Bloomberg Wealth Summit
April 7, 2022
By Bloomberg Live
As the world enters year three of the ongoing global pandemic, rising inflation fears, market volatility, and low yields from conventional sources continue to bedevil investors, but there are signs of growth and opportunity. Experts in the industry talked about intriguing but tricky alternatives, such as sports, AI, real estate and cryptocurrency and its future regulation, and how that search for yields is fueling a new generation of financial technology.
- Michael Arougheti, CEO, President & Co-Founder, Ares Management Corporation
- Gerry Cardinale, Founder, Managing Partner & Chief Investment Officer, RedBird Capital Partners
- Stephanie Drescher, Partner, Chief Client & Product Development Officer, Apollo
- Cully Eisenbeis, Team Leader, Edward Jones
- Richard Falkenrath, Chief Administrative Officer, Bridgewater
- Catherine Keating, CEO of Investor Solutions & Wealth Management Divisions, BNY Mellon
- Meena Lakdawala-Flynn, Co-Head of Global Private Wealth Management, Goldman Sachs
- Marc Lasry, Chairman, CEO & Co-Founder, Avenue Capital Group
- Kai-Fu Lee, Chairman & CEO, Sinovation Ventures
- Michael Levy, CEO, Crow Holdings
- Lynn Martin, President, NYSE Group; Chair, ICE Fixed Income & Data Services
- Timothy Massad. Former Chairman, Commodity Futures Trading Commision, Former Assistant Secretary of the Treasury
- David Rubenstein, Co-Founder & Co-Chairman, Carlyle Group
- Craig Salm, Chief Legal Officer, Grayscale
- Allan Schwartzman, Art Advisor, Schwartzman & Art Advisory
- Tiffany J. Smith, Partner, WilmerHale
- Joan Solotar, Global Head of Private Wealth Solutions, Blackstone
- Emily Vande Krol, Principal of CIM & President, CCO Capital
- Ryan Williams, Founder & CEO, Cadre
- Sonali Basak, Financial Correspondent, Bloomberg Television
- Caroline Hyde, Anchor, Bloomberg Television
- Jason Kelly, Chief Correspondent, Bloomberg QuickTake
- Carol Massar, Anchor, Bloomberg Television & Radio
- Mark Miller, Global Editor, Bloomberg Live
- Matt Repking, Major Accounts Leader, LinkedIn Sales Solutions
- Erik Schatzker, Editor-at-Large, Bloomberg Businessweek
- Allyson Versprille, Crypto Regulation Reporter, Bloomberg
- Natalie Wong, Commercial Real Estate Reporter, Bloomberg
- Laura Zelenko, Senior Executive Editor, Bloomberg
Global Trends in Wealth Management
With the focus on capital growth and wealth preservation, Meena Lakdawala-Flynn, Co-Head of Global Private Wealth Management, Goldman Sachs said that alternatives are the hot topic for clients at all levels. And while inflation has many pivoting their portfolios and hoarding cash, her firm is predicting less than 4% inflation by year’s end. Healthcare, energy, and disruptive tech are winning strategies. “We’ve seen no decrease in clients’ commitment to alternatives, nor do we recommend it.”
Lakdawala-Flynn spoke to a dramatic increase in wealth held by women and Goldman Sachs’ program – In the Lead – that brings women with common values together.
The Expanding Alternatives Space
It’s interesting to see equity and debt markets working together across the globe, said Michael Arougheti, CEO, President & Co-Founder, Ares Management Corporation. In the next five years, the best returns will come from China and other Asian markets.
When it comes to alternatives, growth rate has doubled, and he expects that to continue for a decade or more. Sports is “investable in a way not on the table 5 or 10 years ago. It was never thought of as an asset class accessible to all.” It was a pandemic and “a world without fans in the seats” that changed everything. “When you peel it back, it’s about content; the entire ethos of in-person and beyond that’s driving values.”
The New Reality for Tech Innovation
Kai-Fu Lee, Chairman & CEO, Sinovation Ventures lives in Beijing and talked about how Shanghai is dealing with another Covid-19 outbreak. AI is playing a number of roles, including vaccine production and robotic buses and delivery vans, but called the latter a small impact on a city wide shutdown. But deep tech companies are where the new venture capital money is, in areas like biology, drug development and semiconductors. “Right now, we are investing in about 50 AI companies, and 10 will go public in the next 10 to 18 months.” AI had marked a steady, annual growth rate of 1.5, but jumped to 7. Ripe for disruption is AI in healthcare, with the likes of digital radiology and genetic mapping, with the challenge of getting biomedical and AI people to “get along.”
