Conference Presentation, Panel
Retrospective: Lessons Learned from Leading Investors
Milken InstituteScarlet Fu, David Bonderman, William Ford, Joshua Friedman, Emmanuel Roman, Steven Tananbaum, Steve Tannenbaum, Bill Ford
- Equity markets may receive a short-term boost from tax reform and deregulation, though a rate reversal could trigger forced selling and radical price adjustments, particularly in structures lacking investment banks and offering daily mutual fund liquidity.
- The current eight-year post-war appreciation cycle is nearing its conclusion, implying an end to current trends and likely lower future returns across nearly all asset classes due to high prices driven by unsustainable quantitative easing.
- While the digital economy shift is expected to continue despite high valuations, significant market dislocation is anticipated in industries undergoing structural change, including retail, energy, media, telecom, and potentially healthcare.
- Specific asset opportunities include distressed hotel companies where improved management could double or triple profits, and e-commerce segments projected to grow 50% annually even within a difficult retail environment.
- M&A activity is expected to remain at very high volumes due to cheap currency, creating opportunities in debt securities, while private equity firms may become more cautious on new investments but aggressive on exits.
- Active fixed-income managers are projected to continue outperforming passive peers over one, three, five, and ten-year horizons, with approximately 65% having beaten benchmarks over the past decade.
- Asset management firms face pressure to invest significantly in R&D and personnel to meet client demand for digital, "no-touch" value propositions, as new entrants attempt to disrupt traditional models.
- The energy market is expected to shift toward more normal dynamics, avoiding previous cycles of extreme vertical supply curves, while U.S. economic growth is forecasted at approximately 2.5%.
- Automation is expected to place enormous pressure on job markets and labor prices over the coming years, though the full impact remains uncertain.
- Opportunities in event-oriented situations are anticipated to improve over the next 24 months, while returns for companies with sub-10% growth trading at full valuations are expected to compress over a four to five-year horizon.
- Tax reform and trade policies are viewed as potentially positive with win-win scenarios if enacted, with the market likely pricing in a moderate package rather than a massive overreach.
- Interest expense deductions for private equity portfolios are not expected to be enacted as currently proposed, while rolling back regulatory burdens on small businesses could stimulate economic growth and recovery.
- Markets are expected to ignore growing U.S. debt until interest rates rise, at which point the focus will shift to debt sustainability, while the market's idiosyncratic nature necessitates a cautious approach.
- Private equity is expected to gain dominance as the business improves liquidity and market-making capabilities in secondaries, while businesses failing to adapt to rapid technological changes are likely to fall into trouble.