If you’re an investor or market watcher, it’s not unreasonable to have a bit of whiplash.
According to Blackstone CEO Steve Schwarzman, even though this turnaround could engender some cheery feelings, you shouldn’t get too comfortable because the market is actually a bit dicey.
“The market tantrum in the first part of the year resulted in lots of dislocation, some of which has normalized, some of which has not,” he said in the company’s quarterly earnings call Thursday.
“For example, many hedge funds were caught wrong footed in a classic short squeeze when the markets rebounded in March. Segments of the debt market still remain under considerable pressure. Investment sentiment is fragile and characterised by significant caution around choppy economic data, negative rates, political rhetoric and other factors.”
“If you had been invested in the typical portfolio, mostly equities and fixed incomes, you would have made basically no money so far this year as well as all of last year,” he said.
“Most pension funds is one example, obviously [they] can’t reach their actuarial targets of 7% to 8% at the rates of return we’ve seen in the public markets and that’s not even addressing the issue of volatility.”
Schwarzman isn’t the first to make this point. Goldman Sachs CFO Harvey Schwartz said on a recent conference call that nearly 80% of the largest active US equity mutual funds underperformed their benchmarks in the first quarter.
Hedge funds meanwhile are getting walloped. Investors pulled
nearly $15 billion from hedge funds in the first quarter — their worst withdrawals in years, according to Hedge Fund Research.
“How can investors generate sustained positive returns against this type of turbulence?” asked Schwarzman. “The answer is many can’t, at least in the traditional areas of money management. We’re increasingly looking to the alternative area as a result.”
Surprise! Schwarzman is pitching Blackstone’s investment funds as a part of the solution. Blackstone is an alternative manager offering private equity, hedge fund and credit funds, and the purpose of the call is to convince large investors in the firm on the future of the company.
That means we are getting a bit of a sales pitch from Schwarzman.
Still, it is still interesting to get a peek inside the view of one of the world’s heavyweight investors. Which, it appears, is fairly downtrodden for the average mum and pop investor.
Tread lightly, you never know when a “fragile” market is going to shatter.