EGCM summarizes 2022 and provides information on future plans.
In 2022, we welcomed more new investors to the EGCM rental-based platform than in any other year in our ten-year history. Not only is this a milestone of which we are extremely proud, but it also means that for many of our investors, this is the first time they read our year-end letter.
We usually use this as an opportunity to present our results for last year, analyze some of the key factors influencing those results, and provide our vision of what 2023 might bring. We do this in the hope that by sharing our thoughts, investors will continue to be better informed about what to expect from us in the future, and as a result, will be better able to make the right decisions for their own portfolios.
With 2022 behind us, we can confidently say that in almost every respect it was our strongest year to date.
While this seemed somewhat of a foregone conclusion after Q3, we were pleased to see how the same macroeconomic factors mentioned in this update continued to drive growth in the final three months of the year. In the end, the average annual rate of return for all Emirate Global Capital Markets customer accounts this year was a respectable 52.99%.
However, the average alone is probably not the best measure of true performance, as it combines two different strategies. Considered separately, client accounts with an income target achieved an average annual return of 47.98%, of which 13.23% was paid out in dividends, while client accounts with a growth target achieved a higher average annual return of 55.12%, but only 6.41% in dividends (all return figures are net of fees).
In addition, our flagship interval fund, which was launched in January and in just six months became one of the 55 largest interval funds in the U.S., achieved a remarkable average return of 40.56% across all client accounts, while it was anticipated that this would be a year in which returns were likely to be somewhat depressed due to the initial period of growth. It should be noted that the value of client returns is time-weighted, meaning that it takes into account the date the investment was made, and the fund itself recorded a net asset value (NAV) per unit of $12.81 as of December 31, up 28.1% from its initial value of $10.00.
(As always, it's important to remember that each client's performance is unique to his or her portfolio and, of course, past performance is no guarantee of future performance.)
It's worth reiterating that we think it's extremely rare to achieve the kind of performance where some real estate investments gain 60% to 90% in one year, especially given the relatively low leverage and dominant nature of most of our core-plus and value-add strategies. And in our view, it is unlikely that such exceptional performance in such a large range of assets will be repeated often.
This does not mean that we do not expect good performance in the future, on the contrary, this is our explicit goal. Nor is it a negative reflection of the overall health of the portfolio. In fact, we believe that the broad thematic strategies we have pursued over the past few years are now as well positioned as ever. Instead, we simply believe that an honest approach to the unique circumstances that have caused so much growth is far better in the long run than allowing excessive extrapolation that will lead to unrealistic expectations.
A structurally superior model, What drives performance?
In the past, we have spent most of the time in these messages discussing various aspects of our macroeconomics-based thematic investing strategy, in which we seek to identify and invest behind what we believe to be large, multi-decade growth drivers.
In contrast, we spent less time discussing what we believe is an equally, if not more, important topic - the structural advantage of our novel investment model. That is, the mechanisms by which we raise and invest capital (and the technology that facilitates this) are themselves a unique competitive advantage of the EGCM platform, regardless of the quality of the specific asset classes or geographic strategies we choose.
Part of the reason this may be less obvious is that while most appreciate the benefits of investing in real estate, few are privy to the inner workings of the real estate investment industry and the ways in which the infrastructure of the existing system tends to put them, as individual investors, at a disadvantage.
When you invest through EGCM, you are investing through our platform in the private market. This is, of course, the opposite of the public markets (stocks, ETFs, REITs, etc.). Much like a tech startup that raises venture capital and then grows for several years as a private company before "going public" through an IPO, real estate assets (such as apartment buildings, single-family rentals, or industrial warehouses) go through a similar life cycle in which they are owned and mature in the private markets before effectively "IPOing" as well, most often in the form of a sale to an existing public REIT.
And much like trying to invest in Facebook, Google or Amazon before they go public, access to the private market (or "early stage") of real estate investment is limited, available only to those who go through a series of institutional channels controlled by intermediaries and gatekeepers, all of whom charge high fees in the form of performance fees, sales commissions and other transaction costs.
In fact, unless you're old enough to have a pension, most investors simply have no real way to access the private markets and as a result are limited to investing only in publicly traded stocks.
This matters because when we invest in a company (or real estate assets) after it has gone public, we are much more likely to pay a higher price, i.e. a premium, than those who have the opportunity to buy the assets while they are still private.
This idea of both disruption and consolidation of the "private equity value chain" is at the heart of Emirate Global Capital Markets, and is something we plan to discuss in more detail in the near future, but for now, to keep it simple, just think of investing through EGCM as buying something in bulk, whereby regardless of the investment strategy itself, our technology allows you to gain access to assets at a lower effective cost, simply as a result of being able to eliminate unnecessary intermediaries.
(It's worth noting that we applied the same direct model to our EGCM IPO, giving investors on the platform the opportunity to invest in the parent company itself at a relatively early stage.)
A look into the future
While the future is always uncertain, today the potential for what lies ahead seems particularly varied and unpredictable, as the second-order consequences of an unprecedented economic response to a once-in-a-century black swan event continue to unfold.
Remaining skeptical of the consensus
There seems to be a growing institutional consensus that despite all the historical changes that have taken place over the past few years, as the economy overcomes the pandemic hangover, things will eventually normalize more or less. As people who are inherently inclined to destruction, we can't help but be skeptical of this kind of thinking.
Instead, we believe that inflation is likely to be higher and will exist longer than many "experts" predict, and the potential for a new paradigm is very real. However, the multitude of consequences that may follow are too great to predict, so as usual, instead of trying to predict the future or develop investment strategies that rely on these predictions always being correct, we go back to basics: identify the big (obvious) growth drivers, look for relative value positions, protect ourselves from dips, and above all, let time work in favor of our investors by focusing on the long term.
Looking ahead to the coming year, while cautious, we are encouraged by the state of the overall portfolio and feel fortunate to have the opportunity to enjoy both opportunities and security that may (at the moment) only be available outside the stock market. Most importantly, we are proud to say that over the past decade, thanks to Emirate Global Capital Markets experts and the technology that makes it all work, more than two million people have been given the same opportunity - a small but significant step in our broader mission to build a better financial system.
We are excited about several potential new extensions and features that we believe will be milestones in furthering this mission, and we hope to be able to share them with our investors soon.
Are you looking for reliable places to invest with an attractive combination of risk and return? Become a remote real estate investor. EGCM manages real estate assets for a diverse, sophisticated, global investor base.
My name is Miłosz Sieracki and thank you for checking out my site, I have been involved in my own business in Poland for several years, as well as in the broader cryptocurrency industry, real estate and stock market, self-development and building my passive income.
I'm the official promotor of EGCM.