While my colleagues sat in the grand ballroom of the Pierre in New York last Wednesday filing coverage on Delivering Alpha, the annual investment conference co-sponsored by Institutional Investor and CNBC, I spent the day interviewing a succession of eight investors and hedge fund managers in a nondescript conference room on the hotel’s fourth floor. It was the second year in a row that I had found myself cut off from the main events at a conference that hosts an annual visit from the U.S. Treasury secretary as well as rare appearances by some of the world’s best investors, like Stanley Druckenmiller and Kenneth Griffin. But in both cases we wanted to film a video series at the conference while keeping away from the frenzy of speakers who included William Ackman, Carl Icahn and Nelson Peltz. After all, Institutional Investor has long tried to offer a different perspective on the markets from the one offered up by the dailies, broadcast and financial websites.
As it turns out, I did get to hear a few speakers, including Treasury secretary Jack Lew, after Paul Marshall, co-founder and chief investment officer of London-based hedge fund firm Marshall Wace, canceled his 10:00 a.m. interview with us. Listening to Lew’s remarks on cybersecurity and corporate taxes, I couldn’t help but wonder what he thought of the Wall Street Journal’s scathing op-ed the day before on how funny it was that the Department of Justice’s settlement with Citigroup over failed mortgage investments coincided almost perfectly with the period when Lew ran those businesses at Citi. Lew didn’t seem to be thinking about it; nor did his former colleagues in the audience.
I was happy I could retreat to my fourth-floor hideout once CNBC’s Kelly Evans started grilling the speakers on a panel on investing on the global stage. It’s no wonder institutional investors have difficulty taking the long view on their portfolios. Evans asked Jane Mendillo, the outgoing CEO of Harvard University’s endowment, whether she was leaving because of the portfolio’s paltry allocation to U.S. equities during last year’s phenomenal bull market. Mendillo answered with an unequivocal no and later defended Harvard’s use of alternative investments.
I left the ballroom during Citadel CEO Griffin’s interview and went upstairs to meet Greg Williamson, CIO of Chicago-based BP America. As if on cue, Williamson immediately emphasized that he was happy to talk about opportunities and challenges in the markets, but he wanted me to know he measures his time horizon over many years. Though Williamson noted that the markets are under the influence of central bank interventions, upcoming elections in the fall and legal and regulatory events, he said that in the end he needs to be able to pay his pensioners as promised. Whether he wins in one quarter doesn’t affect that.
One of the topics that Williamson brought up, which I find fascinating, was institutional investors’ huge appetites for long-term fixed-income investments. Though this was a less flashy topic than those being discussed in the Pierre’s ballroom, corporate pension plans need to match their liabilities — all those paychecks they have to write — with the assets they have on hand. That means they are constantly snapping up 30-year bonds — and changing the dynamics in the public markets.
Lawrence Robbins told me that companies’ ability to borrow at cheap rates is creating great investment opportunities right now (a theme he touched on during the “best ideas” panel, I later learned). “Unlike in 2007, when companies were borrowing for the short term, now they have access to almost permanent capital at cheap prices,” explains the founder of New York–based hedge fund firm Glenview Capital Management. “They can build a new factory, invest in new capital equipment or buy one another. That’s exciting.” Of course, he adds, investing in such companies is not without risks: The challenges are that “we’ve never been here before” when it comes to the central bank policies being promulgated around the world these days.
Omega Advisors’ Leon Cooperman was in a hurry. The legendary investor, who is Robbins’s former boss, met me on the fourth floor at noon and emphatically let me know that his next stop was lunch with Chris Christie. He didn’t want to miss a word of the New Jersey governor. While Cooperman anxiously waited for Robbins to finish, I shared my own trepidation about my teenage son’s being in Israel right now (Cooperman is a big donor to Israel programs), and he said that his granddaughter was there as well. But he appeared far more concerned about getting Robbins off his stool than about missiles being fired at Israel. Cooperman assured me he would give me a few minutes on the challenges and opportunities in the markets, but first he wanted to talk about charitable giving, telling me about his $25 million contribution to St. Barnabas Medical Center in my home state of New Jersey.
Cooperman sped through his thoughts on the U.S. equity market, which he believes is fairly valued, even if there are still many opportunities in individual stocks . He said conditions for a bear market aren’t here yet, but if there’s a big run-up in stock prices from here, he’d have to get bearish. With that he removed his microphone, grabbed his bags and with a slight stoop raced out to see Christie.
By 2:45 that afternoon I was tired, but Kim Lew and Meredith Jenkins, co-CIOs of nonprofit Carnegie Corp. of New York, revved me up again when they arrived a little early for their scheduled interview. I could see right away that this conversation was going to be fun. The dynamic pair laughed and raised the energy for everyone in the conference room, including the video crew, after a long and hot day. We talked about Mary Callahan Erdoes’s responses to Kelly Evans’s aggressive questioning on whether she might succeed Jamie Dimon as CEO of JPMorgan Chase & Co. Lew said that any parent (she has three young children) would know that the J.P. Morgan Asset Management CEO was giving Evans “the look,” a nonverbal queue meaning “You’re going to end this now, right?”
Visit our Video Center on August 11 to see the first video of our 2014 Delivering Alpha series. In the meantime, check out last year’s series, “Is Alpha Dead?”
Follow Julie Segal on Twitter at @julie_segal.
