Kelsey Tucker

Who could have possibly assumed that having 40% of your assets in illiquid funds could prove to be a problem at some point?? It looked great in Excel, didn't it!?!?! "While the endowment has achieved double-digit annualized returns over the past three decades, it did so at the expense of a consistent over-allocation to private equity, which Golden blamed on it expanding too fast into the area. It turns out that our analysis was somewhat mistaken as to how much we should commit to get there, and we just committed too much.”At 39.9 percent of assets by June 2023, Princo’s investment in private equity was double the average allocation for large US university endowments."

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US Debt and Cassandra syndrome In Greek mythology, Cassandra was blessed and cursed by the god Apollo. She could see the future, but no one believed her. In medical terms, Cassandra syndrome manifests itself in anxiety, hypervigilance, and disassociation. It is a version of PTSD trauma The syndrome was recently triggered by the latest CBO estimates that indicated larger forward deficits, with Federal debt potentially exceeding 120% of GDP by 2034. CBO also showed that the government is now paying more on interest than on defense. This provoked a surge of articles prophesizing the end of the global power of the U.S. and the unsustainable trajectory of its debt. Unfortunately for doomsayers and Cassandras, we do not reside in the 16th century Spain nor are we in the 18th France or 20th century Weimar Republic. Instead, I think IMF was recently right to argue that the US spending and debt are sustainable. Why? First, US is a monetarily sovereign nation, issuing and using only USD, with the bulk of its bonds owned domestically. Hence, interest on debt is relocation of money from one group to another, without improving or damaging the national position. What counts is the primary deficits, which are running at a steady 3%-3.5% of GDP, having plunged from more than 9% during COVID, and now on par with 2018-19 Second, there is nothing special about specific thresholds. Global government debt is today in excess of 100% of GDP and for more developed economies it is already at 115%. Although this is up from ~60% pre-GFC, it has been a gradual rise over two decades rather than an explosion. There is also no evidence of crowding out of private sectors. The opposite is true, with governments crowding in private sector spending Third, what counts is not just the public sector debt (which in the U.S. is already at 120%, if we include local) but the financialization of the economy. In that respect, US leverage has remained unchanged for a decade at ~3.3x GDP, with private sector steadily deleveraging. What we are seeing is a mild transfer of private debt to public books. Flat leverage also implies that capital is being deployed efficiently Fourth, unlike sovereign debacles in prior centuries, our choices are not limited to default or debase. Multiple avenues are available to monetarily sovereign nations. These include altering macro- and micro-prudential controls to influence private sector, and directly utilizing CB liquidity The question is not whether U.S. government spending is out-of-control but rather why over the last twenty years most economies were not able to grow at rates that societies find acceptable without strong government intervention. But this is a whole different debate from Cassandras prophesizing the end of the empire or USD Views expressed are solely my own and do not reflect views of my employer https://lnkd.in/eWUf9qnu

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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

This is the best summary / decision tree for #directindexing, I've ever seen. One use case that's missing though, is the correction for concentrated positions, e.g. in the case of stock options of people working for large corporates. Another one is faith-based investing, since most ESG funds are not sufficiently covering that topic - Taber Johnson and Reid J. Steadman can tell you more!

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New or smaller VC, PE or HF manager? AUM less than $50 million? Great Performance? Trying to raise assets? Struggling and failing?   Sounds all too familiar: It’s due to poor or non-existent marketing Let’s get real about raising assets for “sub-institutional” managers, those with AUM between $0 and $50 million. IT’S HARD AND A STRUGGLE.   Raising assets in a crowded, hyper-competitive, complex and complicated market from investors that are risk averse, stringently selective and idiosyncratically demanding is more challenging and difficult than most new and sub-institutional managers understand. The fact is the majority of sub-institutional managers fail to get AUM beyond personal capital long with small amounts from family and friends even when they have exceptional performance. Plainly speaking: There is a lot of BS, hype, propaganda and completely wrong information about marketing and fundraising for small managers with AUM less than $50 million Since 2011, Johnson & Company has specialized in meeting the marketing challenges for "sub-institutional" managers. 25+ years experience, expertise and skill uniquely equips a new or smaller manager with the FACTS and proven structured, disciplined and focused PROCESS supported by independent high-integrity data and research, accurate information, objective insight, expert instruction and frontline intelligence that optimizes marketing process execution to maximize the success, efficiency, economy, expedience and effectiveness of raising assets. If you’re a new or smaller manager, with AUM less than $50 million struggling and failing to raise assets, first get the facts: https://johnsn.com/facts If after your review of the “FACTS”, you’d like a candid, no-nonsense conversation about marketing and raising assets, contact me, I welcome the opportunity. bryan@johnsn.com

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BMO SIA FOCUS NORTH AMER EQUITY ETF & BROADCOM INC. ZFN.to #ETF units are up 22.6% Year to Date, compared with a gain of 13.92% for the S&P 500 Index and a gain of 3.53% for the S&P/TSX Composite Index so far in 2024. At the end of May, the largest weighted sectors within the fund were Information Technology, Industrials, Consumer Discretionary and Energy. Today’s featured holding, Broadcom* Ltd. (AVGO) has been consistently held in the fund since January of 2023. It has been in the news this week around the announcements of quarterly earnings and a 10 for 1 stock split. Click the link for full report: https://lnkd.in/gJQREw3P

