Member Educational Materials 2018

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Market Review & Outlook

Q4 2018
Morgan Creek Capital

The origin of the name Charles was from the Germanic Karlaz, a noun describing a free man. Ironically, it was first used in the Anglo-Saxon world by a conquering invader and Norse ruler, Cearl of Mercia, and later adopted by Charlemagne (essentially Charles the Great) in the late 700s and the name Charles evolved to mean Nobleman. Just over a millennium later, Charles Robert Darwin was born into a wealthy (although not noble) family in Shrewsbury, England on February 12, 1809. His father, Robert Darwin, was a trained physician, but had become wealthy by shrewdly investing the income earned from his medical practice.

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Man Group – Company Profile

December 2018
Man Group

We are an active investment management firm focused on delivering attractive, risk-adjustment performance and client portfolio solution, deploying the latest technology across our business to ensure we stay at the forefront of our evolving industry. With our clients’ need at our core, our managers offer a comprehensive suiteof investment option including absolute returns and long-only funds through our performace-driven investment engines.

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Reacting Correctly to the Unexpected=

December 2018
Blue Grotto Capital

While investing requires one to learn from your mistakes and successes, avoiding the former and repeating the latter, I think this oversimplifies feedback loops and can lead to complacency and different mistakes. Businesses and the investment backdrop are always changing. The capital investment cycle has a huge influence on improvement and deterioration in returns in various businesses, and technology and new backdrops can cause yesterday’s bad business to be a great business or vice versa.

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China Beige Book: Independent Data. Actionable Insights.

December 2018
China Beige Book

From corporate CEOs to hedge fund managers, investors focused on China have traditionally relied on official government statistics, despite widespread concerns about their veracity, transparency, and even outright manipulation. Today, savvy investors have a better option: Founded in 2010, China Beige Book’s proprietary platform tracks the performance of over 3,300 Chinese corporates each quarter—nearly 10x the size of the market-moving private PMI—providing clients an enormous wealth of real-time, actionable, and independent data on the world’s second largest economy.

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VantagePoint Q4 2018

October 17, 2018
Cambridge Associates LLC

Because the US economy has entered the late stage of the economic cycle, investors should consider the prospect of a bear market recession, even though one does not
seem imminent. We have been evaluating the appeal of different asset classes through a late-cycle lens. In this edition of VantagePoint, we evaluate several potentially defensive equity strategies to see whether they are attractive today.

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Rising from the Ashes – Key Developments Since the Global Financial Crisis

October 2018
Cambridge Associates LLC

Ten years ago, the failure of Lehman Brothers and rescue of many other financial firms cascaded quickly through the global financial system and then through the real economy. In the ensuing conflagration, the market value of global equities shrunk by nearly $20 trillion from a 2007 peak to the market’s trough on March 9, 2009, and millions lost their jobs. Following that trough, charred asset markets spread their wings, and the market value of global equities has tripled (surpassing pre-crisis levels).

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Adaptation to Change

October 2018
Blue Grotto Capital

While investing requires one to learn from your mistakes and successes, avoiding the former and repeating the latter, I think this oversimplifies feedback loops and can lead to complacency and different mistakes. Businesses and the investment backdrop are always changing. The capital investment cycle has a huge influence on improvement and deterioration in returns in various businesses, and technology and new backdrops can cause yesterday’s bad business to be a great business or vice versa.

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Preferred Securities

September 2018
Cohen & Steers

Preferred securities are fixed-income investments, but with certain equity characteristics such as deeper subordination in the capital structure. Investors are compensated with notably high rates of income. Despite preferreds’ long stated lives. abundant fixed-to-floating-rate preferred instruments can significantly diminish interest-rate risk in diversified portfolios. Since many preferreds pay legal dividends, preferreds can also offer significant tax advantages.

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Lining up Asymmetry

August 2018
Blue Grotto Capital

A concern brought up by some investors since I have expertise in TMT is some variation of, “isn’t technology expensive right now?” On a macro level I share that concern with respect to aggregate valuations; growth stocks relative to value are as high as they’ve been at any time in history other than the Internet bubble. On the long side, I find myself gravitating more towards sectors outside of technology, with current investments in consumer staples, MLPs, industrials, and consumer businesses (feel free to reach out to talk about these ideas). However, I still find there are cheap stocks in the technology sector.

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The Dark Art

August 2018
Blue Grotto Capital

Bears always sound smarter than bulls. To sound like a genius, talk bearish with a British accent. However, short selling is one of the most psychologically difficult things to do in markets. The odds are stacked against you, because businesses earn returns on their capital. Markets, on average, go up over 9% a year (although as an aside, studies show that a small number of stocks are responsible for the majority of the returns of the market).

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Behavior Issues In Investing

July 2018
Blue Grotto Capital

I have told several investors Blue Grotto Capital attempts to achieve a behavioral advantage. This letter discusses some of the behavioral issues I have thought through while mapping out my investing process. Behavioral psychology has a complex interaction with an investor’s process and this letter lays out how we have set up our process to guard against behavioral pitfalls and specifically my personal tendencies. While we won’t go through the multitude of cognitive biases that exist, we hope reciprocation tendency results from this letter.

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The Research Funnel: Identification to First Investment

July 2018
Blue Grotto Capital

I’ve received a lot of variations of the following question: “How do you follow such a large potential universe? How can you focus in on creating a portfolio with so many options?” Since I could spend an entire meeting going through this, I thought writing about it would be a better way to explain. In some ways, I think this piece explains my idea generation process in a better, more granular way than my investor deck. For this reason, it should be required reading for anyone interested in investing in Blue Grotto Capital.

