Tiger 21, the peer-to-peer network for ultrawealthy investors, recently held its fourth annual members conference during which several top Wall Street players — including Rob Arnott of Research Affiliates, Jeremy Grantham of GMO and David Rubenstein of the Carlyle Group — offered their perspectives on opportunities in the current investment environment.
Conference attendees also heard presentations from well-known speakers in philanthropy, health and lifestyle, Tiger 21 said in a statement.
In addition, 10 members detailed prospects in real estate, energy, health care, finance and other sectors in a two-hour session for their compatriots.
“Tiger 21 members are mostly self-made, and many of them continue to remain involved in running companies and are active investors,” Michael Sonnenfeldt, the organization’s founder and chairman, said in the statement. “It is not surprising that many of the conversations started at the deal-pitching session continued throughout the conference.”
Following are the investment views of six speakers, as summarized by Tiger 21.
Rob Arnott, chairman, Research Affiliates
Known for his unconventional portfolio strategies, Arnott didn’t disappoint. He recommended that investors check the one-, three- and five-year track records of funds they were considering and seriously think about those with the worst three- and five-year records, while avoiding ones with the best records over those periods.
“The past is not prologue,” he said. “What has gone up does not necessarily go up. But fees are prologue. What was charged last year will be charged next year. So think twice before buying the most expensive products.”
Arnott suggested that now was a good time to rebalance. “If you invested in bonds [in 2013], they went down. If you invested outside the mainstream, those investments went down. Anything outside of mainstream, the yields went up, returns were negative or if positive, by less than the yield. This presents a marvelous trade opportunity to take stock market profits and build exposure to the third pillar of liquid alternatives.”
David Rubenstein, co-founder and co-CEO, The Carlyle Group
Rubenstein was high on emerging markets. He predicted that in 2014, the GDP of emerging markets — including China and Brazil, the world’s second and sixth largest economies — would surpass that of developed markets.
“If you are going to invest for a five- or 10-year period of time, there is no doubt that the emerging markets are going to become the dominant part of the global economy. The U.S. will still be the greatest place to invest because while we don’t have great growth rates, we do have rule of law, transparency, great financial markets, talented people to run companies and exit opportunities. That said, emerging markets are where you will see the greatest growth and number of opportunities.”
China, where Carlyle has 15% of its workforce, is currently experiencing a difficult transition as it grows, but it remains a safe long-term bet, Rubenstein said.
Howard Marks, chairman, Oaktree Capital Management
Marks riffed on the conference’s overarching theme of “possibilities.” It was important to act and invest with a range of possibilities in mind, he said. “Rather than say that we make our own luck, a better way to think about it is that portfolio results/investing results are what happens when an existing portfolio collides with events. Investors need to put together a portfolio in part for what they think will happen in the future. Then the question is whether those events happen.
“If you prepare through study and practice, work hard and bring your talents to bear, you’ll be positioned to make the most of opportunities that arise.”
Barry Silbert, founder and CEO, SecondMarket
Silbert, who helped create the Bitcoin Investment Trust, gave a tutorial on the digital currency, and explained why Bitcoin was here to stay.
Silbert said the regulatory clouds around Bitcoin were clearing and that it was gaining legitimacy and finding allies in Washington from across the political spectrum. He argued that Bitcoin provided an obvious benefit as a low-fee remittance tool compared with other forms of payment, such as credit cards and traditional money wire services, and as a form of electronic payment for very low cost items that previously were not supported by traditional payment systems.
Tiger 21 members’ enthusiasm was restrained, according to the statement. Although they understood Bitcoin’s advantages as a payment form, many members saw a bubble in the recent run-up in value.
Felix Zulauf, co-chief investment officer, Vicenda Asset Management
Zulauf, a self-styled contrarian, said he had made money on the short side in all bear markets. Money managers today play only on the long side, while true opportunity and risk managers should play both sides, he said.
Zulauf saw emerging market in down cycles as a big theme. He said his biggest positions were short emerging market currencies, the most obvious one being the Turkish lira. He characterized Turkey as the classic macro case: an artificially inflated boom paid for by foreign money.
“It is a balance-of-payments crisis that will end with a much weaker currency, higher interest rates and a recession. Then, it will rebalance,” he said, adding that Russia and Brazil face similar conditions.
Zulauf said credit booms and credit bubbles in many of the emerging markets and throughout most of Asia were of historic proportions. “The mother of all credit and real estate bubbles is China,” he said. It is showing many signs point to the end of the boom years — distress in the financial system and filtered information flow that obfuscates the full picture.
Jeremy Grantham, co-founder and chief investment strategist, GMO
Bubbles were on Grantham’s mind, as he noted that most investment professionals will not make a trade they know should be made because playing against the market consensus in a bubble environment could be bad for business and dangerous for their career. However, bubbles present a great opportunity to decrease risk and increase returns, Grantham said, citing his own firm’s experience during the 1990s tech bubble.
A bubble doesn’t happen in the absence of wall-to-wall rationalizations, he said. “Every single bubble had very smart people come out and argue that it was quite reasonable because there had been some permanent change that made the odd data irrelevant.”
Check out these related stories on ThinkAdvisor:
- Grantham: ‘7 Lean Years’ Now Permanent
- From Doom to Boom (and Back): Grantham Sees Stocks Soaring up to 30%, for Now
- Rob Arnott, Milton Ezrati: Where’s the Investment Risk in 2014?