Risk and reward are simple financial concepts that create anxiety. Stock market risk seems to change in a fraction of a second, while rewards are years in the future. Both short-term and long-term uncertainties are unavoidable, and make even high net worth investors (HNWI) nervous. So when investors ask us to weigh risk, it’s hard to give a simple answer.
As investment managers, we live with risk daily. Our team is trained in risk analysis, and knows how to make optimal choices that set boundaries when we select investments. We weigh what could go wrong and how much is at stake, and make decisions that will balance risk and reward to maximize return on investment.
Thanks to our skill at risk analysis, our investments have proven to be less risky than other alternatives. This is evidenced by the fact that we have made money on every asset in our first two funds. We identify opportunities with limited downside risk and unlimited upside potential, and execute value added business plans flawlessly.
The results of our first two funds substantiate our strategy; based on Preqin data, both rank in the top decile in terms of performance. Fund I is on track to generate a 28 percent net return, and Fund II is on track to deliver a 19.5 percent return. Our third fund, which closed this past June after raising more than $150 million, will follow the same strategy and disciplined approach as our first two Funds. So, how do we make effective investments that support our risk and reward rationale?
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5 Ground Rules To Minimize Risk and Maximize Returns
1. Have a clearly defined strategy. This is the first step to managing risk and reward. Simply setting a numeric goal for an investment, such as internal rate of return or equity multiple, does nothing to limit the bets you’d be willing to take toward reaching that number. We limit deals to office and multi-family asset classes where our expertise lies, and stick to value add business plans that have limited downside risk.
2. Hire an experienced team to execute and base them in your target markets. Collectively, our team has decades of experience from well-regarded larger institutions such as RREEF, Equity Office and Starwood. They are geographically based in the high-growth markets where we operate. And in their regions, they know every broker, owner and building. By having “boots on the ground,” and managers with remarkable marketplace experience, we’re able to spot opportunities and potential issues quickly.
3. Create value and protect capital by knowing how to buy right. Origin goes to great lengths to avoid overpaying for a property. We adhere to the same stringent underwriting standards used by pension funds and institutional investors to filter out average investment opportunities. Our conservative underwriting assumptions help assure that we will meet or exceed our projected returns.
4. Use leverage responsibly. Loans are a force multiplier — they can increase both risk and reward. Origin uses leverage responsibly, making sure borrowing is both appropriate to the business plan and stress-testing to assure enough cash flow to withstand economic shock.
5. Operate transparently. Origin’s offering documents spell out in simple and unambiguous language how we expect to build wealth. The details we give investors show our command of strategy and our commitment to stick with what works. Knowing the Origin Investments approach to every venture should make high net worth individuals confident their money is being put to sound and productive use.
By doing everything we can to generate predictable returns, high net worth individuals can invest with confidence and know that their portfolio will serve their personal investment goals. Our disciplined asset management approach excels thanks to our skill at risk analysis and execution, and also lets our partners be confident that we are minimizing risk as much as possible while seeking the highest reward.
