Overheard at Conferences

Ask A CIO #38

It’s been an eventful several days in the news and in markets. As is often the case, this week’s market volatility has been accompanied by a lot of noise. I’m not discounting the potential impact of tariffs, and the broader backdrop of geopolitical uncertainty doesn’t feel great. But I’m also wary that focusing too much on market gyrations can lead to short-term thinking and unproductive decision making.

One of the great advantages to being an institutional investor is the network of other long-term oriented institutional investors. Get us all together at a conference, and an observer will find us all subtly (or not subtly) signaling our calm and methodical reactions to macro uncertainty. Skepticism tends to be our default setting anyway, and what is a market correction if not validation of our previous skepticism?

I spent the better part of this week at conferences catching up with alternative asset managers and other institutional investors. Tariffs, inflation, trade wars – of course those topics came up. But so did plenty of others. I’m sharing a sampling of the other discussions and takeaways, as a window into what else investors and managers are thinking about.

On AI in Private Equity

There appears to be growing consensus on the utility of AI. Several use cases were cited at both the investment firm and portfolio company level. As one example, an industrials-focused private equity investor discussed AI for predictive maintenance and monitoring of factory machinery. At the firm level, multiple managers discussed using AI tools that enable investment teams to query internal databases and more efficiently run due diligence processes. As an interesting side note, given the rapid pace of AI innovation, firms expressed reluctance to commit too deeply to any technology or software in order to avoid potentially high future switching costs.

On Japanese Equities

In the early 2010s, Japan initiated a series of economic policy changes and corporate structural reforms. It started with the “three arrows” of Abenomics (monetary easing, fiscal stimulus, and structural reforms). Investment capital has ebbed and flowed into Japan since that time. Historically, one major challenge for Japanese equity investors has been the difficulty of aligning company management with shareholder interests. Institutional investment has notably picked up in recent years, as more investors are optimistic about Japan’s pace of and commitment to improving corporate governance. It helps that valuations are reasonable relative to history and other global markets. Some investors are more convinced than others that this time is different.

On Tapping Into Wealth

As I’ve noted before, almost every manager of a certain size and up appears to be in market with a wealth product, developing a product, or figuring out how to build a product. Even knowing that background, I was still surprised to see panels and discussions dedicated to strategies for reaching retail investors. Well, more specifically, the segment of retail investors now dubbed the “wealth channel.” One popular strategy appears to be merging alternative investment firms with mutual fund firms that have broad distribution into financial advisor networks.

On CLOs (collateralized loan obligations)

A quick background on CLOs: CLO vehicles are created to purchase and manage portfolios of broadly syndicated loans, aka leveraged loans. The CLO vehicles themselves are securitized and issue rated debt, known as CLO securities. Demand for the highest rated AAA CLO paper has been high, and spreads have conversely been tight by historical standards. One manager’s conclusion? Since Japanese banks are among the largest buyers of AAA CLOs, AAA CLOs are just a closet yen carry trade. Hottest CLO take I’ve heard in a while.

On Venus Williams

Everyone knows (or should know) that Venus Williams is an incredible athlete, having won 7 Grand Slam singles titles. Lesser known, Venus was the driving force behind equal pay for men and women at Wimbledon and the French Open. And least known: Venus shared during a keynote interview that she has been rewatching the 2000s hit, Sex and the City, and is a self-professed Miranda. Amazing, and so relatable.

A quick note before I wrap up. Unsurprisingly, the demands of building our business here at Ivy Invest continue to increase. As much as I enjoy writing this newsletter each week, I’ll be scaling back to bi-weekly notes.

As always, thank you for joining me, and please keep reaching out: askacio@ivyinvest.co!

Until next time,
Wendy