MJBizMag July 2020 - 62

RECESSION ROAD MAP
AL FOREMAN
Managing Partner and Chief Investment Officer, Tuatara Capital, New York City
Al Foreman was taking business
and finance classes at the
University of Connecticut
during the 1990-91 recession.
For Foreman, the downturn
drove home his professors'
lessons about recessions being
cyclical and watching certain
economic indicators to gauge if a
downturn is looming.
Cycles and Indicators
" Recessions are not only cyclical,
they're often predictable by
patterns shown several years
in advance, " Foreman said.
" The lesson learned is try to
identify where you are in the
cycle, because it may impact the
investment you're making or a
particular business decision that
you're evaluating. "
Among the key indicators to watch are:
* Upturns in credit borrowing that
signal a lending crunch.
* Short-term bond yields are higher
than long-term bond yields.
* Lenient federal banking and
finance policies.
" The past couple of years, we've
seen increased borrowing on both the
personal and corporate sides, which
is an indicator that there might be
choppier times ahead as more people
get overextended, " Foreman said. He
also noted that in recent years, the
Federal Reserve has lowered reserve
ratios (the amount of cash banks are
required to keep on hand and not
loan), which has allowed financial
institutions to make more loans while
also weakening their balance sheets.
As for inverted yield curves-when
short-term bond yields become higher
than long-term bond yields-Foreman
said: " Pretty consistently, 12 to 18
months after you see the treasury yield
curve invert, you find yourself in a
recessionary climate. "
" Banks trying to syndicate leveraged
loans were not able to find buyers on
the other side. It was July 2007, and that
was the first indication there was a credit
crunch. That credit crunch was a year in
advance of the actual recession setting
in, " Foreman recalled.
2020 Applications
Foreman's experience at J.P. Morgan still
informs how he makes decisions today.
" Having had the opportunity to see
how one of the premier banks in the
world manages its overall portfolio ...
when dealing with challenging economic
times " has served as a handbook for how
Foreman is advising the companies in
Tuatara's portfolio.
Foreman estimated that most leaders
Risk, Company Performance,
Credit Crunch
In 2000, Foreman left a well-paying
vice president-level job at Citigroup
Private Bank to become senior business
development manager at Virtual
Growth, a startup financial services
software company.
" Great concept, wrong timing, " he
said of the company. Soon after Foreman
started, the tech bubble burst and he was
laid off. But Foreman calls that year at
Virtual Growth one of the most educational
times in his professional career.
Watching the company fail to meet
its business objectives and not secure
financing helped shape how Foreman
approaches investing today-particularly,
making sure Tuatara's portfolio companies
have a strong enough corporate structure
and balance sheet to move forward.
When the Great Recession hit in late
2007, Foreman was back in finance,
this time as a managing director in
J.P. Morgan's financial sponsors group.
In the months preceding the downturn,
economic forecasters detected signs of a
credit crunch.
60 Marijuana Business Magazine | July 2020
at Tuatara's portfolio companies have
operated businesses or business units
during recessions, but most haven't
experienced them as executives.
" This is going to be a challenging time
for the cannabis industry because last
year was its first credit crunch, and this
year's recession will be the first time the
industry in a formal fashion has really
had to navigate through a recessionary
period, " he said.
Foreman also saw signs that yield
curves would invert last summer,
prompting Tuatara to take " a more bearish
view " and expect a recession. With
that knowledge, Foreman said he and his
partners called meetings with portfolio
and prospective pipeline companies to
discuss their capital situations and time
frames for hitting goals.
" Cash management is king, " Foreman
said. " Make sure your working capital is
well managed and the accounts receivables
are in line. Track sales closely and
sales momentum to understand if there is
a material shift in sales, how that then will
impact the rest of the organization.
" The timelines now need to be realistic
in the context of the global economic markets
and the challenges that they're facing. "
MJBizMag July 2020

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