The recent unpredictability in the capital markets has given rise to many risks and opportunities, which global fund managers must parse through to forge effective investment strategies.
These emerging trends in private and public capital markets were the subject of a panel discussion titled ‘Navigating the Investable Universe’ hosted at the Milken Institute Asia Summit on Monday. Participating in the talks were GIC’s group chief investment officer Jeffrey Jaensubhakij; Investcorp’s co-CEO Hazem Ben-Gacem; Blackstone Alternative Asset Management’s (BAAM) global head Joe Dowling; and John Studzinski, the vice-chairman of the US investment manager PIMCO.
The panelists made three key observations regarding the current state of private and capital markets:
1. Hedge funds are emerging as substitutes for bonds: There has been a lot of interest lately in alternative assets like hedge funds.
The huge money flowing into hedge funds and the proliferation of hedge fund managers have suppressed returns there, said GIC’s Jeffrey Jaensubhakij. “If we think about the evolution of hedge funds, the average returns have come down. And maybe it’s not surprising given that there’s been more and more money over the last couple of decades that have gone into hedge funds, and more managers have also gone in.”
Investcorp’s Hazem Ben-Gacem noted that there is widespread investor skittishness due to a combination of high market valuations, inflation rates, and geopolitical tensions. “In a way, hedge funds may be that perfect holding vehicle until there’s clarity on where the world is heading,” he said.
2. Crossover funds: Panelists also discussed the emergence of crossover funds — i.e public market funds employing private equity (PE) strategies and vice versa.
According to Joe Dowling, Blackstone conducted a study of 145 companies worth at least $1 billion, between 2010 and 2021, and found that the average time they took from their pre-IPO round to going public was 1.7 years, returning an average of 2.2 times. “That return is very high,” he noted.
He explained that one of the reasons for crossover funds is ambiguity in the asset class. “When you’re going to do due diligence, the private team will say, these aren’t really privates, they’ve been 1.7 years in untraditional funds…If you go to the public side of the house, big institutions say, hold on a second, these are private companies, and it all gets lost,” said Dowling.
3. Preparing for the next crisis: All four panelists were largely in agreement regarding the precariousness of the current markets, exacerbated by the global pandemic, and the lack of trust in policymakers.
Investcorp’s Ben-Gacem underscored a more cautious approach in his investment strategies moving forward. “You’ve got this giant steamboat called the Titanic going down. I think my only advice is steady as it goes. Take it easy. There might be some serious icebergs ahead,” he said candidly.
But there may be glowing pockets of opportunity yet. GIC’s Jaensubhakij highlighted sustainability as a theme, which may unlock opportunities in markets that are significantly underpriced.
The panel discussion was moderated by Debra Ng, managing director at UK-based Albourne, which provides research and advice on assets such as hedge funds, private equity, real assets, and real estate. This transcript has been edited for clarity and brevity.