percent total return, with 6 percent to 7 percent annual cash flow from micro-lending.
Farmland Leasing
“There are investments in farmland that we use. We find companies who lease the property from our clients, and then they receive two attributes of return,” said Pagnato. “They receive the proceeds from farmers leasing the property, and then they may enjoy additional appreciation if the property we buy increases in value. We look for 8 to 10 percent total returns with 4 to 5 percent annual cash flow. Again, these returns have little to do with the stock and bond markets.”
Agricultural Financing
In addition to leasing farmland, Pagnato’s clients may also participate as lenders to major agricultural concerns who need short-term cash flow to plant crops. The companies rarely default on the loans, which offer investors 8 percent to 10 percent total returns.
In-Demand Real Estate
Though most advisors wouldn’t consider them alternatives, Pagnato dips into certain sectors of the publicly traded REIT universe to offer his investors diversified sources of returns. One such place is REITs responsible for housing near university campuses. Enrollments often outpace schools’ ability to build dorms, so property in the vicinity of campuses in college towns can be a reliable cash generator.
Triple-Net Leases
“[These] are usually leases by major corporations like McDonalds or CVS Pharmacy,” says Pagnato. “The lessees pay all the expenses of the property. They’re typically backed by large Fortune 500 companies and they can throw off 7 to 8 percent cash flow.”