In our continual search to find the most attractive investments on behalf of our investors, we have naturally developed biases through our experience at Makena and through our experience as investors in prior roles. In the buyout asset class, we believe small-cap funds provide the strongest opportunity to generate alpha. Due to several factors, which we discuss in the letter, Makena is ideally positioned to source and partner with top investment talent in small-cap buyout.
The investment community is acutely aware of which managers consistently perform in the top quartile, and achieving an allocation to their oversubscribed funds is difficult. Instead of asking “how do we access these top-quartile managers?” Makena chooses to ask the question “how do we find tomorrow’s top-quartile managers?” A discussion about why Makena targets these “emerging managers” and the success signals we have developed to identify them.
The investment committees of endowments and foundations have long relied on portfolios of marketable stocks and bonds to deliver operating payouts while preserving purchasing power. That model has been increasingly threatened by lower forecasted returns across both stocks and bonds, forcing a difficult decision on investment committees: decrease payouts, or embrace illiquidity in the hunt for returns. In this letter, we examine the success of endowments and foundations who have increased their allocation to private asset classes.
The events of 2018 generated concern in investment performance and newspaper headlines alike; the worst year in equity markets since the GFC was intensified by constant reminders of geopolitical unease. In our latest Strategy Insights letter, we turn to two legends of passive investing to remind us that maintaining discipline in the face of hardship pays handsomely in the long term.
Diligently adhering to these six principles ensures that we stick to our competitive edge: constructing high-quality portfolios that balance short-term risk and long-term risk by taking a bottom-up approach to asset allocation and seeking to partner with extraordinary investment managers.
We believe the formal incorporation of ESG considerations into our investment activities sharpens our ability to identify potential risks and opportunities leading to attractive long-term risk-adjusted returns. As such, we feel it is imperative to partner with best-in-class managers whose objectives and culture are aligned with our own.
The Chinese growth “miracle” is enabled by a series of policies that purposefully distort input markets in order to facilitate industrial development. In order to transition to a consumer-led economy, China needs to dismantle the distortions it put into place that led to the Chinese growth boom. That is a tall order.