Christopher Zook is the founder, chairman and chief investment officer of CAZ Investments and has more than 30 years of experience investing in both traditional and alternative asset classes.
Russ Prince: Tell me about CAZ and what you're doing in the space to help your clients mitigate risk.
Christopher Zook: We founded CAZ Investments in 2001 with the backing of some of the most respected and successful families in the state of Texas and have since expanded our shareholder base. We focus our efforts on finding avenues in which to invest our personal money then provide opportunities for investors to co-invest with us.
This is a unique model in the industry: We always invest our own money alongside our investors’ and currently have more than $400 million of our personal capital committed to our investment vehicles. Because of the scale of our investments, we have access to opportunities that would otherwise not be available to investors with less than $250 to $500 million of investable assets. Our compensation model is also rare as we only earn compensation if an investor makes money. This is why we focus on finding the absolute best risk/reward opportunities available.
The most common concern we hear from investors is they don’t feel like they have any way to protect their portfolios other than going to cash. Months like September and November caused them to realize that risk still exists, and they are terrified about how bad it will hurt when a real correction or bear market occurs.
Investors work every day to mitigate risk in their lives. Whether it be via car insurance, health insurance or the alarm system in their home, they try to prepare themselves for the “what if.” We believe it is critical that investors find a way to build a similar risk mitigation program for their portfolios, and they should try to find a way to do so with as much convexity as possible at as little cost as possible.
The traditional “60/40” model is dead as bonds cannot provide the same protection they once did with rates as low and spreads as tight as they are—we see this as a very similar situation to when we shorted sub-prime mortgages with John Paulson. We believe there is a way to make a lot of money from a sell-off in the next few years while also protecting the rest of our portfolio from that sell-off. Most investors have no risk mitigation plan in place at all and have more stock market exposure than they have ever had.
Prince: The world of alternative investments is so expansive, and I know you're doing a lot there. With the emergence of e-sports, do you see a viable investment opportunity involving them?
Zook: Absolutely. We see incredible growth in e-sports, which is accelerating with the change in demographics and consumer behavior. The thematic wind at our backs with e-sports accelerated aggressively during the pandemic, and the emergence of e-sports as a key source of entertainment and fandom has expanded dramatically.
Most of the opportunity to capitalize on the collision of these key themes has been in the private markets so far, but some opportunities exist in the public domain as well. One of the most recent examples of this is FaZe Clan’s announcement to go public via a SPAC merger. FaZe Clan is one of the largest e-sports organizations worldwide.
Prince: We're in 2022 now, what do you see as the biggest opportunity the industry needs to turn its attention to?
Zook: With most major indices near all-time highs and a clear amount of froth dominating markets, we believe investors should be laser-focused on non-correlated investment opportunities. In addition to risk mitigation and e-sports, we are focused heavily on investing in business with durable revenue models and thematic tailwinds. Two key areas we have identified are “general partner stakes” and ownership in professional sports.
By investing in the management companies of private market general partners, we are investing in private equity and private credit firms, which are looking to grow faster to capitalize on the growth of private assets. We believe this is one of the strongest themes available in investable markets today driven by the need for institutional investors to continue increasing exposure to private investments to meet actuarial assumptions. These assumptions are nearly impossible to achieve in the current environment with a richly valued equity market and interest rates near all-time lows. Beyond the tail winds, we see predictable cash flows and a high growth opportunity from established and proven businesses. General partner stakes provide significant upside optionality along with excellent downside protection.
We see similar tailwinds in the world of professional sports organization ownership. Most traditional media organizations, which have historically relied on commercials to help drive ad-revenue, will be challenged as global viewers and are shifting quickly to streaming and recording services devaluing traditional ad-time. The exception to this is professional sports, where viewers continue to show a desire to watch live programming because of the nature of the content. Thus, professional sports organizations are positioned to benefit significantly from advertisers looking to maintain viewership. Ownership of these organizations offers uncorrelated exposure to “trophy assets” with durable revenue models, attractive tax attributes, antitrust exemptions and valuable, embedded non-team assets.
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