Lee said they are getting in early and going along for the ride on semiconductors. Traditional thought does not give them a good ROI, but things are changing, with government support in terms of land and factories and supply chain issues that make them easier to sell domestically, driving a price bubble. “China is feeling it has to develop self-sufficiency.”
The Chinese market is almost completely open to investors, with deep tech offering a window of opportunity, Lee said.
The Crypto Regulatory Landscape
Regulating cryptocurrency “should be more than one thing,” said Craig Salm, Chief Legal Officer, Grayscale, about President Biden recently ordering federal agencies to launch studies. He conducted an impromptu audience poll that appeared to indicate a preference for structure in crypto trading. At Grayscale’s website, he said, anyone can read more than 3,000 investor letters to the SEC. “Crypto is here to stay, and America wants to lead.”
Tiffany J. Smith, Partner, WilmerHale agreed with the need for structure, adding, “The existing currency scheme can’t just be adapted for digital currency,” and that the order didn’t include giving states the opportunity to weigh in.
“High-level standards, like the JOBS Act,” may be the way to go, suggested Timothy Massad. Former Chairman, Commodity Futures Trading Commision, Former Assistant Secretary of the Treasury. “Enforcement is not the way. It takes time, applicability is not always clear and there’s no opportunity for public comment.”
Managing Through Market Chaos
Lynn Martin, President, NYSE Group; Chair, ICE Fixed Income & Data Services said she sees a path to a soft landing out of the volatile economy. “We’ve been here before, and under a lesser crisis in finance.” It will take three things; a tightening of rates by the feds, “but not too much,” commerce to continue strong management through uncertainty that brought a spike in production and a shift on consumer spending from goods to services.
The risk of a recession in the U.S. this year is low, according to Catherine Keating, CEO of Investor Solutions & Wealth Management Divisions, BNY Mellon. She spoke about the need for investment policies in wealth management in response to a dramatic shift in how we save for retirement, and predicted the next phase of the economy will be akin to the post-global-crisis 1950s. Client interest in NFTs is peaking. “Think about how it kept the art market going. It’s an example of the tremendous capacity for innovation in this economy.”
In Conversation With Stephanie Drescher, Partner, Chief Client & Product Development Officer, Apollo
Stephanie Drescher, Partner, Chief Client & Product Development Officer, Apollo, talked about how the range of investment options had changed, such as perpetual products. ”A year ago we had zero, now three, and by the end of the year, we’ll have about six.”
Making wealth creation accessible to everyone is a goal. “So many people have been left out. The democratization of alternatives is real, and being able to provide institutional-quality opportunities to individuals through financial advisors is absolutely necessary.”
LinkedIn Sales Solutions Sponsor Spotlight: Relationships First, Portfolios Second
Since 2016, the number of clients who say an advisor’s social media presence is critical to their relationship has jumped from 12 to 29%, said Cully Eisenbeis, Team Leader, Edward Jones. “As the marketer in a financial services firm, I cannot not be more excited to hear those types of numbers.”
LinkedIn has made investors more confident about social media, Eisenbeis said, and told a story about his dad being dubious about social media and news sources, yet finding confidence through his financial advisor’s Facebook article links. “This concept of being out there and delivering insights is all about building trust, especially times of volatility.”
Managing Global Risks
To directing security at Bridgewater, Richard Falkenrath, Chief Administrative Officer, brings a background that includes a PhD in war studies, Deputy Homeland Security Director, advisor to President George W. Bush, there during the SARS epidemic and in the situation room for the 9/11 attacks, and then working on counterterrorism in NYC. “I thought 9/11 would be the geopolitical shock of my lifetime. Now we’re back, 20 years later.”
When it comes to the war in Ukraine, Falkenrath said that rather than try to determine how the conflict might spread, it’s more important to understand the potential domino effects downstream, such as global food shortages. As for Vladimir Putin, “That was not a statistical probability. That was a decision.”
