[BENJAMIN D. SUMMERS]
I’m Ben Summers, the founder of Adagio Group and executive director of Adagio Institute.
I want to share with you my journey around the world...
It's a journey that took me from professional baseball on the West Coast to applying my physics degree to the anti-intellectual business of energy services in Texas, West Africa (where I too often found myself at the literal point of a gun), and Northern Europe (where sailing the Norwegian fjords is awesome)...
...then to the entrepreneurial focus of real estate investing, fund management and ultimately running my own quant-based boutique investment bank from South Florida.
I think you'll find this journey of interest, but more importantly, I think you'll find the lessons I learned very helpful as you strive to grow your business.
It was November of 2004…
Just a couple years previously I was getting well paid to throw a baseball in front of thousands of people.
At this particular moment, however, I was being held at gunpoint in an old flat-bottomed boat in the Niger Delta by group of Nigerian “armed youth”….
How did I get here? The thoughts flooded in, but one stood out above the rest: I wasn’t getting paid enough for this shit.
At that point I decided that no matter how prestigious my position in the global energy services industry, I needed to control my own destiny. So I committed to starting my own business.
I knew that start-up capital was the biggest hurdle for new businesses. Over the years, I’d also learned that creative real estate finance minimized the need for start-up capital.
So, the decision was made.
When I returned to the U.S. after my sixth three month rotation in Nigeria was complete, I registered my new business, Adagio LLC, as a real estate investment company on May 11, 2005.
The name Adagio—which refers to the slower, expressive second movement of works in classical musical—represented my attempt to bring the beautiful incorruptibility of music that I experienced during my formal education to the culture of business.
It wasn’t long before my idealistic enthusiasm took a hit by reality: there were a whole lot of people chasing very few good deals. But the effort that lead to this disappointing realization also exposed me to another eye opening discovery: the “hard money” lender…
There were these hard-to-find individuals who would lend to real estate investors at exorbitant interest rates, for short periods of time. To protect their loans, not only did they demand the borrower to qualify, but they also limited their LTV to around 65%.
They couldn’t lose!
If the borrower paid as promised, the lender was making close to 20%; if the borrower defaulted, he made even more… a perfect win-win!
This was the side of real estate I knew I needed to be in. I also knew that being a lender meant that I would need a lot of money… much more money than I had.
When I looked at the returns and almost nonexistent potential downside of the hard money lending business, I intuitively knew that it was a much better deal than the stocks and bonds being peddled by local financial advisers. I just needed to convince others of this so they’d allow me to put their money to work.
You’d think this would be an easy task… it was not. Securities regulations make it almost impossible for a beginner to raise capital. And even if you can navigate the regulatory gauntlet, belief is a difficult thing to change… especially belief about investing.
It took time and work, but eventually I was able to convert my idea to start a hard money lending business into an institutional-grade fund that thrived… even during the 2008 financial crisis.
My goal is to help you do the same…
I was ecstatic to have discovered a great investment model that few people knew about… returns were much higher than the stock market without the constant downside risk.
As I told people about it, I expected everyone should be lining up to have me put their money to work… but they didn’t… no one… not even my dad was willing to invest a penny with me.
I was missing one huge idea…
The business of raising money is the business of finance. It seems like a fairly obvious idea now, but when I was buried in the real estate business… inundated with guru courses, Realtor propaganda, and the pseudo-sophistication of commercial real estate… that fact got lost.
Fortunately for me, my sister happened to be dating the guy I needed to meet. He was not only a securities attorney with a law degree from Vanderbilt, but he had also worked as both a portfolio manager at one of the big investment banks and an analyst at a hedge fund up in New York.
When I met him, I expressed my frustration with my inability to convince anyone to invest with me. His initial response was disbelief… not that people wouldn’t invest… but that this investment model called hard money lending actually worked.
It just so happened that not too much later he wound up leaving his job on Wall Street. He got shorted on a bonus, and that was the last straw for him. I persuaded him to come down to Florida with me to see what real estate investing and hard money lending looked like first hand.
What he witnessed shocked him… I’ll never forget what he said once he finally realized what I had introduced him to: “This is the f****ing wild west of investing!”
Now I was shocked: He made me realize that not only do real estate people know nothing about finance, but finance people know nothing about real estate.
With my knowledge of real estate and his knowledge of both securities law and hedge fund operations, we partnered to take advantage of this industry divide… we built out Adagio from a single entity private investment company into an institutional grade fund manager.
I took this opportunity to dive into finance, pick my partner’s brain, and learn everything I possibly could.
