Eight top pension, endowment and foundation officials assembled in New York City on the morning of May 15 to share their thoughts on how complex and challenging their jobs have become. The previous evening these experts, who hail from Los Angeles, Washington and a number of points in between, had been honored for investment excellence at Institutional Investor’s annual U.S. Investment Management Awards dinner. Although they work within institutions of varying sizes and missions, the winning eight recognize that, no matter how hard they grapple with difficult investment questions, there will always be unknown factors thrown in their paths.
“The longer you’re in this business and the more you learn, the more you realize what you don’t know,” says Donald Lindsey, CIO at George Washington University in the District of Columbia.
The executives discussed their risk management concerns, compared their very different fund governance structures and debated whether there will be a resurgence of economic growth in the U.S. and other developed countries or if emerging markets will take over the world. Weighing in on the side of U.S. strength, Lawrence Schloss, CIO of the New York City Employees’ Retirement System, declared, “I think the technological impact on everything is grossly underestimated, particularly productivity and capital formation and growth.” Joining Lindsey and Schloss were Douglas Brown, CIO of Chicago-based Exelon Corp.; Conrad Freund, COO of the LA84 Foundation in Los Angeles; Sean Gissal, CIO of Milwaukee’s Marquette University; Joshua Gotbaum, director of the Washington-based Pension Benefit Guaranty Corp.; Robert Manilla, CIO of the Kresge Foundation in Troy, Michigan; and Lee Partridge, CIO of Houston’s Salient Partners, which manages $8.5 billion in assets for the San Diego County Employees Retirement Association.
Institutional Investor Editor Michael Peltz and Senior Writer Frances Denmark moderated the discussion, excerpts from which follow.
Institutional Investor: There are many forces today challenging the quest for investment returns.
Greece is facing the real possibility of an exit from the euro; Italy and Spain aren’t far behind. The U.S. has its own credit problems, job growth is tepid at best, and a contentious election season is under way.
Add to that the unrest in the Middle East and slowing growth in China. With so much negative news, is a 5 percent real return an achievable target?
Donald Lindsey: I’m actually very optimistic. In spite of the overriding macroeconomic problems that we’re experiencing, particularly in the developed world, corporate profitability is at an all-time high. Productivity is extremely strong. If you look at the very long-term return on global equity, it’s around 10 percent. Now, that’s not delivered evenly year after year, as we all have found out. In fact, you can go for rolling 15-year periods and longer where the real rate of return has been negative. But we are undergoing a third industrial revolution, involving digital technology, that is in the early stages; these productivity gains are going to be a fantastic tailwind for corporations.
Douglas Brown: I would agree. I’m optimistic in the long run. I think, however, the next couple of years it’s going to be pretty challenging to meet investment targets, whether it’s a 5 percent real return or an 8 percent pension return target, given the situation around the world, whether it’s the sovereign situation in Europe, the slower growth in China, the fiscal situation in the U.S. or incredibly low rates. At some point, rates have to return to a more normalized level, which will be disrupted from where they are today.
Robert Manilla: I agree with both of those comments. It’s a question of duration. If we look at our ten-, 15-, 20-year returns, we’ve met our 5 percent real rate of return. I think that’s an achievable target. First, there are a lot of risks out there that are still tied to global growth, so you should be spending some of your energy looking for things that are uncorrelated to that global growth. Second, find assets that provide and have a structure that allows you to recapture some liquidity. We look around the world and, with the retrenchment of banking, we think there’s actually a vacuum out there to fill some of the roles that banks used to play. Being a secured lender against hard assets is an interesting spot. Those are really important lessons we took away from what happened in ’08–’09.
Lawrence Schloss: I think you all are right. What makes it really interesting for us is, we have a large pool of assets. So portfolio changes are made around the edges; you expand your edges from 10 percent to 20 percent to 25 percent. Then you come back when you think things are not doing very well. But I totally agree that, long run, there is nothing but growth, because there’s no looking back. I think the technological impact on everything is grossly underestimated, particularly productivity and capital formation and growth. People tend very much to live in the moment, and the moment everyone is looking back to is ’08–’09, and that didn’t feel very good. Much the same way, we’re talking about risk, risk, risk. Well, you know, risk has been around for thousands of years. It’s just when it goes wrong, then you focus back on risk.
