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Humble beginnings and inflection points James Seneff There have been three distinct phases of alt investing in the past 45 years, and a new cycle is on the horizon [ 5 ] QUESTIONS J ames Seneff, founder and executive chairman of CNL Financial Group, celebrating its 45th anniversary this year, was recently given the Lifetime Achievement Award by the Institute for Portfolio Alternatives (IPA), helping to underscore the groundbreaking role Seneff played in the alternative investment indus- try. Seneff and CNL were at the forefront of industry trends such as the creation of private placements and nontraded invest- ments, including public partnerships, REITs, business development companies and private capital funds. In addition to advancing the alternative investment space, Seneff supports philanthropic organiza- tions and was named Outstanding Philan- thropist of the Year by the Association of Fund Raising Professionals. How did you start CNL and what was your motivation? I started the company in 1973 with a $5,000 loan from my father. I had a 10-foot by 10-foot windowless office, a telephone and a typewriter. e investment world certainly has changed a lot since then, I remember our first prospectus being only 10 pages. e essence of our company from the beginning has been the Democratization of Investing, providing individual investors the opportunity to invest in assets typically only available to institutional investors. Our 45-year history has carried us through three distinct phases: private placements in the '70s and '80s; a shift to nontraded REITs in the '90s and early 2000s, and then, starting in 2010, private capital lending to middle- market private companies. You are a fan of the famous economist Joseph Schumpter and have been known to quote him. In his book Capitalism, Socialism and Democ- racy, Schumpter had two key insights. First, he described how capitalism works as "cre- ative destruction." His second insight stated that to truly be an entrepreneurial enter- prise, your only competition is the future. An example of this is Amazon's competitors. ey have experienced creative destruction and found that Amazon was not compet- ing with them, but the future. In one sense, the future is all about where we are in the business cycle. My 45 years in business has taught me that the business cycle is not linear but cyclical. We have a recurring seven- to 10-year economic cycle, and to be successful we have to adapt our strategy to where we are in that cycle. As a businessman you look for "inflection points." Explain your definition of inflection points and what inflection points CNL recognized and capitalized on. In his book Only the Paranoid Survive, Andy Grove said, "You survive by seeing and taking advantage of inflection points." I see inflec- tion points as those key, pivotal moments when a major shift is about to occur. If you are able to spot inflection points in advance, and take advantage of them, you can have a tremendous amount of success. ere have been two major inflection points throughout the history of CNL. One was in 1973 when we entered a period of rising inflation and rising interest rates [1973-1982]. In this environment, to make money you just had to be in front of the cycle and buy real assets, like real estate, with inflation-adjusted leases. en in 1983, we entered into a cycle of lower interest rates and lower inflation [1983-2018]. With the lowest interest rates in history, almost all investments went up in value and you just needed to stay ahead of the cycle. Are we currently at another inflection point? If so, what is it and how can investors capitalize on it? As I stated in my presentation at the annual IPA event in September, I believe we have reached a new inflection point and will return to an environment more like we saw in the 1970s and early 1980s. is will cre- ate many new opportunities if you can stay ahead of the cycle. Investors typically want what has worked in the past, and that can be a costly and misguided strategy as times change. Investors cannot afford to look in the rearview mirror, but need to look ahead to new alternatives. In an environment of ris- ing interest rates and rising inflation, I think real estate, with inflation-adjusted leases, and private capital will both be in great demand with the upcoming shifts, and create oppor- tunities for investors and sponsors alike. You also have been known to speak about the importance of humility and managing expectations. Please explain. Humility is an important aspect of our busi- ness, and it will require humility to move from the cycle we are currently in to the next one. In addition, in this time of change, we will need to manage the expectations of our investors. Our industry has a great future as long as we stay humble and manage the expectations of our investors. 9 REALASSETS ADVISER | D E C E M B E R 2 0 1 8