Jay Willoughby, Boston-based chief investment officer at TIFF Investment Management, said his institutional clients are most concerned about high inflation and its interrelation with rising interest rates and the potential for a recession.
"The annualized CPI rate has dropped from about 9.1% in June 2022 to 6.4% in January," Mr. Willoughby said in an interview. "That's good progress, but given how strong the job market is, it will be very difficult, if not impossible, for the Federal Reserve to take measures to push the inflation rate down to its 2% mandate any time soon."
As a result, it is very likely the Fed could "tighten too much," a measure that will lead to some short-term economic pain, but in the long run would be beneficial, he added.
While Mr. Willoughby said he is cautious this year on both stocks and fixed income, he is nonetheless bullish on Chinese equities as the Chinese economy awakens from a COVID-19 lockdown amid some fairly strong fundamentals.
"I see China as a countercyclical play," Mr. Willoughby said. "Unlike the western economies, China is not suffering from inflation and the reopening of their economy points to a strong recovery."
Noting that Chinese equities are currently trading at a moderate 11.5 times forward earnings compared with 18 for the S&P 500 index, Mr. Willoughby likes Chinese stocks.
He further noted that the Chinese government, under the rule of President Xi Jinping, has enacted policies to stimulate consumer spending by targeting the huge amount of personal savings that were sitting on the sidelines during the pandemic. The Chinese central bank is also encouraging financial institutions to resume lending to private-sector firms.
"Large international investors had been bearish on China after they imposed tough lockdown rules and this depressed equity valuations," he noted. "So now I think is a good time to lock in on Chinese stocks."
Indeed, on Monday, Goldman Sachs Group issued a report suggesting that the MSCI China index could surge by 24% this year — after plunging 21.9% in 2022.
Mr. Willoughby also said the institutional clients with which he deals, primarily endowments and foundations, have evinced a greater interest in private equity assets, given how poorly traditional asset classes such as stocks and bonds performed last year.
"The conventional 60/40 portfolio has come under some criticism, especially when you consider that specific allocation had its fourth worst year of performance in the past 96 years," he said. "As a result, I can say that our institutional clients are seeking to increase their exposures to private equity, as this broad asset class continued to outperform again last year."
Indeed, using the S&P 500 index and Bloomberg U.S. Aggregate Bond index as benchmarks, a of 60% U.S. stocks and 40% bonds returned -16.1% in 2022. The former lost 18.1% while the latter slid 13.1%.
TIFF had about $8 billion in assets under management as of June 30.