Trends Watch: March 15, 2018

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 John Scurci, Founding Partner and Chief Investment Officer, Corona Associates Capital Management.

What is your outlook for alternatives?

2018 will be a positive year for alternatives as it will mark the return of market volatility caused by the unwinding of global Central Banking policies. This set of circumstances will give active managers an opportunity to distinguish themselves from passive investment vehicles as a rising interest rate and inflationary environment lead to a dispersion of risk re-pricing among disparate assets.

 What is your outlook for the economy?

Contrary to consensus views on synchronized global growth prolonging this economic expansion cycle, our firm is concerned that rising interest rates (caused by Central Banks tightening loose monetary policy, incipient inflation, and continued weakening of the U.S. Dollar) will constrain credit conditions in a global economy where high levels of debt cannot sustain increased servicing burdens. A credit contraction will lead to a deterioration of economic conditions, decline in asset prices, and a recession.

What keeps you up at night?

There are a myriad of risks facing complacent investors. Foremost, investors are unprepared for the return of rising interest rates and inflation and the volatility that these forces will inflict on elevated, and correlated, financial asset prices. Furthermore, we believe the likelihood of a Federal Reserve policy error is heightened in that both asset prices and economic actors cannot withstand the removal of easy monetary policies and tightening credit conditions without suffering impairments. If the velocity of rising interest rates' pace increases, inflation accelerates, or the U.S. Dollar's decline gain momentum (spurred by a lack of foreign sponsorship), elevated risk asset prices are vulnerable to significant declines, and Central Banks will have few tools available to combat these set of circumstances besides a reversal of tightening policies and a return to unconventional easing.