Money managers and their institutional investor clients could replace banks as the entities that will price risk during the next economic downturn, said several members of a panel on the return of volatility at the Milken Institute Global Conference in Beverly Hills on Monday.
Should market prices drop, investors accepting lower returns like insurance companies and pension funds could be a “shock absorber for the market,” said Carey Lathrop, managing director and head of global credit markets at Citi, one of the speakers on the panel.
However, none of the speakers expects another 2008 meltdown.
“It won’t be that simple this time around,” said Joshua Harris, co-founder, senior managing director and a member of the board of directors of alternative investment manager Apollo Global Management.
Instead, investors will have to be more opportunistic across industries and regions, Mr. Harris said.
“The level of returns in distress is not what they were,” Mr. Harris said. There is a lot of institutional capital “waiting for any kind of pullback,” he said.
For example, some managers rushed in to invest in the energy sector when it stumbled as a result of the drop in oil prices. But it is too early to invest in energy compared to fundamentals, Mr. Harris said.
Speakers on a panel on distressed debt, also on Monday, agreed that it is too early to invest in energy.
Christopher Pucillo, CEO and chief investment officer of Solus Alternative Asset Management, who spoke on the distressed investment panel, said oil and gas investments are too high because they are based on future oil price assumptions that are too rosy.
Steven Shapiro, founding partner and senior portfolio manager at GoldenTree Asset Management, agreed that it is too early to invest in energy.
Investors are more likely to get a better risk-reward from equities than debt because an oil price recovery has been priced into debt, whereas equities have not, Mr. Shapiro said.