SkyBridge's Anthony Scaramucci on Opportunities in Credit, Real Estate

(Bloomberg) -- SkyBridge Capital founder Anthony Scaramucci discusses his outlook for hedge funds in 2019 and why his opportunity zone fund uses a “more unique structure.”

Scaramucci spoke with Bloomberg in the beginning of January. His comments have been edited and condensed.

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What’s your outlook on the hedge fund industry this year?

Unfortunately, we‘re having a seismic change in the economy and in how the Fed views its role. Hedge funds usually do better during interest-rate normalization and when there’s more regularity to the economy.

We had a 10-year monetary stimulus and now that the federal government has moved to fiscal stimulus with tax cuts, the Fed has had to start the process of raising rates to get ahead of the potential inflation curve. That’s shaking up the markets and has had an impact on the hedge fund industry.

What drove gains at SkyBridge’s funds-of-funds last year?

SkyBridge over the last year has stayed very focused in the credit space. Specifically, we were in trust preferred securities, or TruPS, structured credit, RMBS and CMBS. And that area of the market did quite well.

Will you continue to allocate to it credit in 2019?

Yes, for right now. In the long-term, we’ll become more confident in long-short and macro once we see a period of full interest-rate normalization. We’re not there yet.

Right now, EJF Capital and Hildene Capital Management are probably our two biggest exposures. Both of those are in the TruPS business. Over the last three years, those securities have been one of most non-correlated sectors of the overall stock and bond portfolio and they’ve created a lot of alpha for us.

What’s the latest status on SkyBridge’s opportunity zone REIT?

We launched the fund on Dec. 11 and have about $10 million subscribed so far. We expect to raise between $500 million and $1 billion this year and over the course of the three-year window our fundraising goal is $3 billion. We have one of the more unique structures.

We set it up as a private REIT for three reasons: There are 8,700 opportunity zones throughout the U.S. and we wanted to offer our clients a diversified portfolio across a whole section of that market; we wanted to be able to provide income during the course of the 10 years as we develop and mature properties, which will be cash-flowing; and then the liquidity aspect where at the end of year six we will be able to take the REIT public and people can make a decision if they want to stay and/or sell their shares.

How will you measure the fund’s impact on communities?

We are certainly going to do that. I’m not going to tell you that we have a diagnostic measurement at this moment because the first stage is to fundraise. We won’t be deploying capital into these zones until the middle of this year. Once we do we will measure things like the impact in the community, the multiplier effect, the job creation and so forth.

Do you have any plans to change your hedge fund allocations?

We look at it every day. We don’t make changes every single day, but our portfolio team likes to think of that portfolio as 100 percent in cash, notwithstanding what’s in our current position.

We had our period of underperformance in 2015/2016 and we had over 50 percent turnover in the portfolio to rejigger the fund to create the three-year track record we have now. Right this second, I like where we are and given the strain on assets last quarter I think there are some pockets of undervaluation that we are going to take advantage of. We are very concentrated and fairly dynamic, meaning we will rotate that portfolio quickly depending on markets.

How do you choose which managers to invest in?

The main characterization for me is I’m looking for people who are focused on this being the mission and less being a job. That’s where the X-factor comes in.

For example, we have a very big position with Dan Loeb at Third Point. It wasn’t his best year in 2018, but we think his portfolio is extremely well-valued right now. My money is on him. He’s one of the best mangers in my generation. He’s become very successful, but likes to work -- that’s the type of people I like being around and the type I like to invest in.

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