LUR 126 | Digital Assets Investments

 

Anything that exists in a digital format and comes with the right to use is called a digital asset. Some very common examples include websites, documents, audio, and videos. Today, the CEO of Robert Ventures, Joe Robert, goes in-depth about digital assets, the benefits of investing in the space, and their fixed-rate return offering. With asset management experience, Joe shares valuable tips, from choosing the space to invest in to the basic requirements you need to consider. If you are looking to diversify your investment portfolio through digital assets, don’t miss this episode.

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Beating Out Inflation With Digital Assets And Earning Double-Digit Returns With Joe Robert

I’m super excited to have another amazing guest on the show. Joe Robert has several years of experience in alternative asset management, including startups, seed round financing, real estate and cryptocurrencies. He serves as the CEO of Robert Ventures, which offers clients a 10% fixed return through his high-quality alternative assets. He believes that we are in the beginning stages of the transition to a digital economy. In the next years, we will challenge everything we think we know about investing, finance and wealth management. Welcome to the show, Joe.

Lisa, thanks for the great opening. That’s bubbly and awesome. I appreciate it.

I am super happy to have you on. When I got your information, I said, “This is interesting. I want to have him on to learn more.” Let’s be honest. The investing environment is changing. It’s a perfect time to talk about what are some of the things that investors need to be thinking about as the economy shifts and changes. Jump right in to give my audience a little bit of background. I shared a little bit. You spent years in asset management and touched a couple of different industries here but talk a little bit about your connection to real estate and then we’re going to jump further from there.

I was led off when I was nineteen. That puts me about 2001-ish. Let’s take back through high school. I went through the technical school for construction. That was the way for me to get out of school a little bit and not have to be there all day. I took that skillset and parlay that into start fixing up real estate and purchasing my first property at nineteen.

Back at that time, there weren’t many people doing this whatsoever. Entrepreneurship wasn’t cool or a word. It was called self-employed. I lived in that property, fix it up and sold it after two years for the tax-free gain because it was a primary residence. From there, I went on to invest in real estate on the outer banks of North Carolina partnered with my mom. We’re doing multiple deals. We all know what happened in the 2000s when real estate crashed.

I started back about 2011, fixing properties up in Philadelphia again, fixing and flipping. At that point, one of my private lenders who was lending us capital on a rehab said, “I’m moving my money over to this other fund.” I was like, “What’s going on?” I’m paying maybe about 15% annualized at that point and that’s a good return.

He’d been attending meetings in regards to the distress that buying. These were these second mortgages that all originated in the 2000s, all these piggyback loans and so forth, these HELOCs, where people leveraged up their homes, went out, spent the money and couldn’t afford to pay it back or the equity has gone down. The banks were charging these off and selling these hedge funds.

I started attending those meetings and got intrigued. Maybe coming out of the real estate crash, I’ve been a little bit on the other side of it where you can be the debt owner instead of owning those liabilities. Fall of 2011, I bought my first pool loans. It was probably a handful of loans of about $70,000. I hired someone else to do the initial workouts and the results came in about six months. I recovered my full investment and was sold. I put aside the real estate a little bit and went full investing into notes. I partnered with a couple of people. We started buying pools of loans at that time for the next couple of years.

During that time, did you continue to invest actively in purchasing your portfolio since you got up to about 200 residential and commercial properties?

What happened was I moved with a partner from the Philadelphia area. In the fall of 2014, we moved down to Puerto Rico for our note business. While we were residing in Puerto Rico, we were still mostly buying loans but we had built some relationships with our brokers that we started seeing some pools of assets and real estate, residential and commercial, start coming through our broker for sale and these were bank RTOs.

We made our first bid. Our first purchase was around 50 properties there in Puerto Rico. It was a little bit. I call it a scary moment at the time because if you think back then, the economy wasn’t quite doing as well in Puerto Rico. It was unknown because we had never bought it there. It was a pretty big purchase at first but to date, it has been one of the best deals. While we were residing in Puerto Rico, we had the opportunity to meet with more people and other bankers. We ended up buying multiple purchases from the banks. That’s how we accumulate that many properties over a handful of years.