I read everything from the full set of federal securities laws, Chartered Financial Analyst (“CFA”) exam manuals, and Nassim Taleb’s texts on risk engineering to G. Edward Griffin’s The Creature from Jekyll Island and the works of Mises and Hayek.
Not only did I learn the business of finance and pick up a FINRA Series 65 (Uniform Investment Adviser Law) License, but I also became an advocate for Austrian economics along the way.
While there is an endless amount of information to digest, I came into this effort with the hardest part already down: math.
My degree is in physics (with a minor in music), which requires fluency in mathematics. So when it came to quantitative finance, all I needed to know was what ideas needed translation into numbers… the application of formulas came easy.
One formula not even my well-credentialed partner thought to bring to our efforts was the Capital Asset Pricing Model, or CAPM. While that’s a mouthful that might sound like a turn-off at first, it communicates one of the most important measures of an investment: the return it should generate given its market risk. (It's worth noting that I discovered even more informative third and fourth order risk-adjusted performance metrics later on thanks to Nassim Taleb.)
Armed with these mathematical tools, I could now convert my intuitive feelings about the merits of real estate investing into meaningful financial terms. Even better, I was now able to utilize financial instruments such as derivatives to even further improve the risk-adjusted returns of common real estate investing strategies… from the basic hard money lending model to taking advantage of differences between price and value.
Unlike financial professionals, no one in real estate knows how to price financial instruments… or even cares to for that matter… and this creates tremendous opportunity for those who can.
For example, I was able to buy a simple call option on an undervalued $2MM property for only $5k. The result: I was able to capture $500k of forced appreciation in under 12 months with nothing more than a meager $5k investment… and none of the risk associated with holding legal title.
For those who are counting, that’s a 10,000% annualized return… it’s like betting only $1 on a coin flip and winning $100 if you guess right!
I had all the pieces in place… well… all but one…
There is one set of numbers that hold the key to protecting real estate investors from down markets… they hold the key to raising unlimited capital…
I discovered these number just in time to make sure my investment business thrived during the 2008 financial crisis. These numbers should be highly valued by everyone who participates in the real estate investment market… especially commercial operators and brokers… but they’re not.
So in 2008, while everyone else who was invested in real estate… including the hard money lending crowd… suffered terrible losses, our lending fund generated returns in excess of 30%.
2009 was even better…
When I started investing in real estate as a career in 2005, I immediately noticed that it seemed very difficult to find properties that generated substantial positive cash flow.
At that time, I knew nothing about monetary policy or risk engineering… but I did know that residential properties were generating much less income per purchase price (NOI) than what was described in the books I read on the subject.
Those books were written about a decade previously, and something had changed… something big… but what?
I started researching real estate data… Right around the time I was about to launch my lending fund in 2007, I came across a chart that illustrated two sets of very important data published by the U.S. Bureau of Labor Statistics (“BLS”) and Federal Housing Finance Agency (“FHFA”) [at the time it was the OFHEO]: Owner Equivalent Rent (“OER”) and the Housing Price Index (“HPI”).
This is what I found (the data stopped in 2007 at the time):
This chart showed something amazing… until 1999 rental rates and housing prices grew in tandem (this had been true going back over 80 years), but starting around the year 2000, housing prices began to run away from rents.
What was happening!?! I didn’t know for sure… but for me, it validated the whispered talk I heard from some financial professionals about real estate being in a bubble.
From that day onward, everything changed… this one chart would eventually take me from being just another real estate investor to running my own investment bank… arguably the most coveted position in business.
The first thing I did was to stop listening to all the Realtors… and the lenders… and the other real estate investors… and I started watching the numbers.
I’d already seen that hard money lenders had a really good business model, but I recognized that even they were making a mistake. Their 65% LTV seemed like a conservative bet… and it would be at any other time in history… but now… if the rental data was to be believed as the fundamental measure of value… even they were over exposed.
My next question was, “how do I take advantage of this fairly big gap between housing prices and rent?”
The answer was still lending… but with a twist.
Instead of lending at a fixed loan-to-value (“LTV”) percentage, I decided to lend as a multiple of the property’s market rent.
By making this one change, what I had inadvertently done was almost completely eliminate market risk from my portfolio.
At the time of this transition, real estate was already on its way down, but all the market participants were blind… they remained in full-blown denial about how bad things could… and would get.
Meanwhile… despite all the pressure to do otherwise… I maintained my ground and stuck to financing only the transactions that allowed me to apply my strict rule of valuing property as a fixed multiple of its market income.
