Following the panel discussion that included Rosenberg, Kaletsky and Ritholtz, Sam Zell took to the stage at the 65th Chartered Financial Analyst Conference in Chicago. Sam Zell is the Chairman of Equity Group Investments and is renowned for his success in the American and international real-estate markets.
Zell began with a look at his current portfolio, which is currently 75% non-real estate, which may come as a surprise to many investors because of his legendary status in real-estate. Zell reminded everyone that he is a “professional opportunist,” and will look at all investments, not only investments in their area of strength. That said, he insisted the most appropriate investments are those that can be understood to the extent that he could run them, therefore he stays clear of some classes that require specialized knowledge, such as high tech and biotech classes, despite potential opportunities. “Relatively simple concepts,” is the underpinning motto to Zell’s portfolio.
When looking at new markets, Zell insists on the importance of quality local partners. Zell says that when going to emerging markets, you are trading return in exchange for rule of law. Considering this, knowledge of local laws and politics is important to both investing in the highest quality assets in the country, and also the ability to exit investments in case of trouble, such as the difficulty that Zell face in Venezuela upon the implementation of Chavez’s reforms. However, finding a trustworthy local partner was not always easy for Zell, as he experienced in both India and Russia.
Zell is a big proponent of investing in foreign markets, but not necessarily for the purpose of diversification. He explained that the reality of investing in most foreign markets is more about achieving a higher return than in possible in the United States, and that these markets also offer the highest demand growth. Investing in markets where growth is implicit and driven by consumers, rather than driven by the firms that operate there, is one of his criteria for investment, and he indicates that this has brought him success in his investments outside of the U.S.
One other criterion that Zell looks for when looking at foreign markets for investment is for a shortage of capital. In his discussion, he specifically indicated that he is no longer active in China, because of the surplus of investment funds.
His outlook on the long-term situation in Western Europe was certainly not positive, citing both demographic concerns and political unwillingness to make key cuts as the leading issues. Zell doesn’t view the situation improving in even the far future. His outlook on growth prospects in the United States isn’t much more positive, though the demographic concerns are not one of the issues the two regions have in common. Zell is concerned mostly about unemployment, which he suggests is closer to 15% than the 8% that the government indicates. He believes that much of the economic growth seen in the past few years in the United States has been more closely tied to quantitative easing than it is tied to real economic growth.
While optimistic about much of the emerging world, Zell’s outlook on the United States and Europe can certainly sums up where he believes the real opportunities for investment are in today’s economic reality.