Monday, 23 January 2017
Last updated 8 min ago
Sep 24 2012 | 2:28pm ET
Smart investors will not only be in hedge funds over the next 10 years, they'll be in small, emerging hedge funds, Mark Yusko told the FINforums Annual Hedge Fund Summit in New York on Thursday.
The chief investment officer of fund of hedge funds firm Morgan Creek Capital Management and the “father of endowment-style investing” kicked off the day-long event with a high-energy talk that began with the blunt admission that hedge funds have underperformed the market by a whopping 89% over the past three years. But from 1999 to 2009, he said, hedge funds returned 8% while the stock market returned zero -- "a big, fat goose egg." And that's why, he says, hedge funds will be the place to be over the next 10 years; particularly small, nimble funds investing in the BRICS and riding "the greatest consumptive boom in history" which he expects over the next 20 years in Asia.
The future of Asia, and more specifically of China, was also debated during a panel discussion on the global macro outlook for "Q4 and Beyond." Scott MacDonald, senior managing director at MC Asset Management Holdings, said China's political economy is based on an unspoken deal between the Communist government and its citizens that the government will ensure strong economic growth and the citizens will not "mess with the political side of things." As the pace of growth slows, however, inequality becomes more obvious and unrest more likely.
Talk of unrest led naturally to a discussion of Europe where Catalpa Capital Advisors portfolio manager Warren Hatch says we witnessed the "beginning of the end" of the crisis a year ago when German Chancellor Angela Merkel committed to defending the euro. Since then, he says, we're "taking them at face value that they're going to defend the euro pretty much at all costs." The risk, he says, is that some of the newly elected governments in Europe, particularly those in France and Greece, may not be so committed to defend the shared currency.
Not all eyes are focused on Asia and Europe, however. Josh Weintraub, a portfolio manager at Cerberus Capital Management, sees the best investment opportunities right here at home. During a 'best ideas' panel discussion, Weintraub pointed out that the U.S. housing market is recovering and suggested one of the best ways to play that recovery is through residential mortgage-backed securities.
But whether you're investing abroad or at home, Neil Sheth, director of hedge fund research at NEPC, said that post-financial crisis, expectations must be reset. "One percent monthly returns with bond-like volatility" are not in the cards for investors, said Sheth, and fund managers, no longer benefiting from an illiquidity premium, must go back to investing as opposed to trading.