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Double Down on Diversification
The Idea Farm
July 14, 2024
Together With
“Do not be fooled into believing that because a man is rich he is necessarily smart. There is ample proof to the contrary.”
Research
KKR emphasizes the need for diversification given the increasing correlation between stocks and bonds, along with the importance of communicating that with partners. They also share six points where they differ from consensus:
Bumpy, But Faster Growth
We Are Not as Worried About a Lower U.S. Savings Rate Signaling an Over-Extended Consumer This Cycle
Bigger Regional Differences in Interest Rates. In the U.S., What’s the Rush?
Better EPS, Driven By Higher Margins
Oil – $80 is the New $60
Where Could We Be Wrong?
Stan Miranda analyzed the performance of 12 large US university endowments and shares four key takeaways:
Outperformance or alpha is becoming more difficult to generate for even the most capable of institutional investors.
Total portfolio absolute returns are primarily driven by the overall risk budget of the portfolio including large allocations to illiquid asset classes – primarily comprising private equity.
It is not clear that the large endowments are outperforming the average private equity and venture capital investor. High allocations to private equity do not necessarily translate into high overall portfolio alpha.
We do not assume that private equity and venture capital will deliver the same level or consistency of returns in the future. Endowments with more diversified sources of illiquidity premium may outperform in the future.
Bonus Content
Peter Thiel discussed AI and other technology trends, along with the state of local and national U.S. politics (61 minutes). Link
Charles Skorina wrote about the future of the OCIO industry and which players are more likely to succeed. Link
Coatue founder Philippe Laffont spoke about building an asset management firm after leaving Tiger Management, the short & long term implications of AI, why tech companies dominate in Europe, and more (28 minutes). Link
Bloomberg wrote a long piece on the fall of Bill Hwang’s family office, Archegos (link).
"Jefferies calls CEO Rich Handler, who is on holiday in Turks and Caicos with a spicy margarita on the way. They tell him Archegos isn’t answering their calls. Handler says he’s going to get his cocktail and he wants Archegos positions gone and a tally of losses by the time he comes back. It was one of the few banks that escaped with minimal losses."
Where Sophisticated Investors Access Private Markets
10 East is a co-investment platform where sophisticated investors access private market investments alongside a veteran team with a decade+ track record of strong performance. The firm is led by Michael Leffell, former Deputy Executive Managing Member of Davidson Kempner.
Members have the flexibility to participate on a deal-by-deal basis across private equity, credit, real estate, and venture capital.
Benefits of 10 East membership include:
Flexibility – members have full discretion over whether to invest on an offering-by-offering basis.
Alignment – principals commit material personal capital to every offering.
Institutional resources – a dedicated investment team that sources and diligences each offering.
There are no upfront costs or commitments associated with signing up and checking out the platform.
Idea Farm readers can join 10 East with complimentary access here.
Podcasts
 6/28/24 - 81 minutes | Professor Jeremy Siegel & Jeremy Schwartz spoke about the Fed, inflation, and other factors affecting the global economic and investment landscape. |
 6/25/24 - 94 minutes | Rob Arnott talks about quant investing, the outlook for various asset classes, rebalancing alpha & more. |
 6/27/24 - 115 minutes | Hussman explains his rationale for why he thinks we’re on the precipice of the third great market correction of his career. |
What Else Is Happening
Did you miss last week’s email?
Meb Faber spoke with Aaron Edelheit about the state of the cannabis industry.
Deal of the Week
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