Our “Insights” seek to identify actionable investment themes and carefully articulate the logic behind why such themes are important and how they should evolve over time.
July 31, 2019: Letter to Investors
The Little Engines Who Can: Why Small-Cap Buyout Can Drive Investor ReturnsIn 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.
July 15, 2019: Makena Emerging Manager White Paper
Emerging Manager AlphaThe 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.
May 25, 2019: Makena Endowment White Paper
The Endowment Model RevisitedThe 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.
May 20, 2019: Makena Strategy Insights Letter
Staying the Course: Perspectives from Bogle and Buffett on Sticking to the Plan During Market UpheavalThe 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.
April 15, 2019: Makena Long/Short Equity Whitepaper
The Long and Short of Long/Short EquityMany investors have questioned the wisdom of investing in Long/Short Equity (LSE) funds as industry returns have lagged broad equity indices in recent years. However, Makena’s LSE portfolio has generated attractive risk-adjusted returns across market environments for the Makena Endowment Portfolio (MEP) while reducing the MEP’s risk profile. In this Strategy Insights Letter, we discuss Makena’s approach to LSE funds and highlight one of our core manager allocations.
April 2, 2019: Makena’s Six Investing Principles
Larry Kochard, our Chief Investment Officer and a Manager Director, lays out the six principles of our investment philosophy which we have honed throughout our cumulative experience managing capital on behalf of North America’s leading endowments and foundations, financial advisors, family offices, pensions, and high net worth individuals.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.
January 28, 2019: Makena Co-investment Whitepaper
Since our inception Makena has been an active investor in co-investment opportunities with our managers and across several of our asset classes. Over that time, we have honed our co-investing framework to optimize our execution capabilities and diligence process. Due to the growing interest in co-investments, we reviewed our co-investment history and learnings and have summarized our thoughts to share with you.Over the past 15 years, there has been tremendous growth in the availability and participation in co-investments by institutional investors. Multiple surveys indicate that over half of all Limited Partners (“LPs”) are seeking to co-invest alongside managers to augment returns, reduce fees, and build stronger General Partner (“GP”) relationships. Co-investment benefits are well documented, but it is important to note that a successful co-investment program requires specialized diligence skills and a methodical, systematic decision-making process to avoid adverse selection pitfalls.
October 22, 2018: Makena ESG Report 2018
Makena Capital believes that an investment process that integrates environmental, social, and governance (“ESG”) factors enhances our ability to manage risk and create value for our investors.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.
June 15, 2018: Emerging Markets Update
EM Sell-Off: Cause for Concern or Buying Opportunity?After outpacing broad equity markets in 2017, the Emerging Market (EM) equity index has underperformed other markets during the first half of 2018. A series of negative news stories – including higher U.S. interest rates, a stronger U.S. dollar, unstable political conditions, escalating trade wars and weakening domestic economies – have led to the recent declines. The EM equity index has lost -10% since January (through May), leading to meaningful outflows from EM mutual funds. In our 2017 annual letter, we highlighted our conviction in Makena’s EM equity investments as a long-term theme based on attractive valuations, robust growth and the ability of our managers to exploit less efficient opportunity sets. We noted that our exposure to EM public equities is at its highest level since our inception in 2006. In the wake of recent events, we want to offer our reaction to such developments and an update on how we are navigating these markets.
September 30, 2017: Makena Strategy Insights Letter
Are We There Yet?Coming off a year in which global equities have enjoyed a rally of proportions typically only seen in a post-recession recovery, the natural question is, are we at the top? Rather than lament the high valuations in stock markets, we focus on what could drive markets higher from here. We break down the drivers of stock prices and compare them in the US, Europe and Emerging Markets, and discuss which have room to run and which have run their course.
June 30, 2017: Makena Strategy Insights Letter
Elusive Alpha: Exploring the Necessary and Sufficient Conditions for the Availability of Excess Returns from Active InvestingThere has been much soul-searching around the lack of alpha generation within the investment community. The common wisdom has become that the lack of alpha generation has been driven by record low levels of volatility in the US and abroad. In our latest Strategy Insights letter, we challenge this commonly held perception by taking an analytical approach - calculating nearly 2.5 billion data points in the process. We present a framework for assessing when alpha might be available and how profitable various strategies might be under different conditions.
March 31, 2017: Makena Strategy Insights Letter
Not Your Parents’ GDP Growth
While real GDP growth is often considered a proxy for the forward progress in standards of living, shifting demographics (marked by aging, slower-growing populations) across the developed world require a rethinking of the long-held goal posts of absolute growth rates. Our latest Strategy Insights letter examines this reorientation, and probes the intergenerational consequences of a slower growth future.
December 31, 2016: Makena Strategy Insights Letter
Shell Game: A Case for Active Management in Light of New Policy Proposals
The current proposals for a border adjustment tax (BAT) and disallowance of corporate interest expense deductions are being touted as boosters to the overall US economy. Our latest Strategy Insights letter explores how these policies will more likely represent a redistribution of wealth across sectors versus promoting any growth of the aggregate pie. With potentially large shifts in relative attractiveness across sectors, and more uncertainty than usual given the magnitude of proposed reforms, active management across sectors is poised to outperform.
