Mark Carhart – Rough notes from the 2016 Delivering Alpha Conference VERY VERY ROUGH NOTES
Mark Carhart, Stuart Fiertz and Ashbel Williams on Global Opportunities
Ashbel Williams – Florida SBA
The world at least short term has changed and return expectations have changed. In 1999 you could have had a portfolio that was almost fixed income and…
In 2005 that portfolio had to include global equities, commodities..
In 2015 that same portfolio has alternative frontier, emerging markets, and a whole diff vol
Delivering Alpha Conference
Mark Carhart – Kepos Capital
Equities are not
We look at today’s 60/40 portfolio that institutions hold and we think the expected portfolio .. is around 2.8% .. it’s not a great time for that
Because we’ve been flush with liquidity and… have inflated asset prices… there are dislocations
We like the Turkish lira, Brazilian real, Indian rupee all of those have rates north of 5, Brazil is almost 12%. And you can fund those by being short emerging currencies like the tahia bhat, the Israeli shekel, the Japanese dollar. This is a spread in yields which is much larger than you typically see.
Stuart Fiertz – Cheyne Capital
Looking for neg yields
Looking from European lens there is a lot of opportunity. European banks are far too large and need to shrink and adjust…i think the real story is to lend where the banks are able to lend, that way you get away form areas that are distorted from QE and pick up a good risk premium, there is good value there. We are prob 5 or 6 years behind the US in recovering and reestablishing a field…
We like real estate, real estate lending. the QE is driving investors into real estate to get some kind of yield so despite Brexit, UK property prices have held up, both foreign and domestic buyers… we think there is enough stability out there and enough niches in the market or enough segments in the market where banks are being told stay out.
Ashbel Williams – Florida SBA
The best thing you can do is know what you don’t know and respect it (brexit) 5:00
Mark Carhart – Kepos Capital
Who would have predicted on the day of Brexit the best equity market is the UK? Today it’s the best returning market in the world
Stuart Fiertz – Cheyne Capital
Britain has a floating currency it’s why Britain came out of the great financial crisis faster than other countries…European Commission shot themselves int he foot. They’ve decided not to use their exec power to sign exec trade deal with Canada but to take to 27 EU members.. The potential for Britain to sign bilateral deals… to me seems approached and with a floating currency can use it as a base to trade with Europe
I’m probably one of the more optimist managers with the way Brexit plays out 9:57
Ashbel Williams – Florida SBA
Difference between southern and Northern Europe it’s rather pronounced…
Nordic countries haven’t suffered the degree of dislocation as Southern Europe
In 1995 you could have portfolio that was entirely fixed income and make 7.5% return.
Stuart Fiertz – Cheyne Capital
The important part is to avoid investing in those areas where negative rates or QE has distorted the market..
We like real estate because it’s cheap to put a bit of debt on a building. You can take advantage of those low rates… so you can lock in a fairly attractive lightly leveraged yield… monetary easing is really pushing on a string it’s not creating more risk taking capital but a lot of liquidity. In Europe you’re telling the banks to shrink… but they can’t make loans… that creates space for investors to take their place..
Isolate the credit spread… with leverage..
Mark Carhart – Kepos Capital
You’re looking for safe and high yield… there really isn’t a panacea of that. Simplest answer I’d give is not to think of the world in asset classes but in factors.
Stuart Fiertz – Cheyne Capital
Investment grade credit spreads which are about 4x higher than their height, and one can apply leverage to it and end up with a much better position
Ashbel Williams – Florida SBA
I think it’s prob the opposite. The brexit experience was obering one
Mark Carhart – Kepos Capital
We are concerned about activist govt intervention int he markets
How hedge pol ris
You want to focus on countries where currencies are going to back as an offset. Germany and UK are the most interesting places to invest. UK with its floating currency. Germany benefiting from a weaker euro… cheaper than it would trade to based on German productivity. 22:01
Mark Carhart – Kepos Capital
top global risk
The 60/40 risk
Lower your directional risk
I would take as much out as you felt comfortable and put it in alts like trend following..
Stuart Fiertz – Cheyne Capital
Top risk is a n unwillingness to step outside main assets classes of rates and equities. Investors in that are going to have a tough couple of years. Keep working on non traditional parts of these markets and be willing to adopt more aggregation plays, lock in yields where you can get where the market…. 24:50
Rates and markets are heavily distorted now.
Stuart Fiertz – Cheyne Capital
Said today at the CNBC Institutional Investor Delivering Alpha Conference in New York.
Ross Margolies, Mary Erdoes and Brian Pellegrino on What Happened To Alpha?
Ross Margolies
On average that’s going to be true for all active managers,. Alpha is a zero sum game.
This massive move to indexing has changed how stocks trade… stocks sliced through where they’d stop,on the way down, and same on the way up. (not direct quote)
Dawn Fitzpatrick 1:10
I think multi strategy hedge funds are where you’ve seen asset flows in a year where generally the industry has had outflows.
Hedge funds aren’t really an asset class, it depends on the underlying strategy
Ross Margolies
I’m l/s fund, should beat S&P
Mary Erdoes
It’s fine, capital is shifting (outflows)
Dawn Fitzpatrick
Merger arb – – you have classical supply and demand imbalance 1:24:20
Mary Erdoes
It goes back to there’s nothing going on.. 1:27:17
Dawn Fitzpatrick – Talent
The stem students want to go out to the west coast and that’s unfortunate. We in as an industry have to be creative to attract that talent… our pool of talent generally came from IBs where there were risk takers that learned to… as an industry we’re going to have to do a lot more training on our own and attract the STEM students and you want to marry the fundamental and machine learning. 1:27:40
Mary Erdoes
100 people for each analyst slot.. We don’t see the issues.
Ross Margolies
It’s not always the smartest person who succeeds but the person with the best judgement. When someone is younger harder to figure out.
Brian Pellegrino
It’s more about finding people with a passion in allocator. If they’re passionate they’ll develop the skill-set over time.
Fees
Ross Margolies
If you’re delivering double digit returns 1-2% isn’t going to cut it
Mary Erdoes
Just because you can doesn’t mean you should. You have fiduciary duty are well below the alpha you’re expecting to generate. The trick in that question is figuring out over what period you’re supposed to project that out. In a low rate environment…form now until eternity.. Everyone should lower their fees. So you really have to figure out what is the equation.. There has been constant fee pressure but also extraordinary people who can charge 3 and 30 and you’re happy to pay if that’s what the manager is going to deliver.