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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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Two recent contrasting, but related observations:   1. Underscoring the investment industry’s lack of confidence in the future efficacy of classically-implemented, index-driven, long-only traditional active management, the The Wall Street Journal reports that “traditional asset managers, many faced with declining fees in their legacy mutual-fund businesses, are snapping up firms that invest in private markets. Few have been more acquisitive than Franklin Templeton.” Headline: Franklin Templeton Turns Toward Private Investing as Mutual-Fund Business Shrinks   2. In contrast to the Franklin Templeton story, there was this announcement about the launch of Tourbillion Investment Partnership: Tourbillion Investment Management invests in an eclectic group of durable companies poised to deliver superior absolute returns: “While many asset managers are focused on relative performance based on short-term earnings beats or misses, Tourbillion invests with a 5-10 year horizon, prioritizing absolute returns, management alignment and valuing companies on distributable cashflows or ‘owner earnings’.”   When combined with two other entrepreneurial, concentrated, absolute return-driven partnerships Maestria Partners and Emeth Value Capital, LLC (launched by former members of the Emory University and University of Notre Dame investment offices) it’s a tacit condemnation of style-box investing and those benchmark-sensitive strategies which have been so commonly and routinely utilized, but which have exhausted their productive utility – as the Franklin Templeton story plainly underscores.   Asset owners are starved for adequate investment results that meet their spending goals and payout requirements. Hence, their robust consumption of illiquid, non-transparent, levered, and higher cost private assets signals their distrust in the ability of stereotypical public markets’ to deliver satisfactory, above-spending results.   Tellingly, the entrepreneurs are NOT launching new firms based on shopworn, benchmark-sensitive, regular-way, relative return-seeking equity strategies. They’re implicitly rejecting the old religion of style-box conformity and pursuing irregular, long-only, equity strategies that are outcome-driven and absolute return-seeking.   Three cheers for style-box non-conformity.   Miriam Gottfried #TourbillionCapitalPartners Ben Beneche, CFA James Edwards, CFA, CPA #MaestriaPartners Emeth Value Capital, LLC Andrew Carreon, CPA, CFA

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Six years ago, I published a historical contextualization of Modern Portfolio Theory. It was a constructive criticism of how MPT is used today. The argument ended by outlining an alternative approach to portfolio management based on income streams, not asset prices. The response was near total silence. In contrast, my most recent book has gotten substantial traction in the media and the practitioner community. The topics of the two works are, of course, different, but I think that there are other reasons why one has done well and the other has not. First, in 2018, interest rates were still going down, the market was still going up, and the early cracks in the global neo-liberal paradigm had not yet signaled a definitive end to the unfettered march of capital. Why rock the boat. Everything was fine. And a portfolio approach based on income streams didn’t make much sense when there were no income streams to be had, just ever-rising asset prices. Second, I had no platform. That was one publisher’s explanation for the flop. Without social media, there could be no marketing. The tree fell in the forest and no one heard it. I will also acknowledge a third possibility—that the earlier work just wasn’t very good. But I don’t think the third explanation is so. And the conditions surrounding the first two reasons have now changed. Interest rates have stopped going down. And traditional portfolio theory has taken it on the chin the past few years without the tailwind of declining rates. It now makes sense to at least consider alternative approaches to portfolio construction, including those based on once-again material income streams. And, for better or for worse, I’ve spent the past half decade building up a modest social media presence to propagate my sins. HistoryInvestor finally has a platform, albeit not the largest or the loudest. So I’d ask you to take a look at Getting Back to Business. ( https://lnkd.in/eTCimJvn) Let me know what you think of it. And I want to thank the few, the brave who did note it at the time. They include Sean Wieland, CEPA, Jan van Eck, Tariq Dennison TEP, Marty Fridson, among a handful of others. (If I have overlooked you, please remind me and I will happily add you to the list.) And thanks to the then editors at McGraw-Hill Professional, Noah Schwartzberg & Donya Dickerson, who got the book over the finish line. They have both since moved on, but I hope their earlier efforts will not ultimately have been in vain.

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With some big elections coming up there’s a lot of chatter about unsustainable government deficits. I agree they’re unsustainable, but not for the reason many people cite – that debt levels and interest costs will become unaffordable leading to default and ruin. Remember, as long as countries borrow in their own currency, they can just print more money to pay for the existing debt. Even when bond markets become unruly like they did in the early stages of COVID or in the UK in late 2022, central banks can step in and throw money at the problem. So why do I still think deficits are unsustainable? Forget about the concept of money for a minute – that’s just something countries create and force people to use in transactions. What’s really going on is that governments are increasingly choosing how the country’s economic capacity (think human activity, machines, energy etc.) is to be deployed. They decide how big the health sector is, the reward for jobs, who can receive handouts, how many people need to be in the army etc. I’m not saying this is a good or bad thing in general. But economic capacity needs to be allocated in a productive way, encouraging people to work as hard as possible and create efficient machines, boosting things we want like life expectancy, happiness and energy sustainability. Returning now to finance, one way to think about this is how fast the economy grows (GDP) versus the cost of that expansion (debt). And if you look at public sector debt as a percentage of GDP, the picture doesn’t look pretty. In effect, for every economic allocation decision the government makes (represented by public sector debt), the reward seems to be getting smaller (GDP). You can get away with this for a while, but eventually more efficient countries and systems will win out. Again, purely financially, you can think about this as your currency weakening so you can’t buy as many foreign goods, or inflation accelerating so your savings are eroded. This isn’t the same thing as default and ruin, but I still think it will prove unsustainable. Note that I am talking about economic factors here, but I also referred to other measures such as life expectancy, happiness and energy sustainability. Maybe incorporating these things into GDP would suggest a better trajectory in the chart? For professional investors only. Capital at risk.

