Cover Story: Take charge of your financial future

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 30, 2018 - May 06, 2018.

The only person who cares about your financial future is the one staring back at you in your bathroom mirror. > Rowan

Picasso’s Weeping Woman (1937). The demand for fine art is growing in the developing world, where the number of HNWIs is rising.

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Graham Rowan prides himself on being called a renegade investor these days. His mantra in life is that investors should take charge of their financial interests instead of relying on intermediaries such as banks and wealth managers to do it for them.

The founder and chairman of the Elite Investor Club, based in Richmond, the UK, says investors should have businesses of their own and invest in alternative assets, such as boutique hotels, burial plots and dementia care homes, to achieve financial independence in the long term.

This mantra stems from the lessons he has learnt over the years. He recalls an important one in an interview with Personal Wealth.

It was the late 1990s, just a few years before the dotcom bust. Rowan was a director with a US-based company and was very much tied up with his day job, leaving him no time to look after his investments.

“I was flying all over the world. In fact, one of my clients was Telekom Malaysia, and I was in Kuala Lumpur when the Twin Towers were being built. I was busy working and took a colleague’s advice to put my money with a wealth manager so he could look after it,” he says.

Everything was great at the beginning. The wealth manager invested almost all of Rowan’s money in technology companies on the Nasdaq. At the time, the internet was the new buzzword and the stock prices of tech companies were reaching new highs.

“The feeling was great. I woke up every day and found myself £2,000 richer than when I went to bed. And when I looked at the financial review at the end of the year, I could see how much richer I was than the year before,” says Rowan.

However, those rosy times came to an abrupt halt in 2000 when the dotcom bubble finally burst. “In June 2000, my wealth manager presented me with my financial review and the graphs [which used to show investment returns] had turned downwards. Even though I was not as savvy as I am today, I asked if we should take some money off the table and do something else. The wealth manager said, ‘Don’t be stupid. It is just a correction in a major bull market.’”

So, Rowan heeded his advice. But when he came back to the wealth manager in June 2001, he was shocked to learn that he had lost £150,000. He says not only did the wealth manager not take profit when the market rose significantly but he also placed most of the money in stocks and did not adhere to the basic rule of diversification.

“Because of the losses, my net worth fell below the threshold that qualified me to be the firm’s client. The wealth manager said I was fired. In short, they lost my money and sacked me,” says Rowan.

“I felt angry and embarrassed. And I had to go home and explain it to my wife.”

But all was not lost as it marked a turning point in his life. It prompted him to learn more about investing. So, he read up on investment books and attended courses to take charge of his financial interests.

“To be honest, since the incident, it has been hard for me to trust a third party to manage my wealth. I have this idea that no wealth manager or financial planner will wake up in the morning with your financial interests as the top thing on his agenda,” says Rowan.

“They have things to do, including generating fees or commissions. They are never going to really care about you. The same applies to the banks. The 2008 global financial crisis is a good example. The only person who cares about your financial future is the one staring back at you in your bathroom mirror.”

It has been 15 years and Rowan has not looked back since. He has taken charge of his financial interests and, in the process, achieved financial independence.

 

Starting a business on the side

Nevertheless, the journey has not been plain sailing. It was through trial and error that Rowan discovered his investment philosophy and style, one that suited his personality.

He says investment is the process of learning about yourself. First, he tried to be a trader who executed trades with the help of technical analysis.

“I looked at all kinds of charts, such as the moving average chart. But I could not grasp this trading mindset and found it too distracting,” says Rowan.

“Some people can make a lot of money out of trading, but I recognised that this was not for me. I am more of a buy-and-hold kind of investor.”

Upon realising this, he started to look for ways to generate more income, for which there is no secret formula, he says. The first method involves living within one’s means and saving more for investment.

“It sounds simple, but many people really struggle to do this. They tend to spend all their money and wonder why they never accumulate any wealth,” says Rowan.

Another method is to start their own business while keeping their day job. This requires extra effort and sacrifices to be made.

“It is really hard work and a path that not many people want to take. This is also why 99% of the people are not financially independent,” he says.

“But you have to do what the 1% are doing. They build a business, they work hard and they are serious entrepreneurs. They also work on weekends.

“You must be prepared to pay the price for financial independence. If you just want a normal job, you won’t get there.”

