This year marks my 20th year in this business, and not surprisingly, I have started to find a few gray hairs on my head. Last week, I had the good fortune to be one of small group to attend LPL Financial’s Alternative Investment Conference in New York City.
Truthfully, I doubt this article will ever reach the NY Times Bestseller list as did the book of the same title, but it was in NY that my content for this article was recently conceived. More importantly, while at this invitation-only conference, I got to hear from many industry juggernauts, most having a little “gray” themselves.
While I may have heard from as many as 50 “grays” both speaking and in attendance, here’s a short summary of the highlights: the economy, market opportunities and Trump.
Jonathan Gray - Global Head of Real Estate, Blackstone
Blackstone is one of the largest asset managers in the world. Their core competencies are in real estate, private equity and credit. Gray is the second largest shareholder in Blackstone, and was recently considered for the position of Treasury Secretary.
According to Gray, “The era of ‘lower for longer’ is over. We have had low growth, low interest rates and low inflation. CPI is now approaching 3%, interest rates will be going up, and growth that seemed anemic is starting to show a heartbeat. Trump’s policies are pro-growth and parts of the economy are starting to take hold of that.”
He went on to discuss his area of expertise: global real estate. “In the past 26 periods of rising interest rates, real estate did fine. We generally see rents start to escalate, which lead to higher net incomes and ultimately, higher values. Commercial real estate supply has been growing at 1% annually while demand has been growing at 2.5%. We expect to see growth in real estate values, but not at the rates we saw from 2010-2013.”
When asked about specific sectors of the real estate market, Gray said, “First, let me tell you what we won’t own. We won’t own luxury hotels, trophy office buildings and properties requiring lots of capital improvements. We like grocer-anchored shopping centers, service hotels for business travelers, and apartments.”
Greg Brousseau - Founder & Co-CEO/CIO, Central Park Group
Central Park Group was formed in 2006 with the goal of bringing institutional-style portfolios to the mass affluent in the form of private investments. The criteria they look for in every investment they craft are: low/no leverage, very high co-investment by the portfolio managers and firms that do deep research and don’t rely on statistical algorithms to pick their investments.
Personally, I have worked with Greg and his partner, Mitchell Tanzman to find solutions for our clients since they, and I, were at PaineWebber in the late 90’s. They left UBS/PaineWebber in 2006 to start their firm, and in 2003, I left to start mine with LPL Financial.
What’s your best idea? This is the question that Greg said he is asked most often. “First let me paint a backdrop. If you have a 60% stock and 40% bond portfolio, and your bonds only grow at 2%, how much do your stocks need to grow to average 8%? Answer: 12%. Who thinks stocks will grow at 12% over the next 10-20 years?” You could have heard a pin drop.
He went on to describe many of the areas that he feels are best suited for the coming economy. Most of his ideas center around investing the way that large endowments invest. “When you look at how Harvard, Yale and other ‘smart money’ invests, they aren’t just putting all their money in publicly-traded stocks and bonds and crossing their fingers. But the challenge is how does a client with $1-$10 million invest like them?”
He offered several suggestions from the breadth of choices available through their firm, but they are best suited for one-on-one conversations with your advisor, as they are not suitable for every investor. However, he did emphasize: the key is “not just crossing your fingers.”
Doug Ostrover, Founder & CEO, Owl Rock Capital
Doug represented the “O” in GSO. GSO is one of the largest firms in the world to supply credit to private companies. In 2008, Blackstone acquired GSO. In 2015, Ostrover left Blackstone/GSO to start Owl Rock Capital, seeding it with $100M of his own capital.
“Brown University was our third investor. Joe (Dowling, Brown University’s CIO) thinks he was the second, but he was actually the third.” Brown University seeded his firm with $100M as well. “I see opportunity in the area of lending capital to middle-market companies, and when you can get to the $100M size transaction, there’s very little competition.”
You may not consider a $100M loan to be “middle-market,” but Ostrover went on, “The large money center banks aren’t interested in making corporate loans unless a loan size reaches $1B. There is a large gap between what small and regional banks can loan, and what large money-center banks are willing to loan to middle-market companies.
Ultimately, there is opportunity for the smaller investor to tap into the private loan investment world, but again, exploring these opportunities are best suited for one-on-one conversations with your advisor, as they are not suitable for every investor.
Here is a list of some of the other speakers I got to see:
- Glenn Youngkin - President and COO, Carlyle Group
- Burt White - Chief Investment Officer & Managing Director, LPL Financial
- Lara Rahme - Senior Economist, Franklin Square
- Joseph Dowling - Chief Investment Officer, Brown University
- Randy Anderson - President, Griffin Capital
It was quite a lineup. I’m grateful for the successes of SRQ Wealth, and the ability for LPL Financial to bring such quality minds to one stage. There certainly was lots of “gray” in the room, but then again, you want that kind of experience when it comes to working with sophisticated investments.
To stay current and top of our game, Karin and I attend 5-6 conferences a year of similar quality. In our profession, it’s important to learn what the “smart money” is doing, to overlay it with the planning needs of our clients, and to build solutions that have the best chance of meeting our clients’ goals, long-term. It’s worth a little “gray” to be able to do that.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Investing in private equity and private debt is subject to significant risks and may not be suitable for all investors.