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That little bit extra…

 Salomons Judgement

Put a select group of international investors together in a hotel for a few days to discuss the financial markets and one thing becomes clear: making money is a challenge.

Once in a while, the investment strategist should come out of his or her cocoon. Internal market discussions are good but can also lead to circles with recurring themes. The way to come to a deeper understanding of the challenges ahead is by sparring with opposing counterparts every now and then.

This is becoming increasingly difficult in the Netherlands due to the contraction of the asset management industry. Everybody knows each other’s opinions. So, it’s time to cross the borders. And by that I don’t mean going to New York, London or Hong Kong for an interview with an analyst, economist or strategist about the markets. The outcome of these conversations is often already known, and commercially influenced. It’s better to perform some independent research, although not without challenges (I’ll say more about that in another column).

So, I spent a couple of days in a hotel last week with a select group of international investors with different financial backgrounds, employers and locations. This colourful and fun group consisted of people with a background in fixed income, shares and commodities, working for Canadian pension funds, Spanish banks and Scandinavian real estate companies. And as mentioned an investment strategist of a wealth manager, also known as entrepreneurial professor, also known as networking advisor...

After all the presentations given by the participants, the conclusion was unanimous: less prosperous times are ahead. Five related risks (duration, credit, shares, liquidity and leverage) have been inflated. As investors don’t accept lower returns than expected, they keep searching for that little bit extra, supported by low interest rates, low volatility and low correlations. The challenge to make money in this current environment prevails.

I will write more about the possibilities we did see in the next weeks, but a sneak preview for now: assets that are uncorrelated and really undiscovered. We ended up with shares with a link to the growth of India and Scandinavian corporate bonds. Just like assets protecting capital when the air runs out of the aforementioned five risks, i.e., the case for the anti bubble.

In the end it became clear that there is a great need for investments with a direct link to the real economy. We concluded that you have to work again to earn your money instead of having the money work for you. And it would be nice if the world would be a better place at the same time…

Next year, I will go to the hotel again. Probably the group will be somewhat bigger then, as not all continents and employers were represented this time. If you work for a Japanese insurer, a state fund from the Middle East or a Texan hedge fund, please contact me. It will make the round table even more valuable next year.

P.S. The subject of my presentation at the round table was the economic cycle and zombies. The end of this cycle is nowhere near, but liquidity is being drained with further rising interest rates. Only when the tide goes out do you discover who's been swimming naked.

The author

Roelof Salomons


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