Rowan suggests that instead of starting a business from scratch, one could buy into a distressed company and slowly build the business to reap the benefits when it fully recovers. He himself owned several businesses while he was still an employee in the corporate sector.

For instance, after the global financial crisis, he bought into a French company that sold leaseback property options. “The company had a customer base and existing products and services that generated revenue. It was in financial distress during the economic downturn and I was able to buy it cheaply and rebuild the business into something profitable. The global economy recovered in 2010 and I was able to reap a return,” says Rowan.

In fact, he says, it is more likely for a person to own a business today as information is abundant on the internet. “You are more likely to own a successful business today compared with 10 years ago. A simple example is to use your spare time to sell goods online while keeping your nine-to-five job.

“The process is tough and gradual, but it is a sacrifice you have to make. Many people talk about making money quickly. But I say you should make money slowly.”

 

The wealth pyramid

Income, generated from one’s job and/or business, should be invested in a well-diversified portfolio, says Rowan. With this in mind, he proposes a “wealth pyramid theory” that has helped the members of the Elite Investors Club.

The theory involves constructing an investment portfolio that looks slightly different from the traditional ones proposed by wealth managers and financial planners. The pyramid has three layers, says Rowan.

The bottom layer comprises investments in traditional assets such as stocks, bonds and gold. In general, a high-net-worth member of the club could allocate about 50% of his investment money to these asset classes. “This layer provides investors with long-term purchasing power and acts as a rainy-day fund that can cover 3 to 12 months of living expenses,” he says.

The middle layer comprises alternative investments such as property leaseback products that invest in boutique hotels and dementia care homes. Members could invest 30% of their portfolio in such investments.

“These investments are not neccessarily more risky than those in the bottom layer. The key point is they are able to generate long-term passive income that can be used to pay school or university fees or to cover expenses such as car leases and holidays. It could also allow investors to work fewer hours,” says Rowan.

For instance, the dementia-care-home product offered by the club provides investors an 8% to 10% return over the long term, ranging from 10 to 25 years.

Rowan emphasises that the leaseback investments, vetted and introduced by the club to its members, are usually made via a leaseback agreement with the investors, who buy a room at a hotel or dementia care home and lease it back to the business operator in exchange for a return. The investors have direct ownership in these properties and do not pay a fee to an intermediary such as a fund manager or wealth planner.

During the process, the club introduces an independent law firm to the investors. The firm then handles the contract and transactions for them. “We do not take or handle investors’ money,” says Rowan.

The top layer of the pyramid comprises the more risky investments, which aim to generate above-market returns over one to three years. Burial plots are such an investment.

“Typically, investors can acquire a financial instrument called the Exclusive Rights to Bury (ERB) in a newly developed private cemetery. The cemetery operator then sells the physical burial plots to the public via pre-paid funeral plans,” says Rowan.

“Then, the profit from the sales is used to pay the 50% return on their initial investment after 30 months. At the end of the 30-month period, the investors transfer their ERB to the people who bought the burial plots or back to the cemetery operator.”

 

Physical assets and the silver-haired economy

Rowan favours investments in dementia care homes and burial plots because they are tapping into the silver-haired economy, which has huge prospects going forward.

“The ageing population in the Western world is a big investment theme. We will have about 2,000 people turning 70 every day over the next 19 years, according to a research report. This creates a shortage of facilities for the ageing population, such as retirement villages, care homes and burial plots,” he says.

Given such backdrop, dementia care homes provide a good investment opportunity as there are currently not enough facilities to cater for the needs of the UK’s elderly. “There are many dementia patients who are kept in government hospitals at huge expenses. That is because there are not enough dementia care homes,” says Rowan.

That is why the UK government has merged the health and social care sectors under a single ministry to tackle the issue, he says. The government is also looking at allocating a bigger budget to address social care issues that have weighed heavily on the country’s healthcare system.

This investment option was also put forward by Cornerstone International Properties (CSI Prop), a KL-based property investment consultancy firm, in February. CSI Prop director Virata Thaivasigamony, citing statistics provided by Alzheimer’s Research UK,  was quoted in a local news report as saying that 850,000 people lived with dementia in the UK today and the figure is expected to reach two million by 2050. “The undersupply of care homes has created opportunities for investors,” he adds.

