Mint Condition - May 24, 2022
How investment funds fit in the hobby | Sponsored by Loupe
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Leading Off
Some of you may be aware, while some of you may not — but pools of money are out there in the hobby buying cards and unopened wax and investing in hobby-related businesses. In the hobby today, there aren’t just individuals transacting in the market. There exists funds comprised of millions of dollars, whose leaders focus 24/7 on making investments in cards, wax, and hobby businesses in hopes of advancing the the hobby and generating a profit for themselves and their investors.
Taking a step back…Funds are prevalent in other aspects of financial markets. Public market funds, like ETFs that contain a basket of stocks, allow everyday investors to gain access to a diversified portfolio of stocks. Private funds, like private equity and venture capital, make investments in businesses across all industries, like technology, healthcare, and even collectibles. These private funds allow accredited investors (think high net worth individuals) and institutions (think universities and pension funds) to allocate their money to these private funds, who then invest in companies on their behalf. These funds typically have a specified time horizon, meaning they have a set amount of time to invest the pool of money and then resell the businesses in order to return money to their investors and institutions.
So how do cards fit in here? Well, there are a handful of private funds in the hobby today, each of which with different strategies:
Mint 10: Launched in 2020 by the Reums, along with DJ Skee and Warren Laufer. Currently raising a new fund to invest in both cards and collectible businesses. Mint 10 is the first fund that I am aware of that invests in both cards and companies in the hobby. They have already seen a handful of companies they have invested in be acquired, like Noxx (acquired by Beckett) and Genamint (acquired by PSA), generating quick returns for investors. Mint 10 has also made some headlines with their sizable card investments, buying a Trout rookie for $1.05m last summer and most recently purchasing a Lewis Hamilton rookie for nearly $300k.
Wax Fund: Launched in 2020 as a partnership between Attic Investments and Blowout Cards, this was a first-of-its-kind fund totaling over $3m investing only in unopened boxes. The fund launched in February 2020, acquiring over 9,000 individual boxes and sets. As of June 30, 2021, the value of their investment totaled over $11m (it’s clear launching right before the COVID boom was ideal).
Alt Fund: Leore Avidar, Founder and CEO of Alt, ran his own personal fund before starting Alt. He launched a fund under the Alt company umbrella. Alt doesn’t just allow collectors to buy, sell, and trade on their platform, rather they run their own investment fund as well.
Note there are additional funds run by high-profile individuals in the hobby, though information about these aren’t well known, so I’ve excluded them from this summary.
What does the presence of funds mean for the hobby, how does it impact the everyday hobbyist, and what is the outlook for funds?
Let’s discuss…
Mint Condition’s Take:
Hobby Health
I strongly believe that having funds in the space contributes to the hobby’s health and supports its maturity. First, these funds provide credibility to the hobby as an attractive industry to place money into. We have already seen the hobby gain respect from large private equity and venture capital firms who have invested in businesses, including Collectors Universe, CCG, Collectable, Rally, Loupe, and more. The presence of funds further bolsters this respect - investors don’t just want access to the companies in the space, rather they want to move further “downstream” into investing in the actual cards and boxes propelling the industry.
Second, these funds contribute to the stability of the hobby, as they are investing substantial capital in the market and doing so in a mature, diligent way. These funds are not speculators looking to turn a quick buck on a card. As mentioned above, funds are typically given a several year period to invest the pool of money. While I can’t confirm the exact structure of these funds, I am assuming the pool of money they have is finite. What do I mean by that? The fund has a lifespan (anywhere from 5-10+ years) and is required to return profits to investors before this elapses. Additionally, if Fund X buys a Shohei Ohtani card today and sells it 6 months from now, what the fund earns is not all being reinvested in another card. Rather, part of the profit is being returned to the investors who gave the fund money and part of the profit is given to the individuals leading the fund. These funds need to be careful and diligent about where they place their money — there are not always do-overs. They are focused on sound, quality investments with upside and from my understanding, they would rarely dabble in heavy prospecting-type investments, specifically those that speculators are all too familiar with. This way of going about buying cards and boxes provides more stability to the market.
The Appeal for High Net Worth Individuals
If I am a high net worth individual who wants to buy cards but doesn't know how, what are my options? There are no financial advisors to help, like those who help place money into the stock market (though I expect this type of financial advisor / consultant role to be prevalent in the future). There are no card “ETFs” that make it easy to invest in diversified portfolios of cards (though I expect the fractional industry to move in that direction). These funds allow this individual to invest a large sum of money, letting the individuals running the fund, like a DJ Skee or Leore Avidar, to invest it. Thus, these funds are appealing to higher-end investors and hobbyists who want to invest in the sector and are driven by a handful of reasons - they do not want to spend time investing in individual cards themselves, they believe in the teams running, for example, the Alt fund or Mint 10 and trust they will make sound investments, and/or they want to gain access to cards or companies they wouldn’t otherwise. In some respects, investing in these funds simply provides access to cards and companies that one otherwise wouldn't have. Status symbol indeed, but also an attractive investment opportunity given the trajectory of the hobby.
The Everyday Collector
So how does the everyday collector fit in here? It is important to point out that the everyday collector might not have access to these type of funds today, as minimum required investments can be in the 5- or 6-figure range. However, as the hobby continues to mature and additional funds enter the space (as I expect), I could see some moving downstream and allowing for a more “crowdfunding” or “investment club” aspect to it. For example, you could see 5,000 people each put in $100 and you now have a pool of $50k to invest in cards. Perhaps one or a few fund leaders, like a DJ Skee, are responsible for investing the money or perhaps each person that contributed money to the fund has a say in purchases. There really are many ways this can go in the hobby, especially in creating access for the everyday collector. Do I believe the traditional hobbyist generally prefers to have more control over how their money is invested in the hobby as compared to the traditional high net worth individual, who just wants some skin in the game? Yes. However, similar to how venture capital and private equity funds are viewed today, the allure of and access granted through these funds should attract hobbyists from across the industry, as long as there are funds that open themselves up to the everyday hobbyist.
As always, I would love to hear your thoughts. You can reach me at jbmintcondition@gmail.com or on Twitter @jbmintcondition
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