Realtors, property sellers, other investors… they all thought I was ridiculous. No one else was being so conservative… even the Fed chairman was pronouncing the market to be fundamentally strong…. but I would not back down…. and thank god I didn’t.
Soon afterward, not only the real estate market, but the entire financial system was collapsing…
It was September 2008… Iceland was already headlong into their financial crisis when I was sitting on a friend’s couch in Aberdeen, Scotland… we were watching CNN declare that across the pond Lehman Brothers had filed bankruptcy. It seemed like everyone was losing everything… everyone but me:
My portfolio’s 2008 returns: 32.07%
My commitment to faith in numbers had paid off.
While the “market value” of the properties I invested against fell, there was still ample income and equity above my position that allowed me to exit almost exactly according to plan.
The best part was that with the collapse of the financial system, no one had money they were willing to lend… no one but me…
My portfolio’s 2009 returns: 41.56%
During this process I mastered quantitative risk analysis and developed my own risk rating matrix that captures all aspects of risk: from second order market and total risk expressed as the Modigliani Measure to the tail risk impacts of market crises via the Omega Ratio. I immodestly named it the Summers Alternative Risk Rating.
[SHOW SARR MATRIX]
Without diving into the technicalities, all these calculations tell you the same thing: the less the price of something changes, the less risky it is as an investment. And as you can see in the chart, residential rental income doesn’t change very much… at least not when compared to other assets.
I also continued to develop my skills of managing risk with fundamental valuations, capital structure and derivatives: options, swaps, etc.
I soon realized that what I had done with my real estate fund in terms of protecting it from market risk was the holy grail of Wall Street.
I thoroughly understood private securities law and the mechanics of raising capital…
I thoroughly understood risk engineering…
And I had a very stable asset to build everything on: rental income.
I was now equipped to compete directly with Wall Street!
Instead of being relegated to competing for the few investors who were willing to passively invest in real estate, I could now issue securities that were verifiably better than just about anything else available… from Apple stock to U.S. Treasury bonds.
I could go head-to-head with any asset manager regardless of asset class!
In 2016, I wound down my primary fund and restructured my business into a boutique investment bank so that I could apply all that I had learned to help other real estate assets managers take advantage of our unique opportunity...
Shortly thereafter, we began working with brilliant asset managers in just about every asset class imaginable–from the most sophisticated synthetic risk transfer to well-engineered quantitative equity strategies–that were able to generate better risk-adjusted performance than what could be found anywhere else!
As most people know, securities laws are extremely complex and vague. This dynamic creates a trap that unsuspecting business owners often fall into unwittingly. Once ensnared, it can be nearly impossible to escape unscathed…
It is illegal for certain types of private funds to advertise for investors. For the type of funds I manage, securities law requires us to have a pre-existing relationship with an individual before we can introduce our offering.
As a means to establish these pre-existing relationships with the right investors for our funds, I developed a comprehensive course: the Accredited Investment Professional (“AIP”). It was designed to accomplish a few different things:
first, to educate real estate investors and agents on the financial concepts used by Wall Street to raise unlimited capital and effectively manage risk, which helped improve the quality of our borrowers,
second, to educate high net worth individuals on how to evaluate investments in terms of the only three variables that matter: risk, return & liquidity, and
third, to create brand awareness for our firm by communicating our unique expertise.
One thing I quickly found was that people really don’t like making the effort to learn.
The second thing I found was that once people read the AIP course syllabus, they recognized our expertise could help them tremendously…
One day, I received an inquiry that seemed a little different from the others. Our course whiteboard advertisement had landed in the hands of a multi-family, deep value-add operator who was in desperate need of help. They were being investigated by several states in addition to the SEC for illegal fundraising activities, and to make matters worse, their portfolio was insolvent, meaning they owed their debt investors more than their assets were worth. We worked with them for over a year to restructure their capital stack and methods of raising money.
A little later, we’ll provide you an opportunity to access this case study that anonymously details the circumstances and the mechanics of how we rescued this firm from the brink of bankruptcy and prison to compliantly and profitably raising over $5 million a month.
All of my expertise and resources worked in concert to eliminate their regulatory burden, greatly improve their profitability, protect them from market risk, and raise unlimited capital.
I wondered how many other alternative asset managers were unwittingly heading down a similar path... I could save them a lot of money, a lot of stress, and help them grow exponentially faster... a lot sooner... if they would work with me from the time they were first starting out instead of after they found themselves stuck in a position where they couldn't raise the capital they need... or worse, facing legal and financial crisis.