Bringing forward to where you are, you are in the digital asset space. Can you talk about your forte of moving into this space to get started?

While we’re in Puerto Rico, there’s Act 22, now Act 60 but the tax benefits of living in Puerto Rico could limit some of your tax down to 0% on capital gains on certain assets. People in the crypto space were moving down there. We had met some other people that were investing and we got interested. In the fall of 2017, we started buying our first tokens and getting involved with everything. You first get in. You learn your lessons upfront. You always learn no matter what you’re investing in.

I tell everybody, “The rule of thumb should be going slowly. Wait at least six months. Get the results and then go heavier.” Usually, in those first six months, you always make the most amount of mistakes. Don’t ever go heavy on any new investment. That’s what happened when we started investing. Over the next 6 to 12 months, we learned by doing. We had some initial losses like everybody but that’s how you learned in this space.

Understand what you're investing in, spend a lot more time on due diligence, and don’t always listen to the noise out on social media. Click To Tweet

What would you say were some of the things that you’ve learned from your experience in that first 6 to 12 months that have helped you in terms of building the business you’re building?

Although we can’t gauge market cycles in any asset class, there are some hype cycles where maybe you think that is becoming overbought. Everybody is talking about it or your taxi cab driver theory. If you take that theory, it’s a foundation. That’s one thing to learn, especially in the digital asset space because there are these hype cycles where the economy goes very high, everyone talks about it and then there’s a sell-off.

You have to understand when that is happening so you can reduce or increase your exposure depending on where you’re at in the cycle. That’s one big thing I learned and not even in this space. Even in several years of real estate, I’ve seen the same thing. From the early 2000s, it was great. At the end of that decade, everything was down. It’s been up for the last years and we don’t know what the next years does but all asset classes go through cycles. Understanding that a little bit will help and I’ve learned that that’s a very important key factor.

Two would be understanding what you’re investing in, spending a lot more time on due diligence and not always listening to the noise out there on social media. A lot of people when they’re making investments may go to social media, whether it’s YouTube or Twitter and get the advice of a lot of people. 1) It may not fit what they’re trying to accomplish, 2) That person might have their agenda and, 3) By the time you hear about it, it’s already near the top.

Those few things are probably important factors that we’ve learned. When we go through due diligence, we have a process we set out. It probably takes us weeks to underwrite any position. We bring it up on a call, put in our input on what information we would want out of that due diligence and what are our concerns and then go into a due diligence process. When we’re done with that, we bring it back to the committee call. We’d go through it all again and then make a determination if we would take a position on that project.

We’re going to come back to the due diligence part. One of the things you mentioned is understanding what you’re investing in. People reading are probably thinking, “Digital assets, what are those?” What are digital assets to begin with?

It’s a very broad term if I say digital assets because there are a few different things, everything from we’ll call blockchain infrastructure tokens to exchange tokens. There are even some real estate tokens already heading the market. A friend of mine, Ed at RedSwan had some initial security tokens that they digitize commercial real estate available on Coinbase. It has a broad spectrum because it could cover anything but in the context of what we’ve been focusing on, we’re mostly focused on the infrastructure projects, the things that are going to lay the foundation for everything else.

That is going to be the exchange-like tokens for exchanges because everybody needs to be able to exchange their assets or buy assets, buy and sell. We think that’s very important. You need the infrastructure, the blockchain layer because this is where all the applications are going to be built and where transactions are going to be settled. Everyone is going to need what’s known as a Web3 wallet where they can hold their assets. There are a few things that I outlined in the infrastructure.

I don’t have detailed blockchain knowledge but I do know one of the big things is creating that secondary market for people to be able to sell their tokens on it. That’s also a big-ticket item that is still under development. I don’t know if that’s something you are looking into as well.

When it comes to the real estate tokens, we are looking at it. It’s also a little bit with the real estate pricing up so much that it’s hard to look at those assets because the returns are not quite the profile that we are looking for at this time if you want to break down a couple of the benefits of why someone would maybe want to go to the real estate token route.