You have government regulation pushing banks around, correctly, and there’s not as much regular lending as there ought to be, and there’s not as much illiquidity — there’s actually too high an illiquidity premium. So for people like us to think long term, there’s a great opportunity for what I’ll call easy stuff, like senior loans, private placements, secured lending in Europe. Things that used to trade at basis points are now 100 to 150 basis points over because everyone has to let go of what is the easiest stuff to own. We can get some very, very fat premiums for not a lot of risk.
To get a 5 percent real return, will investors have to take on greater risk than in the past?
Schloss: One of the problems for large funds is they’re told, “Once you have your asset allocation, stick to it and revisit it every three years.” That’s forever. I think one of the things our boards in particular learned is we don’t need to do that again. If you can avoid the losses, everything kind of takes care of itself. One of the things about avoiding the losses is to get out of the way. If you see something bad happening, it’s referred to now as risk on/risk off. I wouldn’t quite put it that dramatically; it’s not a switch. But if you’re worried about the euro in Europe, you might cut back. If you get the bigger things right and avoid the things that could crush you, you’re going to be close to making the return you need.
Once you allocate the money, you’re dependent on the manager. One of the frustrations I’ve had was when I asked all of our managers to manage up to 10 or 15 percent cash. Virtually every manager said, “We don’t want to do that. We only know how to be long only, if we’re equity managers. That’s your job. You’re supposed to figure that out. You’re supposed to call us up and say, ‘Take the money back.’ ” I thought that was a terrible answer, but that’s what everyone said. So I also think there’s a certain amount of responsibility that’s not quite aligned with the actual owners of the money.
Manilla: We set up our governance structure so we could do things internally. Because, generally speaking, our managers are relatively illiquid. Even if we didn’t like something, it might take us a quarter to get the capital back, and that could be too late. So we were very cognizant of the fact that most of the hedging and adjusting we’re doing in our portfolio is around our manager allocations, without having to actually take capital back.
Lindsey: I think there’s a misperception of liquidity. A lot of people think they have to have cash on hand. Cash is helpful, but I see liquidity as the amount of time it takes for an asset to come back to intrinsic value after it goes well below intrinsic value because of a huge sell-off in the market. So if I own shares of IBM or Intel and the market is down 20 percent and the fundamentals haven’t changed on IBM or Intel, that stock is not going to stay down 20 percent for multiple quarters. But if I own an illiquid mortgage-backed security with embedded derivatives, maybe that market does disappear for several quarters and getting an actual bid close to intrinsic value will be very difficult. I think in today’s environment you really have to think about liquidity not in the sense of how much something will go down but how long it will take to recover to intrinsic value.
Joshua Gotbaum: Obviously, when you’re investing for a foundation, investing for something that has a shorter duration versus investing for pensions, the difference in objective matters. Just because we’ve been through a black-swan event does not mean that we should upend investment strategies on the presumption that black-swan events are going to become the standard practice. The challenge is to react without overreacting. I think of that as more marginal changes and fewer complete changes into either the very liquid or the very conservative.
Conrad Freund: One of the advantages that we have as a private foundation — or at least I have; I’m also the chief financial officer — is, we do have some influence over how we spend our money. Sometimes you just have to tell the board that things aren’t what they were last year and that they may not be good for two or three years. You have to reduce your expectations in the short term. But I don’t think that should govern how we look out for a very long time. We’re big fans of private equity because the illiquid part of that is a blessing in many situations; you can’t simply unload that unless you’re horribly distressed. And you give talented people a chance to work out problems in the portfolio.
We have a little bit of luxury around the whole 5 percent that we have to spend. We have a campus and other things to support that aren’t affected if the portfolio goes up 5 percent or down 20 percent. But I think it’s a mistake to get too caught up in thinking we have some real insight into what’s going to happen in the next three months or the next year or two. Stay the course. I know that may be real old-school, but I think it pays off over a very long time.
Sean Gissal: At Marquette I’ve taken the portfolio from a more traditional 70-30 allocation [of stocks and bonds] to one that embraces broader asset-class diversification. Ultimately, we don’t want any one asset class predicating our future success. And as I think about being a small endowment, as we talk about resources, I think diversification is something that most people struggle with. But being with a small endowment, you also end up working with exposures to banking relationships, with the university bond issuances and many other things. So I feel thankful to get all these different perspectives as I try to do my job.
