Presenters at a New York conference for high net worth (HNW) investors see plenty of reason to be nervous in the coming years about global markets and economies, but they also see a few opportunities for investors.
Inflation will be a big concern for investors in the coming years, according to Kyle Bass, founder of Hayman Capital Management L.P. in Dallas, as people focus on nominal returns instead of real returns.
“If you are so focused on nominal pricing, and equities and the monetary base is growing as fast as it is, you have to really focus on the insidious nature of what inflation is and how real returns might be negative in both equities and bonds,” Bass told members attending the TIGER 21 annual conference, a peer-to-peer learning network for HNW investors.
Bass recommended investors look at owning assets such as apartment complexes, oil wells or global businesses with exposure to different currencies. “If you really want to protect yourself you put long-term fixed rate debt on these businesses,” he said. “Just don’t put too much debt on these businesses.”
Another way to find growth in the market in order to outrun inflation is by investing overseas. Northern Europe provides opportunities despite its anemic economic growth, according to Marc Lasry, co-founder of Avenue Capital Group in New York. That’s because of the strength of its legal structure and the safeguards it provides. “There are issues in Europe that will work themselves out over time,” said Lasry. “This provides opportunities over the next five years.”
Pierre Lagrange, co-founder of London-based GLG Partners L.P. is particularly interested in European companies because of their global outlook. “European companies have to go out of their way to find other things to do because they don’t have domestic demand,” said Lagrange. “They have to get out of Europe – which we love because then investing in European companies provides exposure to emerging markets.”
Investors who are really bearish about global economies and markets need to turn to precious metals, according to Eric Sprott, founder of Sprott Asset Management L.P. in Toronto.
Sprott expects the United States to eventually default on entitlement payments if inflation pressures the financing of the federal deficit. “I can safely say that social security will not be paid, Medicare will not be paid, and government civil service pension plans will not be paid,” he said.
As such, Sprott believes it’s important for investors to hold physical gold and silver as an investment strategy. “Gold bugs see the logic of what is going on,” he said, “and know how to react to it.”