There are a couple of benefits or one, which could be a benefit and maybe not but liquidity. In most private placements, you don’t have the ability to exit. Some people do like liquidity. It’s not a great idea for some people. With liquid assets, the price can move very quickly and scare people. They could sell out their position prematurely. It can bring benefits and those that might not do as well. Non-liquid assets are also a benefit in one way.

You’re offering clients a 10% fixed rate return on high-quality alternative assets. Before we got started, you had shared with me that one of those alternative assets was the digital assets, which you defined what those are. Can you talk about what the other asset is? I would like to get into the fixed return of 10%.

We’re looking at a multi-strategy. I’ll break down a little bit of the strategy. Let’s hit on the digital asset aspect. There are ways in the economy that you can supply digital assets whereas liquidity, get rewarded back in other tokens and get yield. A portion of the portfolio will go to those strategies where we provide liquidity and in return, we’re getting rewarded. That’s trying to make it simple. That can range all over the place from 10% to 30%.

Another portion of the portfolio will be allocated to professional funds that we know in the space and have a relationship with that covers certain areas that we don’t cover from an investment standpoint. We’ll also go towards investments that we build personal relationships with project-wise like startups when it comes to the exchange or infrastructure layer. A portion of infrastructure tokens will be supplied again for liquidity and receive staking rewards for securing that network, which has the annualized yield built into it.

LUR 126 | Digital Assets Investments

Digital Assets Investments: The rule of thumb should be going slowly. Wait at least six months, get the results, then go in heavier.

 

How does that relate to the tech company strategy of investing in tech companies using the fund?

One is we have several relationships that we built that we seed and invest in seed-stage or around in these companies in the blockchain that we would allocate capital to them directly to those digital assets blockchain infrastructure-related companies. That’s one part where we get access to those tech companies and investments. Two is along the way, anything that we also build a personal relationship with and mentor, we make a direct investment as a startup investment.

As a part of your due diligence, is this primarily a lot from your relationships being able to know these different companies and being in that network and scene?

That’s always how the game works. It’s not what you know. It’s who you know. It’s all about your network. Consistently for the last years, we attend multiple conferences. I’m going to West Palm Beach in May 2022, Austin, Texas in June 2022, Houston in September 2022 and so forth. We’re always attending those conferences and building these relationships to get access to these deals. We’ll suspend time in the different Twitter and discord groups every week to build those relationships or get on calls. I run a podcast, a YouTube Channel and a newsletter there too. That’s how we attract clients.

This would be perfect to talk about some of your due diligence processes. This is the top of the funnel in terms of meeting all the different people, the conferences and Twitter that the companies are coming through. What are maybe 1 or 2 of the key things that are important as a part of the due diligence process as you think about deploying capital?

One of the ones that are always the most important and anything in business, in general, is the team and the management. It’s all so important the idea of what they’re trying to execute but sometimes a great team or a great manager also has the ability or the knowledge on when and how to pivot if they’re not going in the right direction versus an inexperienced person. When it comes to teams, we like those teams to be somebody that we can build a relationship with and see in person. Maybe it starts as a virtual introduction but at some point, we’re meeting at conferences.

We’d like to have a personal relationship if we’re going to spend our time with them. We’d like to see some type of track record in the past and their background, maybe how organized they are and their ability to be able to execute a business plan, some of the best handful. The last might be is the idea of what they’re trying to execute fit our investment thesis and we think that the market needs it.

I would assume that there are deals that you pass up all the time. Some companies come and you’re like, “Maybe this is not a good fit.” What would you say is the deal-breaker primarily? Is it one of these two things team and management company or an idea or something else eventually?

If I got a cold LinkedIn message, I probably won’t even look at it. One, it didn’t come through a source, a person in need or a trusted party. Two, I didn’t get to meet them. They might be under the gun for raising pretty quickly. Sometimes, in the space, depending on the timeframe, people are trying to push deals through quickly and we’re not in any hurry. We want to build that relationship.

One of the things that stood out to me is the return on what you’re talking about in the 10% range. Can you talk about your thoughts on the real estate space in the environment and maybe how that has influenced you to make the decision of playing in the space you’re playing?

The theory behind real estate is always a great investment. A great theory is pretty solid but the greatest and best returns are in the rearview mirror. A lot of the sponsors utilize a track record over the last years to sell current deals but I don’t think it’s going to be the same results that they’re going to get in the next years.