Manilla: We’re all investing within the context of the organization we work within, and those are very different. In our case, at the Kresge Foundation, we’re 100 percent of our financing. We have no income and capital. We have to operate within some reasonable band of upside and downside. When we discuss risk factors, we always want to default to financial metrics for risk. What’s my bar? Our board decided it’s a minimum amount of grants we have to give to still be effective in the fields where we give grants. That was a very hard thing for them, to put a dollar amount to that number. Once you tell me where we think as an organization that we can no longer be effective, that makes my job much easier as an investment person.
I had an interesting discussion with an endowment CIO. We were talking about inflation. He said, “I don’t really care too much about inflation from an asset perspective, because my university can price for it.” For me that’s a big deal because our grantees are people of little means, and inflation for food and energy is a big deal. So we put a few more investments in our portfolio that did well when inflation went up, and he reduced his. I think pension funds have always been better at this because they have a clearly defined liability. I think endowments and foundations are figuring that out and doing a better job of thinking through it.
Freund: You talk about taking off risk. We’ve taken risk off the portfolio by saying we’re going to change not the amount we spend but how frequently we spend it. We’ve told the board, “We’re not going to let you make any more multiyear grants.” If our performance gets caught in the downstream, that doesn’t relieve us of our responsibility to pay. Especially if we’re making grants to a government agency that typically doesn’t get anything done in the time that they say it’s going to get done, it’s a huge problem.
Brown: Following up on what Rob said, I think there’s a common theme here of governance. Whether you are a pension, endowment or foundation, your board or your investment committee has to be on the same page with the investment team in terms of the objective. Once that is settled and hopefully you’re on the same page, then the governance structure has to give the investment team the leeway to execute that strategy. I think with our new governance structure, that was one of the key points — that once this strategic direction is set, then the investment team has quite a bit of leeway to manage and implement the strategy. Good governance is absolutely critical.
Gissal: I’d like to jump in on the importance of governance. One of the greatest benefits at Marquette is that we made a transition from the horse race, or trying to focus on relative returns, and brought it back to “What does Marquette need?” That segued to the idea of an asset allocation or governance that gave us a flexible capital bucket. Ultimately, that bucket is intended for us to find the best risk-to-reward trade-offs that are out there, liquid or illiquid.
We’re all paid to take risk. It benefits us to think long term that the markets are going to go up. So how do we best allocate the risk we’re given? I can’t emphasize enough how important it is to allow investment people to do what they do. But I also feel the catch-22 is it’s a trade-off. That trust is earned, so we have to continue to communicate or have successful investment decisions that allow that trust to continue.
Lindsey: I want to underscore something Sean just said, because I think it’s really important. If you go back 25 years ago, there wasn’t this major focus on investor universes and rankings relative to other universities. It’s a phenomenon where the endowment has become an extension of the football team, and it is forcing the focus on the short term. How did I do this quarter? How did I do this fiscal year? And that’s exactly the wrong time frame to be looking at.
Gissal: My philosophy has been that, being a smaller endowment, we try to utilize our strengths or turn our weaknesses into strengths. I’ve heard that a loss is three times more emotionally powerful than a gain, so this notion of trying to beat people on the upside is something that I gave up when I started. The idea is, how can we try to lose less than our peers on the downside? I’m a risk manager when it comes down to “How do I best serve Marquette?” It’s to make sure that I’m aware of the risks we’re taking in the portfolio.
How do you benchmark your performance?
Gotbaum: Obviously, there are choices about what you measure. Are any of you measured on a true long-term absolute return versus a relative return versus some benchmark peer group? One could argue that for long-duration issues like pension funds, the absolute return would be the more appropriate benchmark.
Lindsey: It certainly is the case with us. While we still have to show the market benchmarks, the equity indexes, what I focus on the most at every meeting are rolling five-year returns relative to an 8 percent return. Where does that come from? Spend 5 percent; inflation over the long term is about 3 percent. So we have to make 8 percent net of fees to grow the purchasing power. If we can do that, we’ve done our job, and that should be the focus, not how many basis points you were over an index or how many basis points we were short of the competing institution.
Brown: We’ve moved the needle a little bit in the pension space. We still are measured on absolute return versus your actuarial expected return and versus your benchmark portfolio. We’ve been able to add metrics of surplus risk, surplus VaR [value at risk] and asset-only risk. We have been in a bit of a de-risking mode, so we have benchmarks along the way. We still have asset-only measurements, but we have introduced more risk-based metrics as well.