Burial plots, which are scarce in some European countries, are also in demand, especially in areas with large Jewish and Muslim populations, says Rowan. “We are running out of cemetery space in the UK. The existing ones are run by the local authorities and not well maintained. This is where we see investment opportunities for well-managed cemetery space.

“Also, we have very large Jewish and Muslim populations in certain areas. Burial is their preferred option when someone dies. These areas are where burial plots are even more attractive.”

Rowan is also bullish on the UK’s tourism sector as the pound sterling has weakened against other major currencies since the Brexit referendum. A weaker currency provides investors the opportunity to earn a handsome return from investing in boutique hotels in the country.

“It is now cheaper for foreigners to come here on holiday while it is more expensive for the British to go abroad. The big growth in people staying put and those coming here for a holiday plays into the boutique hotel investment theme,” says Rowan.

Fine art is another alternative asset class he is looking at this year as the demand for such investments is growing in the developing world, where the number of high-net-worth individuals (HNWIs) is rising.

Rowan points out that there are more than 10 million HNWIs worldwide and new museums are opening across the globe, especially in the Middle East and China. These museums are buying artworks from all over the world.

“I am not looking at the next rising star in fine art. I am talking about museum-quality art like, say, Picasso,” he says.

“People think these artworks are expensive, valued at hundreds of millions of pounds. What they do not realise is that prices can start at about £10,000 and they can own an original Picasso [that is less well-known] for about £85,000.”

 

 

Building a renegade investor community

Graham Rowan, founder and chairman of the Elite Investor Club, says the club was established after he acquired a French company that offered leaseback property.

He had developed a relationship with its clients while operating the business. Then, he thought about taking it a step further. He wanted to build a deeper relationship with his clients and allow them to share knowledge with one another and explore investment opportunities.

“I wanted to move beyond a transactional relationship with our clients. That was how I formed the club five years ago,” says Rowan.

“Then, I introduced new investment products, such as dementia care homes, to this circle. People like the fact that I bring them unusual investment opportunities. Cemeteries are the most recent example. The property business I was able to rescue from the brink of closure has turned into what is known as the Elite Investor Club.”

Over the past 4½ years, the club’s membership has grown to about 2,000 globally. The members are from countries such as the US, the UK, France, Belgium, Germany, Zambia, Hong Kong, Singapore and Malaysia.

“In the last two years, we have introduced the Elite Tax Planning and Elite Pensions services to help our high-net-worth clients protect their hard-earned wealth. We are talking to potential partners about launching the club in Switzerland, Dubai and India,” says Rowan.

He adds that the general public can join the club for free via its official website. Investors will have access to different investment products and opportunities including dementia care homes, burial plots and boutique hotels in the Western world. They also have access to investment videos and magazines produced by the club and can attend investment-related events at different locations each year.

For instance, the club is organising events called “Making Money in Art” and “The Five Secrets of High-Net-Worth Investors” on April 25 and May 8 respectively. The events will be held in London.

To ensure the investments yield sufficient returns, Rowan is involved in the operations of some companies. “Over the years, we have had more firepower. We raise quite a lot of capital quickly and I use this to get more operational oversight on the things we invest in. I am now chairman of the company that runs the cemetery business,” he says.

“I have partners who have invested in a retirement apartment project. They have set up a special purpose vehicle for the project and I am managing director of the company. I oversee where the money goes and make sure the deals are done properly, so I can give an accurate report to the investors.”

Rowan says individuals who are interested to invest with the club have to meet the requirements of the UK’s Financial Conduct Authority. This means having investable assets of £250,000 or an annual income of £100,000. “The minimum investment amount for boutique hotel and dementia care home projects is about £50,000,” he adds.

Rowan takes the initiative to identify these investment opportunities in the market himself. He is proud that the members of the club also have the same mindset.

“We are sophisticated investors who take charge of our financial interests. We also invest in unregulated investments, which aren’t the norm in High Street. In this sense, we have a renegade mentality and are different from the crowd,” he says.

Rowan says the club is still growing and is seen as a rebellious movement against the authorities, including the central banks and financial institutions. “We are anti-big banks. The global financial crisis clearly showed that the banks were not concerned about their customers. At the same time, central banks kept interest rates so low for so long that they penalised people trying to save money to gain financial independence. This is something we feel very strongly about.”