Public Market Paradigm: Strategies in a Volatile | Global Conference 2025

• Panel Context: The discussion, moderated by Axios's Dan Primack, features five CIOs and asset managers (Alex Rupert of Atlantic Investment, Alyssa Reuter of Common Spirit Health, Steve McLennan of Ontario Teachers' Pension Plan, Jimmy Levin of Sculptor Capital, and Ryan Israel of Pershing Square) addressing volatility, tariffs, and market paradigms.

Market Volatility and Tariff Impact

• Market Reaction to Tariff Uncertainty:
  • Jimmy Levin notes the market experienced an "acute phase" of volatility where the S&P 500 dropped ~25% from highs, VIX surged to 80, and high-yield spreads doubled.
  • A rapid retracement followed, with many asset classes recovering 100% of losses within weeks due to policy dilution and reversal.
• Strategic Responses by Asset Managers:
  • Sculptor Capital (Levin): Leveraged defensive positioning to become "offensive" during the chaos, capitalizing on mispriced assets across asset classes.
  • Atlantic Investment (Rupert): Maintained a "hunker down" approach, relying on companies with strong margins, low multiples, and local supply chains to weather tariff implementation.
  • Pershing Square (Israel): Trimmed positions with potential second-order tariff risks (e.g., reducing exposure to business-travel-dependent companies like Hilton) and raised cash, which proved beneficial during the subsequent dislocation.
  • Ontario Teachers (McLennan): Reduced overall risk utilization and adjusted passive exposures (equities/fixed income) to manage uncertainty without making knee-jerk tactical shifts.
  • Common Spirit Health (Reuter): Increased engagement with managers to verify adherence to strategy during volatility; no major tactical asset allocation shifts occurred.

Valuation, Geography, and Sector Trends

• Geographic Valuation Perspectives:
  • US Large Caps: Atlantic Investment's Alex Rupert characterizes the US large-cap market as "highly overvalued" with bubbles in AI and crypto, suggesting a potential zero or negative five-to-ten-year return period for major indexes.
  • Europe: Rupert identifies Europe as "incredibly attractive" due to companies trading at 5–6x EBITDA with 4–5% dividend yields, anticipating growth from Germany's infrastructure spending and potential geopolitical settlements.
  • Japan: Viewed as emerging from deflation, with potential upside if Chinese trade deals revive consumer spending.
  • Latin America: Rupert excludes this region due to a lack of suitable mid-cap ($2B–$20B) non-commodity/finance opportunities.
• The "AI Bubble" Debate:
  • Bubble Indicators: Rupert identifies Nvidia (trading at ~16x revenue), Palantir, and Tesla as exhibiting bubble characteristics driven by promised growth rather than current fundamentals.
  • Nuanced Views:
    • Jimmy Levin suggests AI capital formation is mixed; some private valuations are speculative ("make up a valuation"), while public spenders like Nvidia could be undervalued if spending persists.
    • Levin notes their firm holds a "tiny position" in Nvidia, waiting for price dislocation rather than betting on long-term information certainty.
  • Risk Assessment: Rupert warns that a slight slowdown in data center capex could cause margins and stock valuations for chipmakers to collapse rapidly.

Investment Philosophy: Active vs. Passive and AI

• Concentration as Active Management:
  • Alex Rupert defines "active" management strictly as holding concentrated portfolios (<30 names, ideally <10) requiring deep due diligence ("kicking the tires") rather than diversified, automated indexing.
  • Pershing Square's Ryan Israel argues AI is effective for predicting historical patterns but struggles with "inflection points" and long-term (5–10 year) structural changes that require human judgment.
• AI's Role in Investing:
  • Jimmy Levin views AI as a tool for processing historical data but notes that predicting 3+ years into the future remains difficult for algorithms; they prefer betting on price changes over complex information predictions.
  • Alyssa Reuter emphasizes the "human kindness" element in healthcare and investing, suggesting AI cannot replicate the empathy required for certain decision-making contexts.
• Market Structure:
  • Passive Inflows: Ryan Israel views increasing passive inflows as an opportunity, as they create mechanical price movements that active managers can exploit by identifying mispricing.
  • Active ETFs: Steve McLennan describes active ETFs as a "fundraising tool" to offer active management in a liquid vehicle, though he notes the difficulty of competing against index allocations once strategic asset allocation is set.
  • Manager Performance: Common Spirit Health prioritizes net-of-fee alpha, citing a 1% annualized outperformance vs. benchmarks over five years with low tracking error.

Private Markets and Structural Shifts

• Private Equity Challenges:
  • Steve McLennan notes a "headwind" environment for private equity returns, citing the decline of financial engineering drivers like low leverage and multiple expansion.
  • Teachers Pension is focusing on "back-to-basics" value creation (revenue growth, margin maintenance) and is more selective with new opportunities.
• Deal Market Conditions:
  • Ryan Israel states the M&A and IPO markets are currently "dead" due to uncertainty, though he expects a revival once certainty returns.
  • Jimmy Levin observes that private market valuations are becoming less "private," with some companies raising rounds at valuations that allow for near-term liquidity.
• Pershing Square's Permanent Capital Expansion:
  • Howard Hughes Transaction: Pershing Square increased its stake in Howard Hughes to 47% to create a permanent capital vehicle, evolving from minority public equity to control-oriented investments (public and private).
  • Rationale: This allows for a "forever" investment horizon, bypassing the typical 5–7 year liquidity constraints of traditional private equity.
  • Strategic Advantage: Bill Ackman's platform provides access to major political and economic figures, enhancing deal flow and relationship building without altering day-to-day investment operations.

Operational and Fiduciary Considerations

• Fiduciary vs. Mission Alignment:
  • Alyssa Reuter balances fiduciary duty with Common Spirit Health's mission, avoiding investments like crypto due to high fraud risk rather than mission conflict, while pursuing "impact" investments that align financial and social returns.
• Geopolitical Risks:
  • Steve McLennan acknowledges the "repatriation of capital" trend globally but insists the investment focus remains on risk-adjusted returns, requiring careful management of Canadian dollar exposure and US market attractiveness.
• Conference Strategy:
  • Panelists shared operational hacks, including waking up early for uninterrupted work, precise 30-minute scheduling, and utilizing "backroom" access for high-value networking.