Asset Management: Growth Investors Adapt to the New Paradigm

“The problem is next year”

Growth investors are, by nature, optimistic. They believe that we are living in a unique wave of technological change and that a small group of companies can achieve exponential gains by shaping the future. The role of the successful investor is to identify these companies.

For this great read, I sat down with a number of the world’s top growth investors – from the likes of Coat management, Baillie Gifford, T Rowe Award and polar capital — to understand how they view the market environment at the moment. Their investment philosophy has come up against the buzz of rising interest rates, inflation, war and a looming recession, all of which have led to blind selling in tech stocks.

baby tiger Philippe Laffont, founder of New York-based Coatue, is among the most bearish voices. Following the market downturn earlier this year, Coatue liquidated positions in its hedge fund. In May, the fund had more than 80% cash, according to investors.

“I feel like there’s definitely value in the public markets over the next five years,” says Laffont. “The problem is next year.”

“The world is going from bad to worse, not getting better,” he continues, listing the list of macroeconomic headwinds that worry him: no end in sight to the war in Ukraine; the global energy and food crises; raising interest rates to combat soaring inflation; geopolitical tensions between the United States and China, and between China and Taiwan.

Some believe setbacks represent a cautious buying opportunity, and while the macro environment may have prompted a more conservative near-term approach, everyone I spoke to said they still believe the technological revolution that underpins their wallets was just beginning.

But one thing is sure, say Older Davidhead of equities at €33.2 billion asset manager Carmignac:

“We are not going back to the way things were. Regardless of how high you think interest rates will go, this shift from essentially free money to the cost of capital will have permanent negative effects for growing businesses.

How can growth investors adapt to this new paradigm? Email me: harriet.agnew@ft.com

Fund managers present ‘alts’ to retail investors

A saturated market for institutional clients is pushing asset managers to pursue another business: selling so-called alternative investments to wealthy individual investors, writes Madison Derbyshire At New York.

The alternatives deviate from traditional stock and bond portfolios to asset classes such as credit, private equity and real estate. More difficult to trade and often blocked by accreditation requirements, they have historically been the domain of large investors such as pension funds and endowments.

That looks set to change. According to a report by McKinsey, the average retail investor has only 2% alternatives, compared to 30-50% for institutions. The consultant estimates that retail’s share could double to 5% over the next three years, adding between $500 billion and $1.3 billion in new capital to the alternatives.

“At the end of the day, if you think about market size, high net worth is as important as institutional wealth,” says Joan SolotarHead of Wealth Solutions at Alternatives Manager black stone. “These are huge markets that have been largely untapped.”

Black stone, Sun Life Financial and KKR are among those stepping up their alternative offerings for retail investors, many of whom are looking to diversify beyond the struggling 60/40 portfolio of stocks and bonds.

“At least 15-20 new products with different strategies, from all the different major managers, will hit the market over the next nine months,” says Steffen Paulfounder of a retail-focused private equity investment platform Moonfare. “It’s a huge change.”

Read the full story here

Chart of the week

Thousands of victims have been swept away by a tidal wave of fraud that has accompanied the crypto boom during the Covid-19 pandemic, writes Joshua Olivier in this Big Read.

Scammers stole $6.2 billion from victims worldwide in 2021, according to blockchain research group On-chain analysis, an annual increase of about 80 percent. Losses from crypto-related scams reported to Action Fraudthe UK’s national fraud reporting centre, more than doubled to £190m last year compared to 2020. And, by the end of August, losses were 25% higher to those of the same period last year.

Yet investigators lack the resources to investigate the concomitant increase in fraud cases, particularly when the sums involved in individual scams are believed to be relatively small. And, with the cost of living crisis set to deepen, UK regulators are warning another fertile environment for scammers could be on the horizon. “We are concerned that in the current economic circumstances people may be tempted to invest in bogus investments,” says Nausicaa Delfasacting general manager of the Financial mediation service.

10 stories not to miss this week

Debt monsters in a downturn: The FT explores the dozens of debt-ridden businesses that are suddenly facing uncomfortable increases in their borrowing costs after a long period of rock-bottom interest rates masked by cracks in their business models.

by Robert Gibbins Capital AutonomyThe macro hedge fund, hit by a sharp sell-off in emerging markets, has offered investors the chance to cash out and get some losses back after falling nearly 30% so far this year.

Troubled fund manager Abrdn plans to return up to £500million to shareholders in a bid to prevent a revolt after its humiliating relegation from the FTSE 100 earlier this month. The payment, which could take the form of a special dividend, will come from the sale of stakes in other companies.

Markets suffered another slump this week after another inflationary surprise, writes the markets editor Katie Martin. The long-awaited pivot to a more user-friendly Federal Reserve politics seems increasingly distant, and another calculation beckons to investors.

After more than three years of waiting, the Financial Conduct Authority raised hopes that a payout of more than £300million could be made to investors in the collapsed £3.7billion Neil Woodford funds, ahead of a trial that is expected to begin in December.

There’s a new sheriff in town at Jupiter Asset Management. Incoming CEO Matthew Beesley is preparing for a restructuring to cut costs and revive growth after years of investor exits from the £48.8bn asset manager.

Wall Street investors nervous over planned $15 billion debt sale to fund software maker’s leveraged buyout Citrix. Weak demand for bonds and loans is a warning as inflation risks rattle financial markets.

Black-smith founder Terry Smith ended its £319.4m emerging markets strategy, saying performance had “fallen below our expectations”. Lex looks at the pain in emerging economies that convinced one of the UK’s best-known stock pickers he couldn’t win.

Ethereum completed an extraordinary software update this week. The so-called “merger” has been described as changing the fundamentals of the $200 billion cryptocurrency ether and a vast share of Web3. Hedge funds betting on change have created ‘one of the most crowded trades in crypto’ [short] the story”.

Elsewhere in crypto, FTX founder Sam Bankman Fried paid approximately $45 million for a 30% stake in Capital SkyBridgethe vast majority of which was immediately invested in cryptocurrencies as part of a deal to build confidence in Antoine Scaramucci‘s business funds.

and finally

If you’re only watching one thing this week, make sure it’s Scandal!a Netflix documentary chronicling the incredible story of how my colleague FT Dan McCrum busted the huge and fraudulent German payment processor wirecard. It’s all in there: the lies, the espionage, the dirty tricks, the legal attacks, the disbelief throughout the German establishment, the bloated auditors and the comically incompetent regulators in Frankfurt.

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