We use our acumen and our extensive network to select the strategies and teams that we believe have the highest potential for outperformance and low correlation to major markets. We do not seek to solely provide exposure to a broad set of strategies.
Hedge Fund Strategies
Silver Creek Approach
We seek to deliver returns that are not dependent on major market asset classes and are diversifying to investor portfolios. Managers with the skill and resources to consistently deliver alpha are few and far between, so we allocate to a small number of managers that we believe are most likely to perform in the future.
Our approach includes both multi-manager and single manager strategies.
Introduction to Private Credit
Private credit investing is a necessary component of high functioning capital markets and economies. Capital can stagnate and economies could grow below their long run potential without mechanisms for financing smaller companies, clearing bad debt, and unlocking value in distressed companies. Private credit provides credit, throughout market cycles, to areas where large banks and credit providers are unable or ill-equipped to go. They also play a vital role through bidding processes that allow prices to reset and distressed markets to clear. The massive build-up of credit in the middle ‘00s and the subsequent 2008 crash has caused substantial regulatory change, the decimation of securitization, and a fundamental shift in the business model of a primary market financing mechanism: commercial banking. It is our belief that an extraordinary potential to invest in above-normal risk versus reward propositions in private credit is likely to persist far longer than in times past, potentially for even a decade or more.
Silver Creek Approach
The underlying private credit investments in our funds are evaluated according to the following criteria, developed over our 20 year history of experience in private credit investing:
- Underwrite investments to a flat/down economic environment
- Prefer assets that are cash flowing and self-liquidating
- Ensure mandate is met unlevered, may use low leverage in certain strategies
- Remain senior in capital structure, have effective control, or structure investments to minimize downside
- Favor complex, process-driven strategies that require activism to unlock value
As investors look to alternatives to help enhance their returns and diversify their portfolios, the timberland asset class has become an integral portion of many institutional real asset allocations. Timberland investment portfolios can provide investors with historically attractive risk-adjusted returns, a hedge against inflation, and the ability to meet cash flow and appreciation objectives while preserving capital. At the same time, forestland investments can be managed with a strong focus on sustainability.
Silver Creek’s strategy has been to partner its institutional clients with an experienced operating company who is also a significant co-investor. Green Diamond Resource Company, whose roots date back to 1890, is such a partner and the timberland manager for Silver Creek’s 525,000 acre timber portfolio which spans the Southern U.S. and Pacific Northwest. The complete portfolio is certified under the Sustainable Forestry Initiative Standard, the world’s largest forest certification system.
Aggregates (hard rock, sand and gravel) are essential building blocks in the U.S. economy. Demand is expected to range between 5 and 10 tons per American per year. Demand grows as population grows. 50% of that demand is driven by public infrastructure (roads, rail beds, seawalls, tunnels, bridges) and 50% in commercial and residential construction. Aggregate reserves refer to the rock beneath rock quarry operations. They are extracted by the operator, crushed, cleaned, sized and sold to customers.
Silver Creek’s strategy is to purchase reserves beneath operating quarries with long term track records and 35-50 years of remaining capacity. The quarry operator (typically a large multi-national company) is obligated to continue its work and pay the fund a royalty on each pound of rock that is sold. Silver Creek believes this strategy has the ability to create predictable cash flow, a hedge against inflation, and strong risk adjusted returns.
Sustainable Forestry and Agriculture
Silver Creek believes that sustainable forestry and agricultural practices are critical components to the solution of one of the world’s most pressing issues, climate change. We believe that developing regenerative agricultural and ranching practices to attract, build, and retain carbon in the soil (i.e. carbon sequestration) is a key element to reducing the amount of carbon dioxide in the atmosphere and minimizing the effects of global warming on our planet. We know the earth’s forests remove nearly a quarter of the world’s carbon emissions every year.
Silver Creek’s founder and CEO, Eric Dillon, has dedicated significant time and resources to advancing the body of work in the agricultural sector. Using a 22,500 acre wheat ranch in the Northern Plains as his test case, Eric is working on implementing a “soils-focused” regenerative farming model driven by social and economic goals. The project involves active collaboration with many industry thought leaders, including: a team from the Yale School of Forestry and Environmental Studies; David R. Montgomery, an author and professor from the University of Washington; and The Bread Lab.
Silver Creek’s timberland fund has entered into an agreement to sell carbon offsets on a portion of its property and our partner is one of the national leaders in forestry carbon initiatives.
We are hopeful that these efforts will help define an adoptable path for modern agriculture that will: combat climate change through carbon sequestration; clean water; prevent erosion; and, improve the nutritional quality of the food we grow. We also look forward to creating an investable strategy which would “do well while doing good” in the future.