The Institute for Innovation Development interview series seeks to learn from innovative business leaders, uncover innovation best practices, and discover how to apply these insights into the financial services industry.
We recently sat down with Floyd Tyler, president and chief investment officer of Preserver Partners LLC, an alternative asset management firm that manages a liquid alternative mutual fund, the Preserver Alternative Opportunities Fund (PAOIX AND PAORX), private investment funds and separately managed accounts for institutional and individual clients. He shared with us the firm’s perspective on the need to challenge our thinking about investment diversification and portfolio risk management.
Bill Hortz: You characterize your investment approach as an opportunistic value-oriented focus which invests where others “ignore, cannot or fear.” Tell us a little more about why other investment managers are so constrained.
Tyler: Investment managers can be explicitly constrained through rigid investment policies. Over my career, I have seen a large number of investment policies, and I am struck by how similar and restrictive many of them are. Investors can also be constrained if they adopt a herd mentality or have limited investment access or expertise. For example, some investors aren’t sure how to categorize or access unique investments. There are numerous ways that investors can enhance their portfolios through broader investment mandates and opportunistic investing.
Hortz: The Preserver Alternative Opportunities Fund seems aptly named. Your maverick approach has led you to a very eclectic and non-typical list of portfolio holdings. Can you give us a sense of the range and types of these investment holdings you might not see in other liquid alternative funds?
Tyler: With a global mandate and the ability to invest across capital structures, we are able to own unique investments such as Vietnamese closed-end funds, Australian infrastructure, U.S. merger arbitrage securities, apartment mortgages and reinsurance. The fund’s flexible use of investment vehicles further broadens the opportunity set to include investments that may not be exchange-listed.
Hortz: You have also described your process as a “hunt for uncorrelated yield.” What does a prototypical Preserver investment look like?
Tyler: A prototypical Preserver investment is trading at a discount to intrinsic value or growth prospects with an attractive combination of yield or yield plus growth that approaches 5%. Finally, it should have low to moderate correlation to capital markets.
Hortz: Your fund can go 15% into illiquid investments. Can you give us a few examples of private fund investments in your mutual fund and discuss the unique benefits they may provide for investors?
Tyler: To date, the fund owns an investment in UBS Trumbull Property Income Fund, L.P., which is a $1.3 billion institutional quality portfolio of participating mortgages and real estate assets. A participating mortgage limits downside risk by receiving a significant portion of its total return from the fixed interest component of the loan, while participating in property cash flows and appreciation when the property performs well. Participating mortgages are a unique, uncorrelated exposure for the mutual fund since it is not possible to access participating mortgages through exchanged-traded securities.