By exploiting intellectual property (IP) alpha, Ocean Tomo Asset Management develops investible trade ideas across the liquidity and risk/reward spectra and then works with leading hedge funds, liquid and illiquid special situations investors and private equity funds to deploy capital into IP-based investments.
IP-based alpha can be found throughout the capital structures of most corporations and can be exploited through deep value and catalyst-driven trading. IP-based investing has unique, high barriers to entry, sustainable edge and strong risk-adjusted returns. IP alpha extraction processes can be applied to a broad array of liquid and illiquid investment strategies. By exploiting IP-based investment strategies an alternative asset manager can deliver strong, differentiated investment returns and a diversified book while reducing correlation and leverage and increasing Sharpe ratio.
Over the past 35 years, the US and developed world economies have experienced an economic inversion transforming themselves from manufacturing into tangible asset-lite, innovation-based economies. This transformation is one of the most underexploited themes in contemporary economics, finance and investing, and created a unique, uncorrelated investment opportunity where insight into IP alpha enables significant capital deployment in IP-based relative value trading, direct lending, special situations and leveraged buy-outs.
IP stocks tend to have greater return dispersion and volatility than the board market. These facts permit the construction of intra-sector and IP-rich company relative value trades that, when constructed correctly provide returns that outperform the market without market beta exposure.
The confluence of the rise of tangible asset-lite corporations and the growth of direct lending has created the opportunity to build a book of IP-collateralized loans with first lien security and mezzanine like coupons. These investments can be found across sectors wherever there are strong concentrations of IP assets that can be used as meaningful collateral.
IP alpha drives special situations investment opportunities in activism, distressed, patent arbitrage, spin-offs, IP rights enforcement funding, patent arbitrage and IP litigation outcome investing (a form of volatility arbitrage).
Certain upside value creation in leveraged buy-outs where the target is IP rich can be driven by post-close IP portfolio optimization and monetization strategies. By articulating and advising on these strategies, we assist in both the placement of LBO debt and post-close value creation.
IP investing is an underexploited, inefficiently priced set of strategies because of the difficulty combining capital and IP-based investment skills. Those skills include:
Coupling these skills with investor capital crates strong, idiosyncratic investment opportunities for investors looking for strong risk-adjusted returns and diversification.
Please contact us if you would like to discuss specific trade examples in any of the aforementioned categories.