Lee Partridge: There’s really nothing we can do about the absolute rate of return. All we can do is extract the maximum value that the markets are providing at any point in time. Now, there are going to be pockets of growth that come from technology, but anybody that thinks that we’re going to generate the GDP that we generated in the past with over 300 percent total-debt-to-GDP, public and private, is looking at a different set of statistics than I’m looking at. But then you look at the 83 percent of the world that’s living in developing countries — it’s only generating 45 percent of the world’s GDP today, and the consumers are nascent. This is starting to be a force of the future.
Most of us are, on a population-weighted basis or even a GDP-weighted basis, taking an underweight position in developing countries and an overweight position in developed countries. Because I don’t know anybody in this room that has a 17-83 percent mix of developed and emerging, which is really more in line with what the population is, or even a 55-45 GDP-weighted allocation across developed and emerging markets. And I think that’s going to be a key consideration of where the growth is going forward.
Do you think you can get San Diego County to move to that kind of allocation?
Partridge: We have a levered portfolio. We have only 25 percent public equities. Most of our private equity allocations do go to emerging markets. And we have a 10 percent allocation to emerging-markets debt, which we think is one of the highest-credit-quality instruments that you can possibly buy. These countries have structural surpluses and much more credible fiscal and monetary regimes. They have much lower deficits, much higher growth rates, yet they trade at a 5 percent real yield concession to developed countries. It really doesn’t make sense from a credit analysis standpoint.
Are you invested in commodities or energy?
Lindsey: Absolutely. That’s been a big theme for us for a number of years. Commodities are extremely volatile, and it’s very hard to establish what the correct intrinsic value is. So I like to own the stocks of the companies that produce the commodities. If you own the producers, you can value the cash flow. If you think it’s a positive environment for your underlying commodity, your cash flow is going to increase in value. Yes, you have the equity market volatility, but I think you have an easier way to determine what your intrinsic value is.
Manilla: We have north of 20 percent of our portfolio in real assets. It’s focused around commodities, mostly — oil and gas, agriculture — and that ranges from managers doing exploration and production in oil and gas to people doing mine financing and offtake contracts. We think that is a very interesting, relatively nice return profile for the portfolio. We don’t tend to own a ton of the actual commodities because we think they’re too volatile, nor do we tend to own the equities. We actually own the asset producing the commodity.
Brown: Do you look at that as an inflation hedge?
Manilla: Some of it’s an inflation hedge. We know at any point in time through our energy managers how much of our oil or gas is hedged, so we can take views on oil and gas if we want to hedge or not hedge it. You’ve got some natural interest rate hedging there, but we don’t generally do that as a big inflation piece.
Lindsey: It’s amazing how much attention agriculture has derived among institutional investors. I started looking at agriculture in 2005. That came out of an interest in global water shortages, when I realized that agriculture is basically virtual water. Agriculture is a very difficult space to invest in, because traditionally there haven’t been a lot of opportunities for institutional investors. Also, the historical rate of return has been about 10 to 12 percent, and institutional investors haven’t found that particularly attractive. They looked at it as a bond substitute. But in today’s environment 10 to 12 percent is pretty attractive, so it’s certainly gaining a lot of attention. I never saw so many investment bankers at agriculture conferences as in the past couple of years.
Manilla: The biggest issue with ag is exit. You can actually buy farmland if you want to buy it. How you exit it is the big question that no one has solved very well.
Partridge: I would say it’s best to own the commodities. If we are really moving into an emerging consumption world where the protein content of the emerging consumers’ diets is going to be much higher, the food chain is very important. Owning the operating companies, they’re very exposed to margins, and the fact of the matter is, if you own growth crops, you are buying water and you’re buying nitrogen, and you’re trying to grow these crops. So as the crop prices are going up, the inputs to produce those crops are going up as well. You could have rising commodities and not necessarily have margin expansion, which is one of the reasons we’ve had direct exposure not only to the proteins — hogs and cattle — but also to what feeds the protein, which is corn and other grains. We do think that is another way to play emerging markets.
Investing in commodities has also been a good way to get diversification.
Partridge: And they’re very sensitive to inflationary effects.
Manilla: They have some inflation benefits, but commodities do fundamentally well when growth does well. So they are not a diversifier away from growth.