From that point on, I decided to make this effort my primary business… to apply my unique skillset to help every serious alternative asset manager I could maximize their potential to pose a serious challenge to the dysfunction and corruption of Wall Street.
I liquidated my primary fund to remove conflicts of interest and restructured Adagio into a de facto boutique investment bank… so now I can.
Adagio now engages in a full complement of financial services providing third-party, quantitative risk analytics, institutional-grade fund management, and boutique investment banking services to the alternatives space.
Whether you’re a saver with a nest egg that you need to safely generate income, a relationship builder, or you’re already in the investment business, we’ve got uniquely powerful solutions for you to achieve financial independence.
For those who want these solutions for themselves, I developed The Shadow Banker’s Secrets Masterclass on Investment Banking for Alternatives. When you take the masterclass, you’re going to discover how to use the most esoteric skills of the banking industry to beat the system at its own game.
This masterclass shares my extensive knowledge and provides you all the information you'll need to protect yourself from market crises, and even create highly valuable capital out of thin air as your own shadow bank.
We've tailored the information to meet the needs of every market participant: from the most sophisticated financial professionals to those who've never even thought about the subject. This is why we ask you to choose the profession, or role in the market, you identify with most before accessing the masterclass. It's structured so that no matter what your background is, all you need is a willingness to learn, and by the end, you'll be amazed by what you've just been exposed to. Here are a few examples of what the different facets of the market will learn:
Alternative asset managers, such as real estate syndicators and hedge fund managers, you’ll learn how to quickly and compliantly raise hundreds of millions of dollars by measuring, improving and communicating the risk-adjusted performance of your investment model, packaging it under an institutional-grade fund, and distributing that fund through the appropriate capital market channels to meet demand.
Financial professionals, you’ll learn how to quickly and compliantly grow your client base and reduce regulatory risk by definitively, quantifiably measuring the risk characteristics of any asset–including alternatives–and providing all your client–including non-accredited investors–access to transparent, institutional-grade private structured products that generate better risk-adjusted performance than what’s otherwise available through the capital markets. This is achieved by taking advantage of inefficiencies in private markets that provide unique arbitrage opportunities via best-in-class asset managers.
Retail investors, you’ll learn how to achieve peace of mind knowing you can retire comfortably with confidence that your investment portfolio is generating the highest returns possible with the least amount of risk. You’ll be able to definitively measure the risk associated with all of your investments–from the stocks, bonds and mutual funds recommended by your financial advisors to hedge funds and real estate–and gain exclusive access to the best risk-adjusted investment performance available… assets that are otherwise only available to the top 0.1%.
Financial professionals without FINRA licenses such as accountants, attorneys, independent insurance agents, IRA custodians, real estate brokers, and marketers, you’ll learn how to quickly grow and monetize your client base by compliantly providing it exclusive access to the best risk-adjusted investment performance available via institutional-grade private structured products. I’m talking about 6%-8% fixed income with Treasury level risk and 25%-30% RAP.
I know many of you may not be familiar with some of the terms I just used, but that’s okay. Nonetheless, they are ideas that everyone who has any interest in money should know, and everyone who goes through the masterclass will know them.
As part of its public charity mission, Adagio Institute is bringing you my expertise risk-free and at an extraordinarily discounted rate. It’s my passion to not only educate people on how The Fed and banking system work, but to provide powerful solutions that allow smart and driven people the opportunity to escape their shackles.
My billable rate is $975 an hour, and this masterclass covers exactly what I’d tell you if you were sitting with me in person for three hours–a $3,000 proposition.
I know that everyone's circumstances are unique and you may need some assistance in applying what you learned to achieve your specific goals.
I want to make sure that no stone was left unturned, so I'm also providing you both the case study on our first investment banking client that I mentioned earlier and a one-hour consultation with me at no additional expense to help you apply everything you learned to your specific circumstances and reach your goals.
The masterclass and my one-hour consultation with all the additional resources brings the total value of this offer to well over $4,000!
We're providing all this to you at an extraordinary discount!
Just imagine what life will be like when you’re free of the boom-bust cycle and have the power to create all the capital you can responsibly use just like the banking system.
To make this vision your reality, take The Shadow Banker’s Secrets Masterclass where you can download all the presentation slides and access the private Facebook mastermind group. You can take the masterclass at any time and at your own pace.
While we all continue the long fight against the banking cartel, you can escape its golden handcuffs right now by using its skills, techniques, tools and esoteric expertise against it.
But time is running out... with each passing day the window to escape the clutches of the banking cartel with its government and corporate henchmen closes a little further...
If you want to turn the tables on the banking industry, this is your time, and this is your one opportunity…