This is only my opinion but in the last years, we’ve seen the compression of cap rates and cheap money. Rents and the cost of the building go up, which ultimately drove those valuations much higher in a short amount of time. Moving forward, depending on the jurisdiction or a geographic location, we’ll see slow growth in all different areas but I don’t think the opportunity is the same as it used to be.

I do agree with you on that because as I look at more deals, especially in the multifamily space, I see that we’re betting on the appreciation. The cashflow isn’t there anymore because of the higher interest rates. The average cash and cash can be higher if you’re doing a preferred return that you’re going to accrue a piece of it and then ultimately, pay it out when they ask itself.

One other thing is for people reading, they’re like, “I don’t have time to be going to conferences. I don’t have relationships in this space that you have in the digital assets.” How could people participate in a fund like this? How does that work for investors? Is this only for institutional investors or is it open to accredited investors, which I am assuming it is?

It's not what you know. It's who you know. It's all about your network. Click To Tweet

Similar to the syndication side, there’s a type for each person. Most of the offerings are either accredited, qualified clients or qualified purchasers. It depends on the fund and the size of the fund. Some funds are the qualified purchaser. You have to be at least managing those $5 million assets or greater. A lot of the funds might have a minimum of $100,000 to $3 million. It depends.

When it comes to getting different exposure, there are funds that you get that equity exposure and performance-based upside. What we’re doing is we’re creating a yield fund where people have the ability to get yield. It’s going to be a 3C1 where we’re going to allow for this one up to 100 accredited investors in the USA with a $50,000 minimum.

Why should investors even think about getting a predictable fixed rate strategy? Why should they include that in their portfolio of investing?

There are a few different ways. 1) Some portion of your capital should probably be allocated to have a passive strategy to be able to pay certain bills or wherever that needs to be and, 2) It gives you diversification away from some of the assets that have, like real estate, that has gone up dramatically over the last years.

Some of the real estate deals, while they may market a 15% IRR, might not even distribute cashflow for a few years where we’re going to be distributing cashflow from day one on a monthly basis. You will have the option to be able to choose an auto compound, which would give it a little bit of a higher return. Ultimately, you want to be able to outpace inflation and what’s happening in the world.

For those reading who are thinking, “I have relationships on my own. I can do this,” what would you say to them as they think about, “Why should I come through a fund as opposed to continuing to build relationships on my own and invest in digital assets as I see?”

It always comes down to the investor’s appetite and what type of work they want to put into it. For an investor that wants to do the whole show and do the work themselves, we may not be a fit. I don’t want to say we are a fit for that client but for the client that wants to spend their time doing what they want to do that may not be in this space, this gives them the opportunity to be able to do that on a passive scale where they don’t have to do any work.

Someone reading is like, “10%, unbelievable.” In the multifamily space, none of those deals are kicking off 10% a year cash into your bank account. It’s not happening. Can you talk about what are the top sources for what’s driving this yield?

That’s circling back to a part of the portfolio and that is providing liquidity certain protocols allow you to get rewards. If a dollar comes in for a subscription, we can take that and convert it to what’s known as a USDC, which is a dollar-backed stable coin, one for one. We can do certain things where we can provide that digital asset, the crypto, to certain protocols. In exchange, they pay us a return for providing that liquidity. In some cases, depending on the protocol, it could be anywhere from 10% to 30%. That’s how a portion of that investor gets paid.

By protocol, are those the companies that are doing the infrastructure for the blockchain?

Yes. That’s the different projects. They have their software, database and governance. That’s what they’re executing in a certain business plan.

There was a point at which you lived in Puerto Rico. For me, Puerto Rico always brings up tax-free. I’m sure some people think about tax-free as well. I’m curious. In the real estate space, you have tax benefits driven by accelerated depreciation, even though by the end of 2022, that’s going to be going away. Are there any tax benefits around this investment care, your fund and these types of investments?

If you take up residency in Puerto Rico, you’re an investor in crypto, you purchased that crypto the day after you moved there and then you go to sell that, you would be entitled to a 0% tax rate. Effectively to make it broad and easy, for most people that move there, whether they’re trading visual assets or having an operating business, somewhere between a 0% to 10% effective tax rate is what they’re going to be paying.

