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Branzan Advisors Commentary | March, 2020 - 3

March 30, 2020

We hope you and your family are safe and healthy. 

A lot has changed since our last communication on March 13th. The domestic equity markets bottomed out (at least temporarily) on March 23rd and have performed reasonably well since then. High-yield fixed income has also rebounded from its March 23rd lows. Much of the bounce in asset prices can be attributed to the unprecedented $2 trillion stimulus package that Congress passed. The long-term ramifications of the stimulus (and the associated debt that comes along with it) are unknown, but for small businesses that are struggling during this economic downturn and for those employees that are affected, the stimulus should help address some of the immediate needs. We anticipate there will be additional financial stimulus packages enacted before this is over. In the meantime, the equity and fixed income markets reacted well to the support for the economy.

As we mentioned in our last communication, we have been selectively adding to publicly-traded positions we hold in the Branzan Alternative Investment Fund (BAIF). In particular, we have added to our positions in a business development company, a couple of royalty trusts, and a real estate company. We also established an initial position in an ETF that tracks an index of energy infrastructure master limited partnerships.  On the private side, we are working with our real estate partners to determine how the economic shutdown will affect the real estate investments in BAIF. At this point, there are a few projects that may require a small capital infusion to maintain adequate reserves but, on the whole, BAIF’s real estate investments are conservatively capitalized and have enough reserves for a six-month period. 

Oil has been one of the hardest hit assets during this downturn. Oil has suffered on both the demand side, with the economic shutdown, and on the supply side due to the standoff between Russia and Saudi Arabia. West Texas intermediate (WTI) traded below $20/barrel intra-day on March 30th. While we believe the price of WTI could go lower over the short-term as the economic shutdown is extended, we are encouraged by the opportunities we are seeing in the mineral rights space. In the Branzan Energy Income Fund II (BEIF II), we closed on a new investment in the Eagle Ford Shale basin last week. While the value of mineral rights and the price of oil are not perfectly correlated, we anticipate we will be able to make additional attractive acquisitions if the price of oil stays this low. 

We will continue to manage the risk of our current investments while we opportunistically evaluate new investments. Whether the current economic environment results in a prolonged downturn or a temporary pullback, we expect it to create opportunities for Branzan’s funds. While we didn’t anticipate this level of volatility, we purposefully keep a reasonable amount of cash on hand to take advantage of buying opportunities.

We appreciate your continued support and confidence in our firm and our strategies.

Very truly yours,

Branzan Investment Advisors

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The material provided herein is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy an interest in any Branzan investment vehicle. Any such offering would be accompanied by, and made in accordance with, the investment’s offering memorandum. 

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