Trends Watch: March 23, 2017

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
  
This week, Elana talks to Larry Rascio, Co-Founder/Principal at STRM Capital Management.

What is your outlook for alternative investments?

It becomes a question of how much uncertainty and volatility there will be going forward. Since the November election, complacency of market participants has decimated volatility and passive investing has paid off. At current levels in the equity markets, it won’t take a huge disruption for passive investors to realize that the traditional “balanced portfolio” approach is dead. That is the point in which you will see the separation between the average managers and exceptional managers widen. Only the alternative asset managers not beholden to one strategy or set of investment principles will be successful, since flexibility will be key should a spike in volatility occur. As a result, should the complacency we’ve seen to date fade, smaller more nimble managers will likely outperform.

What is your outlook for the economy?

It greatly depends on the ability of the current U.S. administration to implement the regulatory reform and tax cuts they desire. If U.S. companies are indeed able to repatriate their U.S. dollars, then that is a game changer in terms of growth. There are, however, hidden signs of trouble in the economy as well. Commercial real-estate (just look at mall vacancies across the country) and workers being displaced by automation are 2 examples of “undervalued risk” we see in the future. 

What keeps you up at night?

China in general, as well as sudden policy announcements from the current U.S. administration pertaining to China. It’s not the market risk associated with such an event that keeps us up at night (since our models are typically off between 5:00pm EST and 4:00am EST and, even when we are, carried positions have stops that were put in place at the time of entry to limit the risk). It’s potentially missing the opportunity to capitalize on the initial moves that troubles us. We have since increased our overnight staff, at least for the time being.