As people look to deploy capital into your fund, they have US dollars. Is that fund accepting US dollars or do you have to buy?

LUR 126 | Digital Assets Investments

Digital Assets Investments: A great team or manager has the ability or the knowledge on when and how to pivot if you’re not going in the right direction.

 

No, we’re only set to US dollars.

To make the investments into a company that’s doing a project that’s on the infrastructure process for the blockchain, the fund itself will go through a process of buying either Bitcoin, Ethereum or stablecoin. Is it only buying stablecoin or is it going to go into some of these other cryptocurrencies?

No, it will go into that. That’s why it’s a broad base. Let me break it down one more step then. We’re going to be offering a 6-month 6% rate, a 12-month 8% rate and a 36-month 10% rate with the ability to auto compound any one of those 3. Based on how that capital gets allocated into the fund, it depends on how that capital gets deployed on 1 of those 3 strategies that I put down because, with certain strategies that are more long-term, we can’t deploy the short-term capital.

This helps because essentially someone who says, “I want to try this out for six months,” they’re getting 6%.

You could choose to auto compound so I’m not sure if that’s ten annualized or something like that.

When you say auto compound, does that mean at the end of six months, whatever earnings they got, they go back and re-invest as opposed to taking it?

They don’t get monthly payments and each month, it automatically compounds. Why is this beneficial? This is beneficial for those that are especially using their IRA account that can’t even withdraw their payments. When you put these investments or even real estate in your IRA account and you get these little checks, you can’t reinvest until you get a certain amount. You’re losing a return on your capital. For those that would like to auto compound, that’s how that yields. Over three years, it would come up to about 11.6% annualized if you opted in for 3 years.

Those 6% returns are most likely into maybe stablecoins, whereas some of those higher returns are into some of the companies that are building infrastructure for the blockchain. Essentially, people are getting to choose their path based on how much time they have going in.

On my track record, our first one was in 2012, where we did a fixed rate return offering for a few years and then we had another partnership with over $100,000 million funds that they provide capital to us in both times. For about 5, 6 years, we provided double-digit returns so we do have that track record of doing it.

Let’s talk about the track record because I don’t think I saw that in your write-up. That would be great to talk about. This is not your first fund.

No. To sum it up, we had the first fund that we launched in 2012 and it was called Box Financial. You could search it on the cyber site. We offered, at that time, 12% to 14%. In 2012, it was a little bit easier but in 2022, that was 12% to 14%. After a few years of that, we partnered with great friends of us over at the Stone Bay Capital. They were funding our deals. We had a partnership where we were paying them double digits. They funded us for a few years. We didn’t have to go outside and raise capital from others.

For the last couple of years, we’ve been using our capital to be able to fund all of our deals. Since 2020, I’ve been thinking about being able to create something bigger for the people and maybe even get broader or more international. I don’t know yet but at least, we won’t be able to provide yield for people. That’s where we’re going with this first one.

For those first two, those were also digital assets back then as well?

They were real estate and notes.

Ultimately, we want to outpace inflation and what's happening in the world. Click To Tweet

Was that a combination of residential and commercial properties on the real estate side?

Yes.

When I introduced you, I did touch on the fact that you had asset management experience. The role that you played for those funds is also in compensated asset managing the portfolios.

Correct. I was the one doing most of the business relationships, the underwriting of those assets and the accounting.

As investors think about investing in a fund like yours or others, primarily for digital assets because that’s where you’re at, what are maybe 1 or 2 key questions that they should be asking or issues or concerns that they should cover to make sure that they’re investing in a right type of vehicle?

Maybe in the top five general fund questions, I might ask another fund. One, I always look for experience managing money in some aspect. Do they have a track record of borrowing money and paying people back? That’s always key. Two, I would say, skin in the game. What are they contributing to the deal that also puts them invested with you? We’re coming up with those final numbers but I’ll at least have probably multiple seven figures invested in this.

