What recent investment allocation changes has your firm made?
With yields taking another leg up and the Fed signaling that they are near the end of their hiking cycle, we have been adding to our higher quality fixed income allocations and starting to extend duration. We’ve been trimming from segments that have performed well this year—credit within fixed income and U.S. growth stocks within equities. Within alternatives, we’ve started to make commitments to venture capital and private equity strategies that can take advantage of a more favorable valuation environment, as well as private credit funds that should benefit from ongoing issues within the banking system.
What’s your top contrarian pick at the moment?
Artificial intelligence (AI) may prove to be a transformational technology over the coming years, but we would exercise caution amid any extreme, near-term exuberance—particularly among the mega cap tech leaders. Questions remain about the speed and magnitude of monetization as well as the cost of the infrastructure buildout. Perhaps more importantly, valuations appear to leave little room for any execution missteps or risks from new, disruptive entrants into the space.
In what areas of the market are you taking risk off?
A higher-for-longer yield environment could pose a risk to elevated U.S. stock valuations, so we have been taking gains within some of the top performing areas year-to-date—like large cap growth. Within alternatives, we’re making relative value rotations away from absolute return and market neutral strategies that generated strong returns in 2022.
In what areas of the market are you putting risk on?
We’re excited about the opportunities within venture capital and private equity over the coming years. Valuations have started to come back to reality, lenders are being more discerning about the types of deals they will finance, and fundraising activity has slowed. Historically, market resets have coincided with top performing vintages, so we are beginning to make new commitments. Additionally, private credit strategies look well positioned to benefit from turmoil within the banking system. If traditional lending channels are constrained, private lenders should be able to command attractive terms.