8 Experts’ Investing Tips From Tiger 21 Conference: 2013

Pierre Lagrange, co-founder of GLG Partners, expounded on the attraction of Europe for equity investments: “It’s a bubble that we have to ride because it’s going to last for quite a period of time. The economy is so weak and the restructuring is so slow and social pressure is so high that the central banks are going to be forced to continue to put a lot of liquidity at work—so you have all the ingredients of a bubble.”

Lagrange said northern Europe was where the opportunities lay. Moreover, “European companies have to go out of their way to find other things to do because they don’t have domestic demand. They have to get out of Europe—which we love because then investing in European companies provides exposure to emerging markets.” He explained that investing in emerging markets through European companies was more palatable legally, in regard to governance, disclosure and working with company managers. Marc Lasry, co-founder of Avenue Capital Group, was bullish on opportunities presented by global volatility. As a distressed investor, he has defined a strategy to take advantage of the long-term recessionary environment in Europe.

“There are issues in Europe that will work themselves out over time,” he said. “This provides opportunities over the next five years.”

He said he favored investments in northern European countries where the legal structure provides various safeguards. “These are countries where the rule of law dominates,” he said.

Lasry also saw upside in the U.S., with about a 2% growth forecast. “The dominant economy is still the U.S.,” he said. “How goes the U.S., so goes the rest of the world economies.”

Eric Sprott, founder of Sprott Asset Management, was bearish on the economy. He lamented the financing of the U.S. government deficit and the inflationary pressure that will eventually need to be reckoned with. If the current course of the U.S. continues, he said, “I can safely say that Social Security will not be paid, Medicare will not be paid and government civil-service pension plans will not be paid.”

Sprott saw value in commodity investing. “Gold bugs see the logic of what is going on and know how to react to it.” He reported that between 70% and 80% of his personal assets were in precious metals. He said this would position him well if countries kept printing money because gold and silver prices would continue to increase. He said he was a big believer in owning the physical gold or silver.

Barry Sternlicht, chief executive of Starwood Capital Group, was also concerned about inflation and other tail risks in the world. “I am weary of being levered long to everything —my PE funds, my venture guys, my own real estate portfolio. I’m nervous about the complacency in the world today. Really nervous.”

On investments in light of the tail risks, Sternlicht said he was looking for safety in yield. “I’m trying to figure out how to build a portfolio with inflation protection,” he said, “because the natural outcome of all this has got to be inflation at some point. And if there is no inflation, I’m still OK. I’m not underwriting the inflation, but I want to be able to participate in it.”

Sternlicht said the current economic conditions made this the perfect time for real estate investments. He pointed to three green lights for real estate investments:

• Positive leverage—when the yield on the property is greater than the cost of debt
• Protected by inflation—replacement costs go up with the cost of construction, so you buy below replacement cost
• No new supply—construction of office buildings is at the lowest point in the last 50 years, and two years ago, multifamily construction was the lowest since 1960.

Sam Zell, founder of Equity International, said of himself: “I am a professional opportunist… The name of the game is about measuring risk and reward. We need to make sure that we get paid for the risk we take.”

On the effect of world events on his outlook and the potential for a recession: “Most of my life has been spent dealing with assets in various states of distress. Currently, I am not terribly optimistic, which is totally contrary to my personality, considering what I view as the headwinds—whether they are Israel, the euro, [what was] the fiscal cliff or North Korea. It seems to me that prices should be materially lower. But stocks are up—is business that good? I don’t see it. Rather I see a 50–50 chance of a recession this year.”