Three, I would want to know that they have experienced at least some time in the space that they’re investing in. I would love to see how organized they are and do they have some type of at least software or something set up for communication in some aspect. I don’t think everything needs to be overly communicated but everything needs to be communicated on an ongoing basis if people have any questions, concerns or updates. That’s another important key point. Last, I would look to make sure that everything is properly structured and registered and the syndication is properly done in its filings. I’ve gone invested in a deal. I go to look it up and it’s not even registered. I asked the person what was going on.

What came up a couple of times here was organization, working with people who are organized, either they’re organized or their team most likely is organized and they’re on top of what it is that needs to happen and go out. This was amazing. I learned a lot of good things here. To close up here, people know that real estate has been something that they’ve always been trying to invest in and all that good stuff but it’s the advent of blockchain. How will blockchain impact the future of finance and ownership in your opinion going forward?

A lot of it will come down to what we see happens in the regulatory framework. If we take that out of the picture, we see a more open and borderless transactional environment where you’re going to be able to execute buy and sell assets from anywhere around the world. That’s going to open up doors and open up liquidity that might not otherwise be there.

It enables people to make investments in diversifying their portfolios and being able to provide opportunities to even more people than what you are able to provide with even less paperwork and regulation to do so.

We’ll be able to open up liquidity on these syndications. If you have a token, let’s call it a token that represents your membership interest role, you may be able to have a local bank that can give you a loan on that instantly. That’s updated based on a quarterly NAV or appraisal of that property. While it’s all tapped or stuck liquidity, we might be able to open that up and free up some of that capital.

This leads me to the level of questions that I ask all my guests. The first one is what are you grateful for in your life?

I’m grateful for being healthy, having two great kids and a great wife and everything moving along in a great direction with minimal problems. I always like to have a saying. I’m like, “These are first-world problems.” We should always remind ourselves, especially being here in the US, that there’s a lot of stuff that goes around in this world and for what we have, there’s nothing to complain about.

What would you attribute to your success and continuous growth?

LUR 126 | Digital Assets Investments

Digital Assets Investments: Always think bigger. It doesn’t have to be so big upfront but open your eyes to what’s achievable and think about how you can get there.

 

If I look at what deals have I bought and what capital have you raised, these are all based on somehow you met some people. That always comes down to number one, relationships.

What do you now know that you wish you knew at the beginning of your journey?

Always think bigger. People are out there saying it. It doesn’t have to be so big upfront but at least, be able to open your eyes like, “This is what’s achievable,” and think about how you can get there. Don’t think about flipping that 1 property for that $10,000, $30,000 and $50,000 check and got a job if you want to get X. The younger you are, it’s hard to do but as we mature, it becomes a lot easier to think more in a 5 or 10-year timeframe versus a 6-month timeframe where a lot of people might be thinking long-term.

If my audience wants to learn more about you, what’s the best place they can go to learn more?

I have one, JoeRobert.com. You can subscribe there to the email newsletter. It goes out every week. We discuss digital asset news and a couple of podcasts I usually do. We throw that in there and also some good insights into what’s going on. If you’re not even interested in investing in the space but maybe you want to get an idea of what’s happening, go there, subscribe and see if it’s a fit for you as you read the articles on a weekly basis. If you’re accredited and would like to discuss anything at all regarding the fund or the blockchain space, you could go to RobertVentures.com. Fill out the inquiry information and we’ll get right back to you. We can set up a time that we get a personal call.

Joe, thank you so much for coming on. I appreciate it.

Lisa, I appreciate you having me on. Thank you very much.

 

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About Joe Robert

LUR 126 | Digital Assets InvestmentsJoe Robert serves as CEO at Robert Ventures, with over 20 years of asset management experience. Joe has invested in over 200 residential and commercial properties, and over 165 million in residential mortgages, creating double-digit predictable returns for investors. Joe resided in Puerto Rico for business tax advantages under Act 22 from 2014 to 2019. During this time he connected with professionals within the blockchain industry and began investing in crypto in mid 2017.

Since then, Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top digital assets. Through these investments, Joe has developed a reliable strategy and the discipline to manage and profit from even the most volatile tokens. Joe has built and scaled a talented team who utilize qualitative research, data analytics, and on-chain data for optimal portfolio management.

 

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