On the potential for nuclear escalation, it’s not likely, he said, but he believes the general public does not even think about it since the end of the Cold War. “But once they’re in the conversation, you have to take them very seriously. Whether they are used purposefully, or by accident, it’s another threshold of the world order.”
Bloomberg Wealth: Avenue Capital Group’s Marc Lasry
David Rubenstein, Co-Founder & Co-Chairman, Carlyle Group, uncovered key investment strategies and tactics from Marc Lasry, Chairman, CEO & Co-Founder, Avenue Capital Group. Noted was Lasry’s rather laid-back style for someone in venture debt, which he describes as the willingness to invest heavily in an idea, which banks won’t do. Distressed debt is only going to increase, Lasry said. Avenue is lending at 8 to 12% against assets, even when there is no cash flow.
Lasry was asked about his life story, from immigrating from Marrakech to buying the Milwaukee Bucks basketball team, and playing HORSE with team members. The latter made up for having paid $100 million above the nearest bidder.
The Retail Revolution Comes to Alternatives
Joan Solotar, Global Head of Private Wealth Solutions, Blackstone echoed the strategy of bringing institutional investing to the masses, and spoke to why it took so long for the retail channel to develop. It takes a lot of training for advisors and investor servicing. The biggest hurdle to overcome? “Anytime you call something ‘alternative,’ it sounds foreign.” She spoke further about alternatives being draw down funds for top tier investors, requiring a 10-year commitment.
Bloomberg New Voices Initiative Update
Zurich and Tokyo are about to come on board in media training to assure female voices are helping to diversify sources, especially in finance. Since 2018, Bloomberg has tripled the number of female experts it includes, said Laura Zelenko, Senior Executive Editor. “If you care about representation in your own firm, you need to care about how your corporation is represented in the media.”
The Future of Real Estate
Learning from the past is the first requirement in the shift to individual real estate investing. Ryan Williams, Founder & CEO, Cadre said they built the industry’s first secondary market because of the inaccessibility to most. “It’s leveling the playing field, and we don’t want a repeat of 2008-09. We’re giving investors ways to recover now that weren’t available then.”
“Boots on the ground,” is how Emily Vande Krol, Principal of CIM & President, CCO Capital summed up their approach. “We are in every community where our investments are. We look at retail. What are their needs?” Individual investors want to understand and take control of how real estate factors into their portfolio.
Michael Levy, CEO, Crow Holdings talked about macro and micro views, and predicting where people are moving to. In the disrupted retail space, holding on are small, storefront businesses unaffected by ecommerce trends. “It’s the one area we have been executing successfully on.”
The next big market is NYC, predicted Williams. Various areas are opening up during a new exodus into the suburbs. Investment opportunities will be created by the city’s cultural dynamics.
When it comes to real estate investing, “there’s no secret sauce,” Levy said. “The business is about people. That’s the edge, and you earn that by doing what you say you’re going to do over time.”
Building Wealth Through Art
Fine art typically takes the opposite course of the markets, said Allan Schwartzman, Art Advisor, Schwartzman& Art Advisory. Apparently, a pandemic is also a motivator. Global art auction sales increased 60% in 2021, hitting $17.1 billion. That, while sellers were holding back somewhat, “not wanting to appear inappropriate, or desperate.”
“The last three years saw a great uptick of collectors at the highest end, people for whom the difference between $50 and $100 million doesn’t seem that much.”
Schwartzman offered an engaging example of the fickle art market by contrasting artists Jasper Johns and Andy Warhol, who both found fame while alive, and two pieces; Johns’ “False Start” and Warhol’s “Orange Marilyn” that each sold for $17 million, but at very different times.
“Blue Marilyn,” he said. will be up for auction soon in New York City, and is expected to fetch around $200 million, setting a record for a 20th century painting.
Investing in Sports
The convergence of sports, tech, media and culture is a head-shaker for Gerry Cardinale, Founder, Managing Partner & Chief Investment Officer, RedBird Capital Partners, bringing an “unbelievable” number of fans into a more involved space. He spoke about the XFL and sports investing expanding away from team ownership. The scarcity in that creates value, but something has to give. “It’s a multi-billion dollar industry with no equity research,” Cardinale said of sales that are nearing $5 billion for a single franchise. “Basically, they look at the last trade and put a markup on it. The slope of that curve will have to change.”
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