Howard Marks

If you think portfolio risk management is just about diversification, think again. This article sheds light on some surprising strategies that challenge common perceptions. Here are some thought-provoking takeaways: - Did you know that reducing the number of investments in a portfolio can sometimes actually decrease risks? It's all about strategic selection. - Contrary to popular belief, actively managing risk doesn't necessarily mean more frequent trading. In fact, a hands-off approach can be a smart move. - One of the key points discussed is the importance of understanding the correlation between investments, a factor often overlooked in risk management strategies. - Asymmetric risk and the role it plays in portfolio management is explored, offering a fresh perspective on balancing risk and return. - Ever considered tail risk hedging? This article dives into this lesser-known strategy that can enhance risk management effectiveness. Share your thoughts and feelings on these unconventional risk management strategies. https://lnkd.in/ecgSpH93

[PODCAST] Higher for longer interest rates are having profound effects on endowment and foundation portfolios across the US. The volatility this creates is making it more challenging to construct portfolios for the long-term and creating questions around liquidity management. Bill Burns and Meggan O'Shea join Texas Hemmaplardh in the latest episode of Critical Thinking, to discuss how these investors are navigating regime change. bit.ly/4cjOGXY

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Interesting article from Douglas Appell in Pensions & Investments about the post-ZIRP, “higher for longer” interest rate environment that boils down to advocating for the pursuit of satisfactory investment outcomes that are relevant to asset owners’ actual spending needs and goals, rather than continuing the historically common practice – and expected future folly – of tethering one’s equity beta to that of an equity benchmark whose performance from today’s elevated levels is widely expected to be sluggish and insufficient to fund minimum liabilities (ie: payout rates, actuarial hurdles, spending goals, etc.).   Quoting the inimitable Ben Phillips, “In that world, the relevant benchmark becomes the client’s required cash flows.”   Fresh perspectives and new ideas are warranted. Satisfactory outcomes not benchmarks.

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“There are advantages to being new and nimble, but it’s even better to be old and nimble” The last column of Eric Savitz in Barron's is a must read as he condenses 40 years of experience into a few key lessons for investors regarding technology and innovation 1. Most of the time the next great thing just isn’t that great 2. No question, technology involves experimentation 3. Not all losers are obvious but some scream “fail” from the get-go 4. Sometimes the next great thing really is that great 5. The jury on AI is still out - it is likely to be on the winners list but it isn’t impossible it ends up on the overhyped one 6. The truth is that many things end up somewhere in the middle 7. While many fantastic ideas come from two guys in a garage, the companies with the best chance of leveraging innovation are those with the deepest pockets, the keenest marketing acumen, and the most customers

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Fixed income in 2024 - Lessons from History | Steven Friedman and Valentina Chen examine how asset allocators should consider the role of fixed income in their portfolios in 2024. Steve looks at the potential benefits but also analyzes three scenarios that present downside risks. https://bit.ly/440WKKe

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New Whitepaper from Caron's Corner: In this paper we discuss new management techniques required to capture higher returns in a higher inflation regime. A new market regime is upon us catalyzed by rising inflation risks. This presents a challenge to investors seeking to compound returns at target levels with stability because it increases correlation risks. Effectively, it pushes the efficient frontier inwards and reduces risk-adjusted return potential. In this paper, we explain how we counter this adverse impact to returns in this new regime through a new management approach with the goal of achieving stable target returns. https://mgstn.ly/3QNuw0f

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New research by Cambridge Associates and BCG shows that private equity and venture capital firms whose ownership is predominantly women or people of color may unlock access to differentiated deal flow for their limited partners and other investors. Read the full article here: https://ow.ly/Cf0650RJ0nk

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How can cash investors enjoy multi-decade high yields while strategically positioning for a decline in interest rates? By understanding their control over duration, holding period and yield. Learn more in this paper from my colleagues Aidan Shevlin and Kyongsoo Noh: https://bit.ly/3LCdUWx

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The Paper Trail: Market Champions July’s research roundup features: 🏆 Life Cycles of Market Champions 🔭 Diversifying Beyond Bonds with Trend Following and L/S Quality 📊 Data Science Applied to PE Secondaries ⏳ Patient Investing 🧩 Building Hedge Fund Allocations 🎓 University Endowment Performance 🍤 The Case for Small Buyouts 🔎 Holding Companies vs. Search Funds https://lnkd.in/gCNrHE94