Partridge: But people have to eat. People don’t have to have iPhones. I think ag is a very important one because people will continue to improve their diets as much as they possibly can. It’s one of the most resilient asset classes. It goes back to Joseph and the Bible. Grain prices were rising in Egypt in the midst of a famine, when people were willing to sell gold and even indentured servitude to buy grain. So it is a very powerful thing.
Lindsey: With regard to inflation hedging, I think it’s an important point, because it’s not homogeneous. There are many different things that can cause inflation. I think what’s unique now is that interest rates are at such a low point, if we have rising inflation and ten-year Treasuries move from 1.75 percent to 4 percent, that could be extremely positive for risk assets, particularly stocks. When inflation starts to move above 4 percent and you start to see a bigger increase in rates, that’s going to be a different environment. What’s different this time is that when inflation does start, we’re coming off such a low base that it may be a sign that global growth is coming back, and that will be very beneficial.
Investors have been positioning their portfolios for inflation for years, and we’re all still waiting for it.
Gotbaum: I worked in the government at a time when there was very substantial inflation that clearly affected people’s psyches. As a result, it took folks the better part of a decade to realize that we might be at the point where productivity outstripped inflation. But maybe what it does is turn into a sensible level of growth and inflation in a potential recovery, a balanced recovery.
Brown: That’s why you have to stick to your strategy, because it’s so hard to make a short-term call on rates or inflation. When we began implementing our liability-based approach at Exelon, it was in the spring of 2010. We didn’t have a hedge, and we knew we were wedded to this strategy. So we implemented about a 20 percent hedge on the interest rate risk on our liability. The ten-year was about 3.25 percent, and we thought rates were going up. Everybody else thought rates were going up. We thought: “This is a hedge. We know what it’s here for. We’re going to have some pain on the asset side. Our fund status is going to improve, and then we’re going to increase the hedge.” Well, here we are at 1.75 percent, and the portfolio has done fabulously, but it was a design strategy to have that insurance in place.
Lindsey: Keep in mind, a lot of people in the investment management industry have never invested during an inflationary environment. You have to go back a long way. I started in the ’80s, when interest rates were on their way down. You have to go back to the ’70s. The largest percentage of the industry has only operated in a disinflationary environment with declining rates and rising equity premiums. Premiums are contracting now, but we’re at a 40-year low in interest rates. It’s not going to continue forever; we just don’t know when it’s going to change. A lot of people will be struggling with how to deal with that environment, because they’ve never seen it before.
Freund: I’m old enough. You didn’t have to single me out [laughter]. We did invest when we were planning for the [1984] Olympic Games. One of the most important contributors to our success was Paul Volcker, who decided to make things happen. We can talk about things that you can’t predict, but we were a money lender at that time. I think our interest income forecast went from $2 million when we were planning the games and I think we made something close to $80 million over that period of time, but it was a crazy time.
Schloss: I can’t do hard assets the way you all are because our dollars are so big. But I can set up the portfolio for inflation if I believe that it’s coming. One of the things that we’ve been trying to do, which is very hard given our limited resources, is energy. I’d like us to own energy assets. I’d like to do a corporate partner deal and have a partner in the field drilling. I believe that over time energy prices will go up and we’ll have inflation. Once you see it, it’s too late. So you have to get into it when people don’t expect it.
We didn’t talk about real estate at all. I have a staff of four people, and we can’t really do real estate the right way. I’m supposed to have $10 billion committed to real estate. The only way to invest that much in real estate with a staff like I have is through funds, and the only way you do funds is by paying a point and a half and 20 [a 1.5 percent management fee and a 20 percent performance fee]. That’s $150 million a year in fees just clicking away. The smarter guys have a 30-person real estate staff, and they own the real estate.
Downtown on Water Street the New York City teachers’ pension fund is located in a building that has a huge sign that says, “Owned by the Alabama teachers’ pension fund.” You’ve got to believe it drives New York City teachers crazy to pay rent to Alabama, but Alabama’s pension fund has it absolutely right. This is a fully leased building in the financial center in New York City. It’s earning a real return because lease rates go up. It’s a great asset. We should have that. I don’t have the staff to do it. I have four people. I need a real estate department to do that. I’m not in the money management business, but I manage a lot of money. It’s completely different.
Gotbaum: That’s true in general; you’re managing large amounts of money with small staff. That limits what you can do in a very fundamental way. It means that you’re not managing assets; you’re picking money managers and hoping you’re picking well.