January 31, 2017: Makena Strategy Insights Note
Inflation: Reasonably Strong Fundamentals + Trump = Higher Future Inflation in the US
With healthy underlying inflationary pressures in the US economy prior to the election, President Trump’s goal to reduce income inequality via the “confiscation” of assets that is implied by heightened inflation show the path for inflation may be even higher going forward. This represents a shift in the investing environment that few investors have experienced, the last inflation period dating from the 70s. As a result, a focus on real assets, currency, and domestically focused companies are likely important for return enhancement.
September 30, 2016: Makena Strategy Insights Letter
Policy and Rhetoric: Are The President-Elect’s Campaign Promises Achievable?
Many promises were made on the campaign trail by both candidates but only Donald Trump’s intentions matter now. The country may be grappling with a more challenged income distribution landscape but will the campaign rhetoric of the President-Elect correct these issues that propelled him into the White House? Digging into comments around fiscal expansion, tax rate restructuring, and a manufacturing revival, our latest Strategy Insights Letter reveals a difficult balancing act ahead.
June 30, 2016: Makena Strategy Insights Letter
Equity and Bond Markets: 60/40 Portfolio’s “Glory Days” May Be Nearing Their End
For the last 5 years, the 60/40 has returned almost 9% annually with very low volatility thanks to negative correlation of bonds and stocks during this period. However, with near zero bond yields and languishing equity fundamentals, is reliance on that negative correlation for protection still a safe bet? Our latest Strategy Insights Letter discusses the return profile of bond and equity markets in today's environment and examines the risk of a 60/40 portfolio going forward.
March 31, 2016: Makena Strategy Insights Letter
A Job or a Career: How Bifurcation of Incomes in the US May Lead to Lower Growth
As job creation continues, it is important to understand the quality of those jobs in terms of the income they provide. The following analysis will shed some light on why real disposable US household income growth has been subdued for nearly a decade, and what it means for economic growth.
December 31, 2015: Makena Strategy Insights Letter
Oil: A Buy for the Long-Run Investor
It is no secret that oil is down approximately 50% from its recent peak in the summer of 2015. But questions abound: how low can oil go? How big is the supply “glut”? And most importantly, what do the announced capex cuts imply regarding global oil demand if oil prices are to stay in the $30-$40/barrel range?
September 30, 2015: Makena Strategy Insights Letter
Emerging Markets: Finally Attractive Enough for a Significant Tilt?
While it seems unlikely that EM growth will accelerate to the levels witnessed during the early 2000s, such growth is not a prerequisite for EM assets to be attractive: relative growth differentials between EM and DM are sufficient to drive superior EM returns over the next several years.
June 30, 2015: Makena Strategy Insights Letter
The Rate Hike: Deeper Dive into the Impact on Equities
As far as we can tell, this will be the first time since at least the ‘80s that the Fed will be hiking rates in a situation where growth is not accelerating. A 100 bps instantaneous increase in the yield of 10-year treasury would lead to a 20% sell-off in the S&P 500, due to market participants essentially adjusting multiples in light of a new interest rate outlook.
March 31, 2015: Makena Strategy Insights Letter
Rates “Lift-Off”: How to Invest When History is No Longer a Guide
The impact of a rate hike could certainly be a catalyst for an equity sell-off but without history as a guide we are left with only deductive reasoning, which typically only provides relatively vague forecast ranges. The days of a predictable policy path are now behind us as the Fed has gone to reacting to economic data as it comes out. How does the long term investor navigate these more volatile times?
December 31, 2014: Makena Strategy Insights Letter
The ECBs Quantitative Easing Program: The Only Option Left, but Will it Work?
Many attempts at jump-starting the Eurozone economy and thereby generating inflation have left us with an alphabet soup of ECB policies: ZIRP (zero interest rate policy), NIRP (negative interest rate policy), OMT (outright monetary transactions), LTRO (long-term refinancing operations), asset purchase programs, etc. On January 22nd, the ECB announced its own QE program.
September 30, 2014: Makena Strategy Insights Letter
US Dollar Strength: What This Means for the Global Economy
Since the beginning of the summer, the trade-weighted US dollar has appreciated approximately 8%, or over 35% on an annualized basis. Because the US dollar remains the cornerstone of the international monetary system, such a change has important ramifications for trade, growth and income on a global basis.
June 30, 2014: Makena Strategy Insights Letter
Lower Growth is Here to Stay: Expect Subdued Returns
Lower Fed forecasts finally acknowledge a reality that is very hard to accept, that is the lower potential growth of the US economy, and indeed perhaps that of the global economy. Should growth be lower than historically was the case, then returns to capital will likely be lower as well.
January 31, 2014: White Paper
Europe: A Lost Decade Ahead?
The credit crunch under way now for five years in Europe may have already created permanent and irreversible damage to those economies. We ask the question: Is Europe on its way to a lost decade?
December 31, 2013: Makena Strategy Insights Letter
Wage, Income, Rates, Taxation, and Regulation: Why Growth Will Remain Below the Historical Trend
The divergence between high and low earners explains why we see seemingly contradictory macro data: how can unemployment fall while real disposable household income remains unchanged? This is yet another headwind to growth in addition to increasing rates, increasing taxation and increasing regulation – all reasons why we believe long-term potential growth for the US will remain below the historic potential growth trend.
April 31, 2012: White Paper
The Road Ahead for China
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.