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CLO Equity has gained recognition as an institutional investment strategy in recent years. And with good reason. CLO Equity is relatively uncorrelated to other core asset classes and offers the potential for high cash flow and attractive total returns. The drivers of CLO Equity returns, however, are more complex than meets the eye. Conventional wisdom is that the best times to issue CLOs is when the arbitrage (“arb”), or net interest margin, is historically wide. Yet, our analysis, detailed in a recently issued white paper authored by my colleague Stephanie Walsh, suggests this sentiment might be misleading. Despite high initial equity arbitrage being a strong predictor of new CLO creation, it has actually shown a negative correlation with ultimate CLO equity performance. So what are the drivers of CLO Equity performance? To answer this question, it’s essential to look beyond just the arb. We find there are other key influences on CLO performance, such as asset prices, refinancing transactions, and manager expertise, among others. 1) CLOs issued during market downturns, such as in 2020 and 2022, exhibited significant upside, despite poor initial arbitrage, due to subsequent market rallies. 2) Moreover, the ability for CLOs to refinance liabilities after non-call periods added flexibility and, in many cases, substantially lowered debt costs, as seen in the refinancing wave of 2021. 3) Manager expertise also plays a crucial role. We’re privileged to have a 23+ year track record of managing, structuring, trading, and investing in CLOs. Through that experience, we’ve come to understand that credit expertise, loss avoidance, and trading acumen are often key components of CLO portfolio returns. As with many aspects of investing, there is more than meets the eye when assessing the CLO space in our view. We believe one cannot simply look at one or two metrics to determine whether a CLO will perform better or worse relative to history or other CLOs. The arb, and its weak correlation to ultimate CLO equity returns, is a prime example of this. Rather, there are a multitude of factors driving CLO equity returns, some market driven, and others influenced by manager performance and deal structuring. We believe it is important for investors to understand all of these factors when evaluating CLOs and CLO managers. Explore our full thoughts: https://lnkd.in/e48bEvWN

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Investors prioritize outcomes, aiming for quality results while minimizing disappointments. How can we maximize our desired outcomes effectively? In the fixed income sector, the potential upside is known, and current yields offer more potential gains than in recent history. Learn about quality investing from Ben Hayward at TwentyFour Asset Management. Read more: https://bit.ly/3WRn1JB #Vontobel #FixedIncome

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ICYMI: Last month, Managing Director Steve Moseley represented Wafra at SALT iConnections NY, speaking on a panel about innovations in institutional investing.   "I'm excited about the opportunities that emerge inevitably from disruption. A chaotic market creates additional incentive for new firms to spinout from big firms…These big firms are factories for innovation. To the extent that there is innovation in private markets, and I think there can be a great deal, it's happening with new and emerging managers…[Innovation] has to happen at new firms pursuing new strategies."   You can watch Steve's panel in full here: https://lnkd.in/euymJhe5. 

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Great talking with Chuck Jaffe from the Money Life Podcast this week. We discuss Global X ETFs perspectives on AI, the innovation economy, the Fed, optimism for the second half, and navigating some potential geopolitical risks. Check out the episode here: https://lnkd.in/eDfkETJS

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Latest research piece out by Counterpoint Global titled "Valuation Multiples: What They Miss, Why They Differ, and the Link to Fundamentals". The article has four key topics: 1. What multiples miss and why they are becoming less informative than they were in the past - The shift to larger intangible asset in a business has made multiples harder to use as both earnings and invested capital are understated (don't adjust for intangible assets). 2. Why a P/E and EV/EBITDA can provide different signals about a stock’s relative attractiveness. - These differences are generally attributable to differences in underlying profitability, capital structure, or tax rates. 3. Alternative measure to earnings and EBITDA (GAAP vs Non-GAAP earnings) - Companies now report earnings that do not conform to GAAP along with the required GAAP results (one needs to assess what is "once-off" vs recurring i.e. stock based comp vs investments gains & losses). 4. A focus on EV/EBITDA - When using EBITDA one should focus on how much is DA (Proxy for maintenance capex) as lower DA means higher ROICs and Free Cash Flow. Companies with lower depreciation factors (i.e. lower DA) will have higher multiples than a companies with higher depreciation factors for a given rate of growth. https://lnkd.in/d3J-TMHr

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Thanks to Paula Campbell Roberts from KKR for joining us this month on our How Should I be Positioned podcast. We great conversation about the current state of the US economy, as well as the outlook for inflation, growth, interest rates, and market volatility over the next five years. One thing that we agree on is that the US economy is in a new macro regime. This has implications for strategic asset allocation decisions, which we also discuss. Listen to the podcast for all the details. #shareubs https://lnkd.in/eJasj_EZ  

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Securitized Credit The concept of weighted average life (WAL) or tenor is a key point of consideration. View Schroders latest article by Michelle Russell-Dowe on the ABCs of ABS. https://okt.to/IfSvYz #ABS #PrivateAssets #SecuritizedCredit

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In his latest article, Drew Schardt discusses private equity performance across different macroeconomic environments. Read here: https://gag.gl/p38pDu

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