Do you see that in San Diego too, or do you have a little more flexibility?
Partridge: We outsource. That’s why we have 100 people on the ground in Houston that support the team in San Diego. There’s a huge opportunity to cooperate. The idea that we’re all competing with one another, as opposed to trying to drive the best investment ideas for our plans — I just think there’s huge opportunity. Look at the investment talent at this table. Rather than everybody operating in a silo, in certain areas we could do joint ventures that take the best of our collective mind-set and go into real estate or infrastructure and manage a pool of assets on a cooperative basis.
Manilla: That’s beginning to happen a little bit more in the foundation and endowment world, because all of these limited partnerships that have general partners in trouble, all of a sudden we’re all best friends and we’re trying to figure out how to manage struggling GPs. Before you know it, that group of LPs has an entrée to working better together.
Schloss: I was at a conference of very, very large public pension funds — a global conference, there were sovereign funds there. It was all about coinvesting in infrastructure, because we should own these assets, which are long-lived and match our liabilities. The U.S. is selling these assets. We should buy them as a group and not pay the middleman, because the middleman takes a lot of fees and a lot of carry, and we’re ultimately the owner.
Lindsey: You do away with that owner-agency problem to a certain extent, which I think is huge. If you’re a large private equity fund, a large general partner, your interests aren’t necessarily aligned with your underlying investors’. If you remove that middle layer, you have a lot more focus and a lot more control over your destiny. But it’s hard to do.
Schloss: You’ve got to have staff, talent and trust, and you have to be able to make mistakes. In fact, Ontario Teachers’ Pension Plan’s first private equity investment went bust. They said: “Are we out of business? Is that it?” The answer was, “No, let’s keep going for the long term.” It did work out in the long run, but the first deal went bankrupt.
Lindsey: I think that’s a key point. My boss is the executive vice president and treasurer of the university. He has told me consistently, if I don’t make mistakes, I’m not working hard enough, and that’s what risk-taking is. You have to be willing to make mistakes, as long as you make them based on the best information you can gather but knowing that we’re never going to have perfect information and that we’re going to have to operate in an environment with a great deal of uncertainty. That’s what investing is all about.
Partridge: That’s the heart of diversification too. If the boards aren’t ready to lose money in some area, you really can’t diversify the portfolio. The whole idea is, not everything is going to go up at the same time. The goal is to not have everything go down at the same time.
Brown: It comes back to governance again.
If you could make only one investment decision for the balance of this year, what would it be?
Freund: I would echo what Larry said about energy. We’re trying in the only way we can. We don’t have a team down in Houston turning a shovel over, but I think we’re going to try to add more in that arena, because I think it will be a good thing. We’ll just have to do it through a traditional, private equity environment.
Lindsey: Megacap U.S. stocks with high dividends, or at least higher than what you could get in Treasuries. I’m talking about companies that have a 2.5 to 3 percent dividend, that have shown a history of growing that dividend over time and have consistently paid it. They have very strong balance sheets, so even if the market does nothing, you’re still going to get paid a dividend. And I would underscore that I particularly like the large-cap, megacap U.S. technology stocks.
Manilla: We’re doing stuff where we think there was a void left when the banks pulled back. Any kind of secured lending we can do against hard assets is interesting today.
Brown: I think the situation in Europe is going to present great opportunities. The trick is how you execute that strategy. If you don’t have people on the ground and you’re not buying securities yourself, you have to find the right managers. And we’re working hard on that right now. The trick is, you have to find managers that are disciplined and will not deploy capital too early. The big risk in Europe is deploying the capital too early because the situation really hasn’t fully played out yet. But I think the opportunity set is wide and large.
Partridge: The magnitude of the macroeconomic forces and the broad range of policy response that can take place lead us to continue to run a diversified portfolio, target a level of risk and divide that risk equally across equities, credit, interest rates and commodities. We really don’t know what’s going to happen in the short run.
Gissal: We’re trying to get our arms around the best way to take advantage of the increased regulations as far as trading debt at banks and what they’re going to have to spin off, but also segueing into some of the European opportunities that could be presented. Trying to be proactive and get ahead of some of these major themes that we feel could create opportunity, although we haven’t necessarily defined them to a level. But ultimately, trying to find managers that are patient, that are going to be disciplined and wait for the right risk-reward trade-off.
Schloss: Short the euro. • •
