By John L. Bowman, CFA; Executive Vice President, CAIA Association.
January in Miami beach is never a bad match but this year’s self-proclaimed “Alts Week” was particularly special. While kibitzing with Derek Jeter, Ziggy and Nelly fed my idol worship, the most energizing part was catching up with old and new friends. With over 3K investment professionals descending upon south Florida for a simultaneous combination of the Context365, Iconnections and Managed Funds Association marquee events, the pent-up desire for interaction and partnership was palpable. Simply “walking the lobbies” of the hotels gave me an invigorating (and fictional) sense of hosting a Jay Gatsby party.
More importantly, it was a three-day master class in investing trends and market sentiment. After reflecting on my mental mosaic of excellent content sessions and informal conversations, I wanted to share three major takeaways:
1. The Hunt for Yield: I’ve never heard such a chorus of repeated phrases such as “fixed income replacement” and the “new 40.” Given I was surrounded by the “speed dating” nature of the event’s cap intro origins, I was within ear shot of countless GP pitches. And everyone has the divine solution for the elusive search for income for capital allocators. Putting aside the expected sales pitch bluster, this is a real conundrum for investors and many are holding their lowest levels of fixed income exposure in their career. Infrastructure, private debt, and special situation finance seems to be the natural beneficiaries to find some semblance of predictable but uncorrelated cash flows. Its clear asset allocation models will be fundamentally altered and the portfolio for the future will look very different.
2. The Crypto Gulf: It seems that larger and larger acreage of conference programming is being annexed by digital assets. Further, it seemed most of the front-line sponsors this year were crypto service providers or GPs. The number of business card exchanges with startups launching crypto custody, trading, research & analytics, or investment strategies dwarfed all my other interactions combined. While many of the enthusiasts claim we are on the verge of the institutional spigots opening, I don’t think this is the case. The GP script is that lack of compliance infrastructure, custodial security, sustainable mining, and an uncertain regulatory environment are the major impediments for large scale institutional on-ramping. But asset owners overwhelmingly tell me that they don’t buy into the digital gold or risk/return theories of crypto and are not anxious for direct coin ownership. But that doesn’t mean they aren’t believers. Rather, with the exception of some progressive endowments and family offices, most investors are taking a diversified approach across the venture capital space to gain broad exposure to the blockchain, DeFi and cryptography eco-system. It will be very interesting to see whether more institutional friendly crypto strategies and/or a true crypto ETF proliferate later this year. For now, the disconnect is self-evident and needs addressing.
3. Rise of the Athletes: Professional sports stars have always been a celebrity draw at investment conferences but there has been a profound change in their contributions and identity more recently. At the organizational level, we’ve seen the professional clubs across the major sports democratize their ownership, exploit digital technology to better connect with fans, and leverage their brands across commercial real estate, merchandise, network programming, gaming, NFT’s and more. These are no longer teams that just compete on a court or field periodically but rather powerful monetization platforms. A-Rod’s venture capital firm, NBA Top Shot ubiquity, and dedicated sports private equity platforms like Arctos Sport’s Partners are just a few examples that highlight this movement. Further, the significant investment in financial literacy resources for young athletes coupled with increasingly lucrative contracts has also accelerated interest from current players to use their personal likeness and league cultures for investment purposes. The world of digital coins, the metaverse, collectibles, and immersive gaming offer an unparalleled intersection between sports, culture and investing that is being innovatively led by athletes. “In Web2, tech investors were buying efficiency and search algorithms while in Web3, investors are buying culture and lifestyle” said Jonah Blake, Chief Gaming Officer of Game Fund Partners. In other words, culture, not solely future cash flows, is the value proposition. I think this trend is still in its infancy given the investment capital available and the cultural loyalty towards these platforms and professionals. We should watch this space closely and stay open minded.
About the Author:
John Bowman, CFA serves as Executive Vice President for the CAIA Association, overseeing the industry leading CAIA charter, the thought leadership and advocacy agenda, as well as stewarding CAIA’s Asia Pacific growth aspirations.
John has devoted 25 years to the asset management industry to recover the narrative of the value that the investment profession brings to society. He is a staunch public advocate for market integrity, long-termism, investor outcomes, diversity, human dignity and educational standards, as necessary ingredients to building a sustainable and healthy profession.
John previously served as Managing Director for the Americas for CFA Institute, a region comprised of 40+ countries from Canada, the U.S., Central America, South America and the Caribbean. Bowman joined CFA Institute in 2004 after holding several industry positions. He served as a portfolio manager at Mellon Growth Advisors (MGA), where he was responsible for portfolio construction and stock selection for the MGA International Growth and MGA Global Growth strategies. Bowman also served as a portfolio manager for the International Growth Opportunities Strategy at State Street Global Advisors (SSgA) in its Global Fundamental Strategies Group. Before moving into portfolio management at SSgA, he was an equity analyst focused on domestic and international telecom, technology, consumer products and retail.
John is a prolific writer and commentator, frequently appearing in industry and business publications such as the Wall Street Journal, The New York Times, Pension and Investments, Financial Advisor, The Independent, Wealthmanagement.com and CNBC.