Today, I offer you a presentation about risk-adjusted returns. Listeners have been asking me, “how do I calculate my risk-adjusted return?” Well, I will do my best to answer that question and cover how variables like investment quadrants, market conditions, and sponsors affect the calculation.
MINUTES MARKERS
00:00 — Introduction to the Big Mike Fund Podcast.
00:22 — Welcome to the show.
00:58 — How to calculate risk-adjusted returns.
01:43 — A little bit about me.
02:44 — How to learn more about my business and contact me.
03:33 — Why do we care about risk adjustment returns?
05:26 — A project must fit your portfolio.
06:32 — Understanding and identifying speculative investments.
07:30 — The pros and cons of the 4 investment quadrants.
08:57 — Quadrant one — cash flow focus.
10:05 — Quadrant two — growth focus.
10:56 — Quadrant three — Speculative grade projects.
11:30 — Quadrant four — ground-up projects.
12:00 — All projects have risk, remember that.
12:33 — The types of risk you can expect.
13:28 — How do you compute risk-adjusted return?
14:17 — The risk-versus-reward side of the capital stack.
14:53 — The pros and cons of Senior Debt.
15:43 — What are Junior Debt and preferred equity?
16:09 — The joint venture equity and common equity option.
16:48 — How do you compute loss reserves?
19:15 — Why market conditions are important.
20:37 — The stress test you can use to help your calculation.
24:39 — My opinion about losses in a normal market.
28:37 — Loss reserves for investment grade projects versus speculative projects.
30:01 — The risk level of Speculative grade projects.
31:18 — ROI expectations regarding investment quadrants.
34:22 — Cash flow expectations regarding the investment quadrants.
37:16 — What is a quality cash flow syndication or a similar fund focused on the cash flow?
41:00 — The role of a good sponsor.
42:45 — Should you invest in individual deals or funds?
45:05 — Thank you for joining me for today’s episode.
45:42 — Outro to the Big Mike Fund Podcast.
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