Bourbon, mobile home parks and a falling market go hand in hand at Freestone Capital
Premixed cocktails in cans are flying off store shelves. And Gary Furukawa, founder and chief investment officer of Freestone Capital Management, with $8.7 billion in assets under management, is thrilled.
As one of Kentucky’s largest bourbon investors, his clients invest in whiskey through a fund managed by his company.
“This strategy has been fantastic! [Bourbon] the prices have gone up so much. The economy is really good,” Furukawa told ThinkAdvisor in an interview.
“Our customers love [investing in bourbon] because it’s fun to talk about, much more than talking about an ETF,” he says.
The bourbon strategy fits nicely into Furukawa’s overall strategy of investing in core businesses with “high cash flow and inflation protection,” he says.
“We invest in areas that other companies don’t and in things that clients can’t do on their own,” adds the advisor, winner of the 2021 ThinkAdvisor LUMINAIRES Award for Thought Leadership.
“There has been a renaissance in alcohol consumption in American spirits – bourbon in particular,” he says, a “phenomenon” from “the hot new category known as RTD.”
This means ready-to-drink pre-mixed cocktails in cans. Several major brands are on board, including Bacardi, Crown Royal, Jim Beam and, newcomer to the category, Jack Daniel’s, which markets the bourbon with Coca-Cola.
An adviser for more than 40 years, Furukawa, 62, dates the “renaissance” of drinking, which emphasizes hard liquor, to the COVID-19 pandemic.
“Demand from restaurants has fallen very low, and [people] were home in sweatpants drinking like crazy,” he says.
Investing in bourbon can be jazzy, but Freestone’s biggest vertical in alternative investments is unglamorous mobile home parks — the biggest source of low-income housing in the United States, according to Furukawa.
To invest, customers agree to contribute a specific amount through Freestone’s mobile home park fund.
“We call the money as needed,” he explains — that is, whenever they buy a park.
The adviser, with EF Hutton and Salomon Smith Barney before opening his own business in 1999, admits he waits patiently for the stock market to crash further so he can get ‘good deals, when prices are low’.
“This [bear market] looks like it has more room to go. The biggest bear markets last 12 to 18 months, and we are only seven months away from that,” he notes.
ThinkAdvisor recently interviewed Furukawa, who was speaking by phone from Seattle, where Freestone is based. The company has another office in San Francisco.
“We need the market to go down more for this to get really interesting,” he says.
“When [markets] go wrong, then we get [very] busy because all of a sudden, at a certain price, they start to make sense.
Here are the highlights of our interview:
THINKADVISOR: What is the main differentiator of your practice?
GARY FURUKAWA: From the beginning, it’s because we’ve been investing in areas that other companies don’t do and in things that customers can’t do on their own.
We are one of the largest investors in Kentucky bourbon. We started three years ago and hired the former Kentucky liquor board manager as a consultant.
This strategy was fantastic!
There has been a renaissance with the consumption of American spirits – bourbon in particular.
Our customers love [investing in bourbon] because it’s fun to talk about, much more than talking about an ETF.
What is the investment process?
We raise money from customers in the form of funds and have agreements with distilleries that make bourbon in Kentucky.
We buy tens of thousands of barrels. Bourbon ages in warehouses, then it is bottled and sold.
The economy is really good.
Who are you selling it to?
[Usually] artisanal bourbon companies. Prices have increased so much that we are selling 1 and 2 year old barrels. The original idea was that we were going to retain them for four years.
Tell me more about the “renaissance” of the drink.
There has been a phenomenon in alcohol consumption: it is a hot new category known as RTD – ready to drink – already premixed in cans, such as rum and Coca-Cola, margaritas [and so on].
Now it’s premixed bourbon and Coke.
So that’s been really great for our bourbon. [The cans contain] 90% Coca-Cola and 10% Bourbon.
What else have you observed about changing consumer habits? Young people drink strong alcohol [versus beer]. I think people started drinking more during COVID. Demand from restaurants dropped very low and they were at home in sweatpants drinking like crazy.
How would you describe your company’s overall investment strategy?
We do a lot of core businesses that have high cash flow and inflation protection. This is the big problem for us.
But some seem unusual choices. What other areas are you investing in?
Our biggest vertical among the alternatives is mobile home parks. It’s a great space. We seek out those in poor condition and do a great job of improving those we buy.
What is the point of investing in it?
Mobile home parks are by far the biggest source of low-income housing in the country, but they don’t get much attention. However, 6% of the American population lives there.
They were built after World War II, when we were short of housing. There has been almost no new creation in the past 20 years.