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Global Listed Infrastructure

June 2018
Cohen & Steers

Allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns. We examine the asset class’s historical investment characteristics and the secular themes driving significant capital formation in infrastructure globally.

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A Private Credit Perspective on Understanding & Embracing the Evolution of American Retail

June 2018
RRA ADVISORS

Taking a red line to the entire asset class might save an investor some heartache, but it will almost certainly cause them to miss out on exceptional opportunities.

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Is There Enough Alpha Available for Long-Short Equity Funds?

June 2018
Taconic Capital Advisors L.P.

Alpha is the excess return earned by skill in stock‐picking, over and above one’s exposure to the market as a whole. Since 1993 there has been a distinct downtrend in the statistical alpha earned by Equity Long‐Short hedge funds. However alpha, in aggregate, is a zero‐sum game. If one class of funds generates some positive alpha, some other class of investors must provide it, to their detriment. Through analysis of the relative size and skill of investment classes, we attempt to quantify the total alpha available to hedge funds in primarily U.S. equity markets over the past 25 years.

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Sustainable investing: a “why not” moment

May 2018
BlackRock

Sustainable investing is much more than a catch phrase. It is the combination of traditional investment approaches with environmental, social and governance (ESG) insights. Drawing on the insights of BlackRock’s investment professionals, we show why we believe it is feasible to create sustainable portfolios that do not compromise return goals and may even enhance risk-adjusted returns in the long run.

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Global Debt and The New Neutral

May 2018
PIMCO

Back in 2014, PIMCO developed the concept of The New Neutral as a secular framework for interest rates. After the financial crisis, the global economy entered a new regime in which the equilibrium (i.e., neutral or natural) policy rates needed to ensure trend growth and at-target inflation would be much lower than their historical levels. In the U.S. specifically, we argued that the real neutral policy rate would likely be close to zero, implying a nominal rate close to 2% (for details, see “Navigating The New Neutral”). This concept of much lower equilibrium rates has described the macro landscape well in recent years, as markets progressively priced in a shallower path of rate increases and lower peak for policy rates.

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Real estate investment opportunities in a rising interest rate environment—pardon me?

April 2018
Altegris Advisors, LLC

Investment in real estate mutual funds and real estate investment trusts (REITs) have been seen as a diversifying opportunity to a well-balanced portfolio and one that can generate income. REITs, given that they own or operate real estate assets and typically generate income, can offer benefits of both income and capital appreciation in a portfolio. However, despite the benefits, REITs can also be correlated to equity and fixed income markets, due to their exposure (and dependence) on both.

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MCCM 2Q 2018 Market Outlook

Q2 2018
Morgan Creek

Spending eight days in an RV with your family touring the California National Parks (most of the time without mobile service) was an amazing experience, and also gives you some time to think. We drove 2,100 miles during the excursion, roughly forty-five hours of time behind the wheel, so there was plenty of time to think big thoughts, contemplate ideas for this letter and to have an actual Eureka! moment (hence the title). The trip started at home in Chapel Hill, NC with us packing up the camping gear in two giant suitcases and flying with our seven-year old to San Francisco to begin the adventure. After taking a Lyft (our preferred ride sharing company, coincidently headquartered in SF) to our hotel across the Bay, conveniently right around the corner from the Cruise America site where we would pick up the Big Rig the next morning, we settled down into the last cushy beds we would see for a week.

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Stocks, Bonds and Causality

March 2018
PIMCO

The relationship between the returns of equities and government bonds seems to be perpetually on the minds of investors. This is understandable. U.S. government bonds have come to be viewed as a safe-haven asset, providing relative stability in times of economic uncertainty and an effective hedge to portfolios often dominated by explicit or implicit equity risk. Indeed, government bonds have been good performers in nearly all recessions over the past 60 years. Furthermore, since the late 1990s the statistical correlation between these two asset classes has become consistently negative, resulting in a generation of investors who have become accustomed to viewing U.S. government bonds not just as a safe asset in times of economic distress but as an asset class that can reliably reduce portfolio volatility in nearly all markets.

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Hot Topics For Managers of Cayman Funds

March 2018
KPMG

A wake-up call for an alternative investment industry facing disruption. Digital technologies are radically reshaping the alternative investment industry. However a large majority of hedge funds and private equity firms appear to be too slow to respond. This is the key finding of a new report, Alternative investments 3.0 – digitize or jeopardize, based on a global survey of 125 hedge funds and private equity firms conducted by KPMG International and CREATE-Research.

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February 2018 Asset Allocation Outlook: Singles and Doubles

February 2018
PIMCO

So damn the torpedoes, full speed ahead? Not quite, as recent volatility suggests some storm clouds could be gathering. Central banks globally are moving away from emergency levels of easing, and large fiscal stimulus in the U.S. in the late stages of the business cycle would have unintended consequences. And, of course, valuations matter.

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Multi-Family, Multi-Problems: Is multi-family real estate in a bubble?

2018
MKP Capital Management

It’s ironic that we deflated one bubble only to create another one; it appears we don’t learn very well. That may be overly provocative, but we believe multi-family real estate is suffering from a difficult mixture of poor demand and heavy supply in the context of elevated property prices. If our thesis is right, there’s plenty of pain in store for the space and, as a result, apartment REITs and regional banks. That said, we believe there are significantly larger implications for the economy as a whole.

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The Premier Data Analytics Platform for Multi-Asset Class Allocators

2018
Caissa, LLC

Our founding team has worked together for over ten years and is comprised of eminent allocators, exceptional developers, and data scientists. Independently owned with no conflicting interests, we are exclusively committed to advancing the tools and analytics available to institutional allocators of the world.

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Member Educational Materials

 

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