Trends Watch: January 12, 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 Chris Stanton, Chief Investment Officer/Partner and Jason Gerlach, Chief Executive Officer/Managing Partner, of Sunrise Capital Partners.

What is your outlook for the alternative investment industry?

We see both positive and negative trends affecting the alternative investment industry going forward. On the positive side, more and more investors, whether individuals, family offices, institutions or otherwise, are recognizing the importance of diversifying one’s portfolio with alternative investments. In response, asset management firms are providing more and more creative and cost-effective ways to investors to access alternative investment expertise.  On the negative side, many of the investors flocking to alternative investments have limited understanding of of them, have completely unreasonable expectations for how they will perform, have crowded their investments into the hands of just a few “mega managers,” and have put such downward pressure on fees that they have begun to dampen innovation and excellence in the space.   Ultimately, something has to give within these various, often conflicting trends and so what we will probably see is an eventual contraction of the current “mega manager” dominance of the alternatives industry.  After all, no truly alpha-generating alternative investment strategy is scalable to the sizes to which many have been pushed by the surge of interest in alternatives. Eventually, we will therefore see a redistribution of assets toward smaller and mid-sized managers who offer compelling, truly differentiated investment solutions.

What is your outlook for the economy?

If the last several weeks of 2016 are a fair indication, we are potentially in store for a sea change in our domestic economy in 2017 and beyond.  Given what we’ve seen from the U.S. economy over the past several years, investors and managers have grown accustomed to a steady yet relatively slow-growing economy that has been hampered by political gridlock.  The election of President-Elect Donald Trump, his pairing with Republican majorities in the U.S. Senate and House of Representatives and his subsequent nominations for various government positions have a strong potential to end the gridlock and take U.S. economic growth to another level.  While some of Trump’s appointments will be controversial and may not endure the confirmation process, many of them represent some of the brightest minds in finance and  the industry and working in tandem with a better-functioning government, they could significantly boost GDP and turbo charge the bullish stock market run that’s unfolded over the past several years.

This could in turn accelerate what appears to be the early stages of a “great rotation” from bonds, gold and other perceived “safe harbor” assets into equities and other riskier assets and in turn perpetuate even more growth. 

What keeps you up at night?

As asset managers, we literally are up each and every night watching the markets in which we invest and the constant risks and challenges those markets pose to our investors.  We must be continually vigilant to ensure that we are taking risk in the most responsible possible way and providing our investors with the best possible chance to achieve compelling investment outcomes.  Beyond our 24/7 approach to investing, we are often left sleepless by the incredible concentration of assets that has occurred in recent years and that has resulted in a small cadre of multi-billion dollar asset managers.  Should any one of these “mega managers” stumble in any material way, the results could be cataclysmic and lead to a host of unforeseen, very damaging ripple effects throughout global markets, the alternative investment industry and the economy generally.