Shifting opportunities in emerging markets and alternative assets were key themes at the 18th annual Milken Institute Global Conference held April 27-29 in Beverly Hills, Calif.
Several panels also were devoted to increasing diversity among money managers and boards.
Africa replaced the BRIC countries as the hottest trend in emerging markets investing at this year's conference. “The old way of developing emerging markets was the BRICs ... Now they've got their issues. Now you've got to know about 100 countries,” said Jay Ireland, president and CEO of GE Africa, which focuses its operations on that continent in 10 to 12 countries.
“Africa is the one large area in the world that has a demographic dividend” with population growth, said Penelope Foley, group managing director, emerging markets, for TCW Group Inc., Los Angeles. Things are “very, very different” from the past because “governments have much better balance sheets,” she said.
Scott Minerd, chairman of investments and global chief investment officer at Guggenheim Partners LLC, New York, compared Africa to “Asia in the early days.” As the continent evolves, there will be some unpredictable events, just as there were in China in the late 1980s, Mr. Minerd said. But he added, “I will not make the same mistake (of not investing) again.”
By contrast, the eurozone is a bit wobbly, said Mohamed El-Erian, chief economic adviser at Allianz SE, Munich.
While the eurozone idea was promoted as a chair with four legs, it is now sitting on one-and-a-half legs, he said, without a fully integrated banking union to offer a common set of regulations for banks in countries that use the euro as their currency. “If there is no eurozone, there will be problems that go beyond Greece,” Mr. El-Erian said.
Infrastructure investing was another frequent topic at the conference. With many panelists expecting little action from the federal government on infrastructure financing, institutional investors are preparing to take the lead.
“Infrastructure is really a great tool to diversify our portfolio,” said panelist James Pass, senior managing director and municipal sector manager for Guggenheim Partners, who said the opportunities are there “because it is still evolving,” but public pension funds and other institutional investors will have to better prepare to research and manage those investments.
Ron Mock, president and CEO of the C$154.4 billion ($126 billion) Ontario Teachers' Pension Plan, Toronto, said while his pension fund is being more cautious in its infrastructure investments, Canada's eight major pension funds are “dying to come into the U.S. to fund (the country's) infrastructure needs” with direct investments. Mr. Mock said sovereign wealth funds and pension plans are untapped capital pools for global infrastructure investment.
The pension fund is starting to step back from investing in alternative investments like infrastructure and real estate because the asset classes are too expensive. Instead, fund executives are investing “between the asset classes,” said Mr. Mock.
When investing in infrastructure and other alternative investments, Hiromichi Mizuno, executive managing director and chief investment officer of Japan's ¥137 trillion ($1.15 trillion) Government Pension Investment Fund, Tokyo, said their 5% cap lets them invest opportunistically rather than trying to meet a target allocation.
Despite the continued distraction of wondering when the Federal Reserve will begin to raise interest rates, real estate and housing do show promise for growth, several panelists said at the conference. “Real estate represents a very attractive asset in 2015,” said William Kahane, co-founder of New York-based AR Capital, because “the fundamentals in our business have rebounded.”
During a panel on the return of volatility, experts said money managers and their institutional investor clients could take a leading role in pricing risk when the next economic downturn occurs. If asset prices drop, a willingness by institutional investors to accept lower returns could absorb those shocks, and a lot of institutional capital is already waiting “for any kind of pullback,” said Joshua Harris, co-founder and senior managing director of alternatives investment manager Apollo Global Management LLC, New York. With reduced levels of return in times of distress, investors seeking higher returns will have to be more opportunistic across industries and regions, Mr. Harris said.
