What’s the next burgeoning asset class?

Thinking through career ops and lots of commentary on here about how PE isn't the promised land anymore due to heavy competition, unsustainable multiples, etc. HFs went through/are going through the same with low returns and fee compression, mutual funds are getting crushed by ETFs. VC has grown a ton and definitely benefits from PE overpaying for assets, but again it's super crowded now and industry fees are going to have to come down eventually, as will returns whenever this current market cycle returns to sanity. PC booming now too, but lots of that is due to regulatory changes from 08 and the growth in PE.

So what's next? When you look at people who have made a ton of money in finance, it's being in the right industry at the right time and riding the wave. From junk bonds in the 80s to HFs/mutual funds in the 90s to PE recently. I'd argue VC/GE/growthy PE in recent years as well. all these industries I've listed seem to have already really matured and I just don't see how there's room to continue growing. Obviously money to be made if you're good anywhere, my theory is a rising tide lifts all boats and it takes a lot more skill to make money in a flat/declining industry vs being an ok performer in a booming industry.

The only thing I think you can argue is the next big thing would be crypto, but personally don't see the opportunity for large scale finance in that space and don't think I'd want a career there. Maybe RX/super value based PE if the thesis is current growth ecosystem blows up? Just curious what other peoples thoughts on here about how to get off the beaten path and forge the next big thing rather thing clinging on the the glory days of another industry.

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Comments (70)

Nov 17, 2021 - 4:21pm

Biological Technology, Biological Nanotechnology, Biological Neurotechnology 

We will be more connected with our bodies and learning will become accelerated. Our nutrition and things needed to eat to maintain a level of health will show up with notifications on our phones. Our length of life in a sort of virtual world will be extended while our physical bodies gradually degrade to death at a much later age than now.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Nov 19, 2021 - 12:26pm

Ok

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Nov 17, 2021 - 4:41pm

Business solutions that can solve the labor crisis, which over time is expected to get worse for lower waged positions. Both software and hardware solutions that can assist small businesses.

Also believe in nanotech. I think through technology we could really fight diseases/viruses that we could never win before.

Array

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Nov 21, 2021 - 1:03pm

any examples for soft/hard solutions for small businesses? 

obviously these come about naturally and I could use my imagination but interested to find out if you have any recent specific examples.

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Nov 21, 2021 - 9:49pm

I mean we are seeing small examples of this that were accelerated by covid. If you are at a dine in restaurant, there will be a little ipad like system for you to place your order there, therefore limited waiters. This has been around for years but has been accelerating. I think in the short-term there will be enough digital solutions to replace front office line workers such as cashiers, concierges, etc. Hell the experience might even be better. In the longer term, I could honestly see a McD or Taco Bell that could be fully automated or at least able to cut down staff by 75%. For 50+ years, auto manufacturers are able to put together entire cars using robotics. This is largely due to the rise of unions. If robots can put together a car, I don't see an issue putting together a big mac. However, it was never economical to invest millions in robotics for a single location when minimum wage was $7.50 an hour. However, now its not simply about the wage increases but also the lack of labor that is forcing this. I think Taco Bell is opening their fully automated or majority operated location in two years.

I think anyone that can create a hardware robotics/software solution thats affordable for small businesses it would be worthwhile to consider. For example, theres thousands of independent pizza places around. At the end of the day, the end product is the same. Its a simple pizza. If a firm were to create and mass produce an affordable software and robotics solution that would essentially handling the making of the pizza process, it would be huge. The robotics portion would be overhead heavy initially but the real win for the company would be the software side which has higher margins. Then there will be annual upgrades to the software which would cost money. It would be a built in moat. Again I just picked a random industry at the top of my head, I am sure there are better examples. I could be totally wrong on this, but this is just my two cents on what I believe could be a huge market.

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Nov 18, 2021 - 9:30am

Crypto has literal teams of unqualified assholes running HFs and stuff, yes. That doesnt mean squat. When a shitcoin can raise $1M in an hour, any idiot can do that. There are legit teams of course, but don't let him fool you into thinking he's doing anything more than licking at the teat of VC money or crowdfunding from literal idiots (me included). I could start my own HF tomorrow. Doesn't mean anything. In fact, those kinds of guys are bringing down the rest of the industry as they have zero business/finance knowledge and fuck things up for the rest of us.

Damn this one triggered me. Just had a friend get scammed by a new team who had no business handling other people's money. I hate college-age idiots running crypto projects. I tried to tell him not to do it, but he went all in. Sigh.