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Once again an exciting analysis that I think is worth sharing. 🤓 The latest uptick in yields spells trouble for financial markets😮 Jan David Meyer, CFA wrote: "2024 provided a noticeable uptick in long-term Treasury yields, yet the equity market seems pretty unimpressed. Last year, when yields rose in similar fashion during the 3rd quarter, the reaction was much more pronounced (see 1st chart). So we were wondering what the “usual” reaction to rising Treasury yields was in history. One would assume that rising yields heighten the discount rate at which future cash flows are to be discounted. So a below average performance should be expected of most asset classes following a period of rising Treasury yields. We tested this assumption for U.S. equities and Treasuries, using more than 150 years of data. And as illustrated in the 2nd chart below, the assumption holds up. Following one year periods with rising Treasury yields, equities performed nearly 5% worse during the next year, than in periods with falling Treasury yields. The same is true for long-term government bonds with a performance gap of nearly 2%. So the rise in Treasury yields over the last 12 months spells trouble for the “classic” 60/40 asset allocation still common among investors.!! What are your thoughts? (1) Feel free to comment and share your thoughts on the topic.💬 (2) If you learned something, you should like the post👍and/or follow me here on LinkedIn and activate the🔔. Source: Taunus Trust GmbH #Wealthmanagement #Portfoliomanagement #Riskmanagement #AssetManagement #Diversification #Inflation #Investing #Yields #Treasury #IKUInvestment

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There is a lot of talk about the PE industry not delivering the exits they promised. PitchBook succinctly put it with the title “Behind the J-curve” in its recent in-depth analysis of distribution activity in private market funds. Another side of that story, particularly relevant for secondary buyers like us, is that many private market funds hold their assets at seemingly inflated valuations. TVPI numbers look great for most funds, but they can’t monetize their holdings anywhere near their current NAV, indicating their estimate of “fair market value” is way too optimistic. There is always a market, the price may just not be where you wish it. To a large degree, the reluctance to exit companies results from having them marked too high. Assets were aggressively written up to look good in the short-term, impressing LPs with “paper gains” to raise the next, much bigger fund. #secondaries #privatemarkets

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DBi seeks to find the simplest, most efficient path to replicate the pre-fee returns of #hedgefunds. Allocators often question whether it's too simple. Here's an astonishing quote from Nick Patterson, a pioneering quant at Renaissance Technologies LLC: "I think the most important thing to do on data analysis is to do the simple things right. So, here’s a kind of non-secret about what we did at Renaissance: in my opinion, our most important statistical tool was simple regression with one target and one independent variable. "It’s the simplest statistical model you can imagine. Any reasonably smart high school student could do it. Now we have some of the smartest people around, working in our hedge fund, we have string theorists we recruited from Harvard, and they’re doing simple regression. Is this stupid and pointless? Should we be hiring stupider people and paying them less? And the answer is no. "And the reason is nobody tells you what the variables [are] you should be regressing. What’s the target? Should you do a nonlinear transform before you regress? What’s the source? Should you clean your data? Do you notice when your results are obviously rubbish? And so on. "And the smarter you are the less likely you are to make a stupid mistake. And that’s why I think you often need smart people who appear to be doing something technically very easy, but actually usually not so easy." "Do the simple things right" and "don't make a stupid mistake" sums up what Mathias Mamou-Mani and I have sought to do for fifteen years. #hedgefunds #ctas #ucits #etfs

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We first wrote of the "new wave" of financial borrowing services over a year ago here; https://lnkd.in/ezzuFqA7 Unfortunately, even as generationally high inflation seems to have come under control, folks are still flocking to these services. Of strong concern besides the trend itself is the article states, "Almost half of those using BNPL say they've started, or have considered, using it to pay bills or buy essential items, including groceries." and "About 42% of those with household income of more than $100,000 report being behind or delinquent on BNPL payments.". Please have a chat with your kid, your siblings, your spouse about these offerings and their credit in general so as to make the best choices and not get caught in a debilitating credit sink hole. More info here @ ZeroHedge, https://lnkd.in/e9yjzW3e #lendingtree #bankrate #usedcars #usedvehicles #consumer #bloomberg #inflation #smartdecisions #consumerspending #consumerdebt #fico #experian #equifax #yahoofinance #bnpl #klarna #afterpay #paypal #zerohedge

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