Patrick Kennedy, Co-Founder of Allsource Investment Management
Patrick Kennedy is Founding Partner at AllSource Investment Management. Previously, he was a Financial Adviser, Portfolio Manager and Alternative Investments Director at Morgan Stanley Wealth Management.
In addition, he worked at Cigna and Travelers. He received an M.S. degree in banking and financial services management from Boston University.
He makes his money making money for his investors and has a clear eyed strategy for the next few years.
“Inflation, for most investors, is kind of a thing of the past — we think that’s inaccurate.
We think that inflation should very much still be on the forefront of people’s minds.
And what the Federal Reserve does next isn’t a certainty to us.
So, a lot of investors think that we’re going to undergo this cutting cycle and it’s going to be loose money again.
In our view, that’s a big risk for the market because the economy is still doing really well with rates this high.
And we think that the Fed doesn’t want to be known as the Fed that let the inflation genie back out of the bottle.
So, we think they’re going to be much more cautious than most people think.”
Patrick Kennedy is developing a new private equity asset for his clients.
“We just started looking at professional sports, I want to say, 18 months ago.
We did some underwriting on the NBA.
The NBA has allowed private equity ownership for some time now.
And the first thing that we really wanted to weed out was, is this just a vanity investment? If it’s just a vanity investment for people to be able to say, hey, I own a piece of my favorite sports teams, we were going to shy away from it.
But when you do the underwriting and look at the fundamentals, the fundamentals are actually pretty sound.
For these big leagues like the NFL and the NBA, most of the revenue is derived from league revenue, which means each team there participates in the overall league revenue, driven mostly by media rights.
When you look at the power of the media rights, you have companies now like Amazon and Netflix that are just getting into this space and bidding up those media rights in a big way.
Amazon has Thursday nights for the NFL.
They have some NBA games.
And then you look at Netflix, they just had Christmas Day games for the NFL breaking all sorts of streaming records.
So that’s a big driving force of those media rights continuing to compound over time.
In fact, if you go back to 2012 and fast-forward to 2023, and you just look at the average growth rate of a franchise in the big four — hockey, football, basketball and baseball — it’s compounded at about an 18% annualized return.
The S&P has given you about 11% in that same time frame.
We think that’s really attractive.”
Uncertainty is always a given but managing uncertainty is Patrick Kennedy’s bread and butter.
“When we’re working with the high-net-worth families we serve, the macro uncertainty this year brings is very much on the forefront.
We’re not saying things are egregiously valued and we should trim a lot, but we are saying things are fully valued at this point.
So, we’re not looking to increase equity allocations at the moment simply because the market’s trading on 23 times forward earnings.
When you look at consensus, I think earnings estimates are supposed to grow at mid-teens next year and profit margins are supposed to expand by mid-teens growth as well.
We think, again, it could happen.
Obviously, most of the people out there think it will happen because it’s the consensus view.
However, when a lot of people are going to one side of the boat, we typically start to become cautious. So, we’re cautious right now on the equity markets.
On top of that, we think a lower rate environment in 2025 isn’t a certainty.
The Fed is going to be much more cautious.
And as Warren Buffett says, interest rates are gravity when it comes to asset prices, especially the stock market.
If we’re in a higher rate environment, that could be problematic for the equity markets.”
High net worth clients have interesting ways to avoid taxes.
“…There was talk about taxing unrealized gains for the ultra wealthy and raising the capital gains tax to 28%.
A lot of that obviously went away when Trump was elected, but those conversations were actively happening.
And now it’s more of a state-based conversation of, well, does California have much higher taxes than, say, Texas or Florida, and does it really make sense to live in a state where you’re going to be taxed 10%, 15% more than you would in another state?
So those conversations happen all the time, but it boils down to where you want to live.
I mean, if you have family in a certain area and your life and your business is in a certain area, it’s very hard to say, hey, we’re just going to uproot that for tax reasons.
Now, there are plenty of things we do to try and help with taxes.
One, we use qualified opportunity zones to defer capital gains.
Essentially, it’s just a way to invest within private real estate.
You take a gain, you move the whole or a portion of the gain into a private real estate investment.
It defers the gain out for at least a couple years.
There’s a proposal on the table right now that could actually kick it out for five years, meaning you wouldn’t owe on that gain for five years out if that proposal went through.
Right now, it just kicks the can for about two years.
And if you hold that private real estate investment for 10 years or longer, you actually get tax-free treatment on that gain within private real estate vehicle as well.
So, it’s a really attractive way to kick the can down the road and earn a tax-free return.
Another thing we use is direct indexing where you essentially build out a portfolio like the S&P 500 by buying all individual stocks for the client. And then we have a manager that will go in and aggressively tax loss harvest all the positions in the portfolio.
The indexes that are available include the S&P 500 or the Russell 1000 or Russell 3000 and many more.
It produces taxable losses every year while tracking the index.
So, there’s plenty of tax strategies that we use actively other than just tax loss harvesting to try and keep taxes down.
And then if a client does ask us, where is the most ideal place to rest my head six months and a day, we definitely have that conversation too, but typically those decisions are driven more by family, business location and that sort of thing.”
Get the complete rundown of all of Patrick Kennedy’s investment techniques by reading the entire interview, exclusively in the Wall Street Transcript.
Patrick Kennedy, AllSource Investment Management
email: info@allsourceinvest.com
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