Investing is more like a buffet than drive-through. The billions spent on mass marketing investment services is quite often a concoction of fear and greed with a dollop of hope spooned on top. For a decent amount of time, the guidance is similar to insurance you never want to claim. How many investment guidelines or IPS’s state “you need to be able to go to 100% cash for emergencies.” Over forty years in the trenches of investing I have yet to figure out what type of Armageddon, tsunami or cluster storm would warrant that. We just went through what I could refer to as a plague and if you sold you are now in a different career. There was a brief time when portfolio insurance was being pushed and ended in a flaming spiral into the sea. Investors are somewhere in a peloton, not an island.
An OCIO product is very helpful today and here are some of the reasons.
- Commercial Real Estate. This has been the true foundation of institutional portfolios. The very concept evokes strength, structure and longevity. As the asset class grew to accommodate the massive increase in demographics, the underlying thesis evolved faster than the robotic behavior of traditional investment thinking. There are obviously opportunities, but they are presented in different forms and purposes than most people understand. You need help asking the right questions.
- Private versus public debt. Those that missed the starting gun are now saying the asset class is due for a correction. I am still trying to understand what asset class does not have a cyclical pause or can become less attractive than another. As they say, there is never a warning, it just happens. That is called portfolio management and risk management. We know that although there are always casualties in every strategy, there are more tailwinds than headwinds for private debt. Although it has not been publicly stated, it is a fairly easy hypothesis to support that the FDIC and FOMC are running out of ways to rescue banks as they have gotten too large and unwieldy.
- Domestic versus foreign investing. This topic is far too broad to cover specifics but needless to say, the relative values of currencies has been and always will be the largest and most liquid market. It is a variable that overlays basic economic tenets. Is there a play to rebuild Europe? Probably.
- Similar to virtually every aspect of growth, participants in a process or market obsess over finding “the first mover advantage.” Just like computer companies hire hackers, most industries hire people to test the norm. Most corrections, defaults and economic disasters start the same way – pushing limits.
Having an OCIO is like having a 7th man on your team. Anyone who follows the status quo and does not learn every day is not an asset. They are a placeholder or someone who has last week’s newspaper, not wondering what is happening while they sleep. Perhaps more than ever it would be wise to build out your team.