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Branzan Advisors Commentary | April, 2022

April 27, 2022

Dear Partners and Friends,

Investors had plenty to worry about in the first quarter of 2022, including inflation, interest rate increases and tightening of monetary conditions by central banks, spiking commodity prices, supply chain issues, pandemic-induced lockdowns in China and the Russian-Ukrainian conflict, just to mention several areas of concern. Volatility was high among almost all asset classes.

The Federal Reserve finally decided (or perhaps more accurately “admitted”) that the inflation consumers are experiencing is not transitory. Consumers faced rising gasoline prices, along with increases in the prices of almost everything else due to increasing commodity prices and constrained supply chains. The Federal Reserve reacted by increasing interest rates by 0.25% and has signaled more significant increases during 2022. While the markets continue to place much faith in the Federal Reserve and its ability to raise interest rates to combat inflation without putting the economy in a recession, we are skeptical.

For years and years, investors have become accustomed to low (or negative) interest rates which have supported asset values. This is changing quickly and we anticipate there will be significant impacts to many investments. We have already seen it in the technology industry as companies like Facebook/Meta and Netflix are down more than 40% from their highs. As interest rates increase further and investors start to view Treasury yields as a viable alternative, we expect to see more carnage in investments that were dependent on a low interest rate environment.

We remain cautious in the current environment and are focused on managing risk. We continue to see opportunities in the commodity space (particularly in producing oil and natural gas mineral rights) and in selective areas of real estate. However, we do not believe this is the time to stretch on valuations. There will be a time when it makes sense to be more aggressive, but it isn’t now.

Next month will be the 20th anniversary of the launch of our first investment partnership, the Branzan Alternative Investment Fund (BAIF). Branzan started BAIF in 2002 to provide our partners exposure to a diverse pool of private, alternative investments and take advantage of Branzan’s strong network of deal sources and our decades of investment experience. Our partners typically have plenty of exposure to traditional equities and fixed income and need an alternative that gives them access to real estate, oil and gas, private credit and other opportunistic investments. BAIF has fulfilled that vital role. We view BAIF as a core part of an investment portfolio that helps drive returns that have low correlation to other traditional asset classes.

Our strategy at Branzan has remained consistent since 2002. We are not chasing bright, shiny objects in the investment world. We are not investing in NFTs, cryptocurrencies, or high-growth tech stocks trading at wild multiples. We primarily invest in things that people need – housing, commercial real estate, oil and natural gas, and other soft and hard commodities. We are focused on principal preservation and earning a reasonable return without taking undue risk. Branzan employees invest as limited partners in BAIF alongside our partners. We believe all of this differentiates us from other investment management firms and has contributed to our almost 20-year track record. We thank each of you for your support and confidence in Branzan over the years.

If you would like to learn more about our investment strategies and how they might fit within your investment portfolio, please feel free to contact me. The Branzan Alternative Investment Fund will open for new investments and additions to existing investments on July 1, 2022.  

Sincerely,

Branzan Investment Advisors

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