This week's CAIA blog post brings together the predictions of four back-to-back presenters, all with a different take on events in the immediate future of the alternative investment industry. On the night of December 5, Canadian CAIA members and candidates met to hear pearls of wisdom from four grizzled veterans of the investment industry: Richard Rémillard, Executive Director of the CVCA; Tris Lett, CIO at Integra Capital Management; Anthony Scilipoti, EVP at Veritas Investment Research and Hazen McDonald, Fixed Income Portfolio Manager.

Each speaker had 10 minutes to talk about their respective industry and predictions. Richard noted that many private equity funds are raising money but many institutional investors have either exited or are going direct. The IPO market is very quiet and many funds have been carrying investee companies for quite a while but cannot cash out (and put high returns on the books), which causes pause for investors. However, some past venture capital investments have reached fruition and will goose-up returns over the near term -- even more so than the double digit returns that Canadian private equity funds have recorded recently. Large amounts of capital on the sidelines points to a potential surge in demand for both private equity and venture capital funds.

Tris introduced his company, which manages both alpha and beta strategies and assists foreign managers in getting their funds into Canadian investor portfolios. He opined that it is a beta world as, for the most part, returns from alpha-land have been sub-par... not even besting traditional indices in many cases. Going forward, managed futures (with their pervasive and all-important non-correlation and advantageous semi-variance) should do well in 2012. Tris sees gold (again, he made the same prediction in 2009 when it was $800) doing well and would look to be long in 10 year US Treasuries.

Anthony, a forensic accountant by trade, said that peaks create incentives for management to play fast and loose with the numbers, and downturns accentuate this, but only until the story is untenable and the façade collapses (à la Enron in 2002). He sees a second economic slow spot revealing where companies have been aggressive. Anthony also gave a few names of companies that he particularly thought less likely to sport shenanigans, but those were only for attendee ears. He also mentioned that some companies will become dodos as integration of one's online and computing experience becomes more integrated into specific platforms, leaving some of today's so-called leaders in the dust.

Finally, Hazen waxed nostalgic on the former European currencies: the French franc, the Lira, the Deutschmark; and the exchange rate mechanism lovingly referred to as 'the snake'. For 25 years he has been a fervent believer that a European monetary union without a fiscal and political one would lead to ruin. And, even with these linkages, the heterogeneous make-up of Europe is such that a Frenchman is different from a German who, in turn, is different from a Greek, etc. They do not have the same vocabulary (as opposed to language, he means use of certain words and phrases) nor the same views on life. There is no European citizen, as there is an American citizen (although Texans might disagree) and the UK is always sitting on the side watching the Continent go through its economic machinations, as it is now. Hazen's trade would be to short Bunds right now and then buy Oats (10-year French bonds) and 10-year Italian bonds the day after francs and liras reappear. There will be a tremendous gain on both sides of the trade as currencies return to their long-standing and rightful equilibrium. Timeline: within 12 months.

By James Burron, CAIA
Former CAIA Canada Chapter Executive
COO of AIMA Canada