Trends Watch: Alternatives; Health Care
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 with John Rende, Managing Partner & Founder, Copernicus Capital Management.
What is your outlook for alternatives?
I feel quite strongly that the alternative asset class (more specifically long/short equity) will be an important tool in an investor's portfolio, particularly when the inevitable correction occurs. It is historically true that traditional hedge funds underperform in upwards-biased markets, but to us the key is proper risk management in all markets, which can be most optimally expressed in a long/short fund. Hedge funds have gone through several cycles of maturation over the past decade, arriving today at a place where fees must be better aligned with investors’ expectations and risk management of portfolios is paramount.
What is your outlook for the economy?
It is well appreciated that the U.S. economy is in a sweet spot today, where unemployment is at all-time lows and GDP growth is such that inflation is non-threatening to the Fed. Risks are certainly out there and are well defined, whether they be overly aggressive tariffs or escalation in relations with Iran, but the U.S. economy today is the most balanced of all developed countries, allowing our Central Bank to turn more dovish if global threats to growth permeate over to our homeland. In the world of health care there are, of course, many continuing concerns that have been around for quarters and even years. I do not see the rhetoric around curbing drug spend ending anytime soon, but many of the sub-sectors within health care have reflected such concerns in underlying valuations. As Democratic debates heat-up, there will perhaps be more discussions around Medicare-for-all, but I do not see this ever being a viable option under any scenario, thus providing opportunities in stock selection as these debates roll-out.
What keeps you up at night?
I am not aware of many portfolio managers who actually get a good night's rest, and perhaps it is just a condition of this chosen industry. Health care can be particularly susceptible to this syndrome, given the plethora of unknowns that can creep up overnight. We typically try to avoid the more traditional "binary" risks, but health care by definition is a highly regulated industry fraught with risks. This is why, it is my belief, that a long/short model is the most optimal in managing a portfolio where such underlying stocks are subject to high dispersion.