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"In private equity, it’s critical to invest with professional fund managers"

A conversation with Moonfare investor and fintech expert Atindra Barua on his private equity strategy, market outlook and the role technology plays in investing. 

An engineer by education, Barua found his passion where technology meets finance.

Fresh from college, he started building financial products for an asset management giant State Street. “We designed money market vehicles in countries where these markets didn’t even exist. The front end became a multi-currency swap platform and the back end was invested in the US money market,” he explained in an interview with Moonfare.

After he left State Street, Barua started his own business. He founded a company that specialised in portfolio software solutions that would, for example, adjust and rebalance portfolios. A few years ago, the India-born, Boston-based entrepreneur sold the company to an independent broker. He still works with the firm while also  managing his personal investments.   

As someone who has an exceptional view of both tech and finance, we started our conversation with what many believe is the next technological frontier — artificial intelligence. 

How do you see the current role artificial intelligence (AI) plays in investing? 

Artificial intelligence can help but at today's level, AI is still just an incredibly smart calculator. Even ChatGPT doesn’t work on its own and needs a prompt. I’ve recently undergone shoulder surgery which was partially robotic but it was human doctors who made the decisions. All these technologies help humans do tasks better, quicker and faster but I don't think they will replace us anytime soon. 

As an investor, I’ll take AI’s output but I would question it and try to validate results through some independent means.

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Technology has been one of the key investment themes of the past decade. Where do you see the biggest opportunities for tech investors in the next 10 years? 

Anywhere it can improve operational efficiency. Let's take electric cars, for example. I’ve owned or driven different types and there’s a vastly different experience between Tesla and the BMW i3, for example. I can put Tesla on autopilot and drive 200 out of the 260 miles without giving driving a lot of attention. That’s not possible with the i3. The technology that enables autonomous driving is a game-changer, not only the fact that cars are electric.

Artificial intelligence and machine learning are also game changers. I remember early in my career, building financial products was only possible because computers would do the calculation and accounting. The math behind AI is very different from traditional linear regression and other mathematical analyses. It’s based on neural networks - you give the model a bunch of different inputs and it will automatically do what we think of as linear regression. 

AI tools suddenly allow you to analyse a lot more complex things but, again, they shouldn’t replace the expert human. They could find patterns in random data but those patterns could lead to wrong decisions. You don’t want to bet your entire house and end up losing it because AI was wrong. I don’t think we're already at a point where technology can apply itself.

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Let’s talk about your investment strategy. How do you decide where and when you invest? Is there an analytical framework you follow or do you rely more on intuition?

I have an asset allocation strategy that I follow where I try to diversify risk across different financial instruments. For example, I have 30% of my portfolio in public securities, including bonds, stocks and ETFs. I have another 10% in insurance-type products, which are different types of annuities. 

My current intention is to allocate about 60% to private equity through Moonfare. I don’t have to invest everything at once since capital calls occur over a period of time. This means that within that 60%, I'll take a portion and invest in short-term notes to generate liquidity and satisfy the capital calls. If the timing of the capital call won’t work, I can still take a portfolio loan to pay for the capital call. When my private equity investments mature, I can pay off the portfolio loan.  

But I also like to take higher risks. If I look at the rest of the portfolio, I have around 3% in crypto. Based on the volatility of crypto, I can keep the dollar figure at higher risk across my different investment buckets. 

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Considering a large part of your portfolio is reserved for private equity, where do you see its appeal? 

Public markets offer returns, but there's a lot of volatility because investors often behave irrationally and follow a herd mentality. Whereas in the private market, people have a more rational mindset about why they're investing and what are the long-term implications. Of course, you'll be wrong sometimes but the volatility in private markets is much lower. However, it’s critical that you invest with professional managers who can analyse deals and make investments on your behalf. 

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Private markets are diverse. How do you select the strategies you invest in? 

My goal is to diversify across strategies and sectors. Trying to guess what strategy specifically will perform is not a winning game. You want to have diversity and you want to have your capital deployed across various sectors that you believe in. I personally think technology will change most industries but that doesn't mean I will invest only in technology companies. 

Infrastructure, for example, is also potentially a great investment currently as it undergoes a transformation towards becoming more sustainable. There will be some great winners coming out of this sector in the next 10 to 20 years. 

Outside your home US market, where do you see the most potential for investing? 

Outside of the US, I see most opportunities in the developed markets, mostly Europe but also Australia and Japan.

When it comes to Asia, I recently watched a presentation from one of your fund managers who was asked why they don’t invest there. His answer was also on my mind for a long time. Asia has had very little success with exits. When you invest, you need an exit at some point to realise the gain. India has made progress in the last 20 years, developing a large market for angel investors and VCs, with subsequent public exits and generally a lot of M&A activity. However, I don't see the same happening across Asia. The Asian market has its opportunities but you need a really good professional team that knows the specifics of the market.

The biggest opportunities in technology are "anywhere it can improve operational efficiency", says Moonfare investors and fintech expert Atindra Barua.

Where do you get the information you use to make financial decisions? 

I get certain information from the public domain, but I’m mindful of the fact that the news I’m interested in is not necessarily the news the world is interested in. That’s why I make sure to also receive information directly from knowledgeable people.

When it comes to investing specifically, I think it’s best to bet with people who are professional managers to increase your chances—whether it’s the real estate sector, private equity or private debt. Just think about how long it takes to be a professional in any field. The standard rule of thumb is 10,000 hours of concentrated effort. We work roughly 2000 hours a year. If I put 100% of my time into becoming a domain expert, that translates into five years. 

Markets were turbulent last year and uncertainty still persists. In your view, what should investors do given the current circumstances? 

I would say go 100% equity because markets have gone down significantly. You will never time the bottom of the market. I think now is the time to deploy whatever cash you have. There will be a lot of cheap deals.

Finally, was there a major global event that defined your mindset as an investor?

There were three major global events that shaped my financial thinking. The first one was the ERM crisis that happened when the Bank of England couldn’t support the British pound any longer. The second event was in the late 90s when the real estate sector in the US went into a recession that ended up affecting the rest of the world.

And finally, the dot-com bust. As markets were up, I remember how everybody back then felt like they were a star investor. You’ve seen people switching careers; nutritional consultants became web developers. 

The lesson I learned from all these crises is that you always need to have some level of insurance. Diversify rather than just go full in with one option. 

‍‍‍Important notice: This content is for informational purposes only. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Your capital is at risk.

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