sábado, 28 de mayo de 2016

sábado, mayo 28, 2016
Super Wealthy: Ignoring Market-Crash Danger, Buying Pricing Anomalies

By Richard C. Morais


Feeling the angst in the air, I called up Lincoln Ellis, the senior investment strategist for Northern Trust’s Global Family Office, a low-profile unit serving 400 clients worth over $800 million each on average. Were Northern Trust’s wealthiest clients worried about a market rout, I asked, and, if so, what were some of the best ­defensive moves they’ve taken over the past year?

Ellis’ unequivocal answer is that his clients don’t think a crash is coming, and are nowhere near to stuffing cash under the mattress. “I have not had that conversation with anyone,” he insists. The only signs of concern Ellis has seen are clients modestly boosting cash reserves and asking tough questions about high valuations in ­certain asset clases.

While Northern Trust’s private bank has long advocated a zero cash position in its model port­folio, its wealthiest clients anticipated the rate-rise volatility and started taking some profits, says Ellis, about 18 to 24 months before the recent volatility hit. But these clients were getting their cash piles ready so they could take more risk, not less. “The questions we get tend to be more about where the price ­dislocations are: ‘Can you advise us on where the opportunities are materializing and how we could take advantage of them?’ ” he says.

New Delhi: The wealthy, investing for the long term, are buying assets in emerging markets.
Purepix/Alamy

So where are his clients reinvesting their cash? Like other ­investors, they are looking for low-volatility strategies that still earn decent returns, which is why they are rediscovering hedge funds, picking through the industry’s $3 trillion worth of product. Two very wealthy families, for example, commissioned Northern Trust in 2015 to build customized hedge fund portfolios.

Both families were determined to use hedge funds to lower their net exposure to publicly traded securities, in anticipation of the volatile environment that did indeed come in early 2016. (For leads, see “Barron’s Best 100 Hedge Funds,” Penta, May 16, 2015.)

The Northern Trust families, Ellis says, are also making ­“significant additions” to their private-equity positions—buyouts of middle-market, $1 billion to $5 billion firms are favored—and in the private credit and debt markets, such as mezzanine financing for commercial projects, found in the vibrant shadow-banking ­sector that emerged after Dodd-Frank reforms and Basel III forced traditional banks to abandon certain types of lending.

The energy sector, currently rife with pricing anomalies, is also attractive. Clients are in particular picking through bankruptcies and distressed production companies in Texas’ Permian ­basin. The traditional partners in this sort of play would have been the likes of the Carlyle Group and KKR, so I was struck to hear Ellis say that his families are largely “partnering with other family offices,” coming in as co-­investors with the knowledgeable locals “who are or have been operators.” In the real estate sector, clients continue to invest in multifamily housing in the U.S.’s constrained urban markets, and in commercial European real estate. Why? Real estate solidly throws off cash, even in a low-­interest-rate environment.

Katie Nixon, the chief investment officer of Northern Trust Wealth Management, breaks clients’ assets down to just two buckets: “risk-control assets” (U.S. Treasuries, corporate debt, cash), which provide stability during a market meltdown, and “risk ­assets” (stocks, high-yield debt, private equity), which help clients meet long-term financial goals. The “risk ­asset” bucket these days is getting topped off with emerging market debt and equity.

“It’s never the emerging market that you think will do the best, that does the best,” notes Nixon. It’s usually the worst-­looking market. “This year, Brazil, and last year, Russia, are great examples of how tough it is to guess which markets are ­going to outperform. It tends to be very counterintuitive.” The families are investing in emerging markets by directly owning businesses and co-investing with operating companies in the region, and through traditional public or alternative vehicles.

Very wealthy investors have a competitive advantage—what Nixon calls “the luxury of patient capital”—and it is this horizon-gazing that explains why they seize on angst and volatility as a buying opportunity, not a reason to batten down the hatches.

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