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  • Associate 2 in PE - LBOs
Nov 18, 2021 - 6:28pm

No kidding. I work in a shared office space and a few offices down from us is a group of stereotypical roided-up guidos (tattoo sleeves, wifebeaters, vaping in the middle of the office, etc etc) running some sort of crypto fund. Like at this point it's basically a caricature. I wouldn't trust most of the guys running crypto strategies to deliver my UberEats order, much less this. 

Nov 17, 2021 - 9:46pm

Also hopefully going to revolutionize or at least streamline title searches in CRE cuz that shit is really annoying

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

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Nov 21, 2021 - 1:06pm

blockchain has been around for what, a decade +? what has is revolutionised other than crypto at this point in time?

Nov 22, 2021 - 11:21am

This is a great question I think about too, I have no idea really. I remember hearing that supply chain logistics would be one of the biggest recipients of changes, but to date idk if there's been anything meaningful done in that space.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Nov 28, 2021 - 5:00pm

Echoing commodities here. Traditional and inputs to new tech (lithium, etc). End product side (EVs, Rivian lately) is terribly congested and like crypto it'll be hard to predict winners among outrageous valuations.

Anything grabbing a share of the ~$150T capital commitment to this energy transition over the next 30 years. Regardless of beliefs in the effects of hydrocarbons, $3-5T/year in public and private money can't be ignored.

Nov 18, 2021 - 10:13am

There is no next asset class. We need a mass washout/correction for a reversion to the historic mean, so that future expected returns can be positive rather than negative. If valuations stay at their current levels, expect private and public market returns for the next 10 years to be flat at best. Valuations are historically high for PE/HF/VC. Private and public markets have been stretched thin by a 13-year bull market (COVID being a blip). After this cycle completes, which will probably coincide with peak interest rates after the FED finishes hiking and we reach peak growth, we will probably get the long-awaited bear market that will allow for future expected returns to once again become positive. 

Nov 18, 2021 - 1:30pm

"There is no value left, we are at the top due to low interest rates, our economy is mature which means slow GDP and stock growth. If you want yield look elsewhere (BRIC nations)" - literally the standard viewpoint 10 years ago before this bull market even really got started.

It's always easy to be the Bear. I'll believe it when I see it. There is ton of innovation that will continue to happen in the next decade and America looks to be the standalone destination for global investment. 

Could it happen? Sure. Everything you said makes sense. But forecasting this stuff is basically impossible. 

Nov 18, 2021 - 3:19pm

You may be misinterpreting what I wrote--I don't think I said we're at a near-term top anywhere in my comment? I personally think the markets still have legs for the next few years and don't think there will be a recession in 2022. That notwithstanding, valuations are high from a historical perspective, and there will be an end to the party/a reset at some point. There always is. 

Nov 19, 2021 - 3:52pm

This is the correct answer. It's not so much that all the asset classes individually will face secular tailwinds; but more so that there is a considerable glut of return-seeking capital. Every asset class is seeing returns compress because the market for outperformance has become more crowded.

I would disagree; however, that this is a cyclical phenomenon. It could be that we have entered a new era of lower returns for asset classes across the board that could last for decades. 

  • Associate 1 in IB-M&A
Nov 18, 2021 - 6:18pm

Plots of arable land replete with self-sustaining food and water sources and highly fortified with impenetrable perimeter fencing, located in remote areas of the country, far from major metropolitan areas.

  • Summer Associate in Consulting
Nov 18, 2021 - 6:44pm

I think traditional software, internet VC may be oversaturated, sure. But when it comes to industries where there is a deep learning curve such as life sciences, semis, certain pockets of fintech, you can make an argument that there is still plenty of alpha to be generated because the average institutional investor can't wrap their head around investing in that space. Basically, the harder the space is to specialize in due to the amount of information needed to truly understand the space, the more likely there are to be ways to get rich from it. 

Problem being, most people are terrified of specializing, especially early on.. 

Nov 19, 2021 - 11:33am

Another investment class that I see growing is allowing individuals to purchase receipts of farmland. 

Also crypto. The use of smart contracts is becoming prevalent. Without having a third party, speed of transactions is super fast. Use cases below. 

1. Digital Identity

2. Cross Border Payments

3. Escrow and Financial Data Recording

4. Automating dividends, stock splits, spinoffs. 

5. Nike is thinking about tokenizing valuable shoes like Jordans etc so you can verify the serial number on the block chain. 

Nov 21, 2021 - 2:53am

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