2024 Investment Forum Recap

The Hightower Investment Solutions team wants to give a big thank you to the Hightower community and advisors for joining us in Savannah, Georgia for the 2024 Hightower Investment Forum last week! We had three action-packed days full of insightful conversations with leaders across public and private markets. Also, we had the opportunity to listen to a timely discussion on the state of the U.S. presidential race, which now sits less than two weeks away. We break down the conference below, highlighting top ideas and themes discussed by the speakers.

Economy

Stephanie Link kicked off Investment Forum by providing her opinions on the current market and economic environment. Stephanie began with the same question from last year: “How many of you believe the economy will fall into a recession in the next 12-24 months?”. Maybe surprising to some, almost nobody in the audience anticipates a recession hitting the U.S. economy in the near term, a large divergence compared to last year’s conference. Inflation is trending lower, the labor market remains balanced, and the Fed is in the midst of a rate-easing cycle. We acknowledge the many crosscurrents facing markets, but with an economy growing above trend, markets continue to push higher.

Inflation and the Labor Market

Neil Dutta sat on a fireside chat with Stephanie Link to discuss strategies to navigate the fiscal shifts. Neil does not share the same growth prospects as others specifically as it relates to the labor market; companies are slowing hiring and employees are quitting jobs at a lower rate. He said the jobs market is weakening, and that we are not out of the woods yet as it appears to be continually slowing. He also noted that small businesses are struggling; sentiment is low and borrowing costs are high with a large portion of floating rate debt. Most small businesses are waiting to alter investments and hire workers till there is more clarity following the election.

Politics

2024 U.S. Presidential Election

For one of the most engaging discussions of the conference, Zach Christopher joined Jason Cole of FS Investments to learn about election implications. Jason believes we already know who all 50 states will elect outside of seven: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. He said that of the seven, Pennsylvania is the most contentious, and whichever candidate wins Pennsylvania will likely be the 47^th president of the United States. Jason provided one of the most non-conformed ideas of the three-day forum: the election will likely be undecided until after November 9. In 2020, it took Pennsylvania four days and Georgia nine days to verify voting results. He believes many states will be too close to call on election night with the margin being so close that many states will need to conduct a recount of their votes. His most likely outcome is a republican sweep with a Republican-controlled Senate as the constant across different congressional formations.

Public Markets

Technology and Artificial Intelligence

Dan Ives and Alex Kantrowitz kicked off the afternoon session with a technological deep dive fireside chat with Stephanie Link. Alex, CEO of Big Technology, believes some of the AI industry is still in the early innings, with others in later innings. Dan Ives shares a different view: we are in a once-in-a-forty-year technological transformation moment. Dan believes the AI party is just getting started – it is 9 p.m. and the party goes until 4 a.m.! Their favorite picks include many mega-cap technology and cybersecurity companies. Also, Dan and Alex both believe cybersecurity is a necessary industry, as cyber budgets could rise 15% in 2025.

Steffen Meister hosted a keynote, speaking on the new traditional asset class in a brave new world. Steffen, Executive Chairman and Partner at Partners Group joined us in Savannah all the way from Switzerland to provide pivotal insights into the quickly advancing global economy. We learned that public and private markets have swapped roles as IPOs have shifted away from the real economy – private market capital formation has outpaced global equity issuance since 2016. Steffen’s main takeaway was that change is not the only constant, the only constant is the acceleration of change. Each successive global economic transformation has been twice as fast as the previous one. The personal computer took 20 years to reach full adoption, with it taking 12 years for the internet, 6 years for mobile, and a projected 2-3 years for artificial intelligence. He believes private markets will continue to outgrow public markets in the brave new world, led by technological advancements.

Technical Analysis

Chris Verrone, Partner and Head of Technical Macro Research at Strategas, was one the most anticipated speakers of the event. Chris is a leading technical analyst on Wall Street and provided great content on the technical landscape of financial markets. He is of the belief that technology is not as monolithic as it has been. Markets have been trading higher on broadening breadth, a sign of a healthy and evolving market. Markets are also not showing much fear of yields moving higher. If there was fear, we would likely see leadership from consumer staples, which has yet to materialize. Chris voiced his opinion that there would be greater concern if the 10-year Treasury yield fell below 3.60% than compared to continually trending higher of 4.30%. Also, strength across financials and regional banks has been correlated with an increased probability of a Trump victory. Regional Banks (KRE) was a clear leader following the 2016 election.

Rich Ross, Senior Managing Director and Head of Technical Analysis at Evercore, provided a chart-packed presentation on public markets. Rich believes that technical things happen for fundamental reasons and uses the four P’s when utilizing technical analysis: price, policy, politics, and positioning. He is seeing breakouts in the S&P 500, Nasdaq 100, technology, and software. He is not too concerned about yields moving up much higher, citing a phrase “4.24, but not much more” regarding the ten-year Treasury yield. There remains room for credit to tighten even further and stocks to continue rising – BBB spreads are still yet to hit the tight levels seen in 2021.

International Equities

Mike Shea hosted a conversation on global markets and discussed finding new routes for international diversification. He was joined by Rahul Sharma, Apurva Schwartz, and David Nadel. It has been 13 years since international outperformed U.S. equities, and Apurva sees five factors as to how internationals could again outperform in the future: the ‘Magnificent 7’ decline, China returns to growth, India continues its trend atop global economies, global peace, or AI goes international. David shared that when it comes to international investments, the company is always more important than the country. The valuation spreads between U.S. and international equities are near the all-time wide, and he is looking for a reversion to the mean to occur.

Fixed Income and the Yield Curve

Lee Majkrzak hosted a panel to discuss what the yield curve is telling markets. He was joined by Shawn O’Leary, Robert DiMella, and Leah Traub. Leah’s opinion was that the Fed is very reactionary. She gave the Fed a B- as it relates to their control of monetary policy coming out of COVID-19 and believes they will further support markets in any downturn. Shawn and Robert shared similar thoughts on the Municipal bond market; municipalities’ credit ratings are very strong, and the BBB market is virtually non-existent given the number of recent upgrades. An interesting fact was shared by Robert which hits on the health of the Muni market: BBB municipal bond default rates are historically lower than AAA corporate bond default rates.

Neil Dutta’s base case is for the Fed to cut interest rates by 25 bps at both the November and December FOMC meetings. He said it is unlikely that the Fed will pause rate cuts this year in fear of appearing not being in control or mistakenly cutting 50 bps. Also, it is more likely that the Fed front loads rate cuts and then pauses than do the opposite and pause during the cutting cycle.

Private Markets

Hightower Advisors CEO Bob Oros took the stage to begin day two. He was joined by Hartley Rogers, Executive Co-Chairman of Hamilton Lane. Hamilton Lane is nearly a $1 trillion asset manager specializing in private markets. Hartley believes it is essential that retail investors have the ability to access a broad, diversified array of investment opportunities. He noted that private equity has performed well over a long period of time and that these longer-term investments can influence companies in a different way than public, shorter-term investments. Also, Hartley believes that a Trump victory is a better outcome for public markets and private equity due to a more favorable regulatory environment.

Private Credit

Keri Findley discussed Tacora Capital’s differentiated private credit strategy. Tacora lends capital against loans, leases, equipment, and other assets. Southwood is the fund’s largest investment which invests in defaulted student loans. The team works with the borrower to pay off their loans, incentivizing them by assisting in paying off some of the principal balance if a certain number of monthly payments are hit in a row. Tacora’s goal is to buy non-performing student loans, work with the borrower to turn them into performing loans, then securitize the performing loans and sell them for a gain. Capital has stayed away from this industry due to its politically sensitive nature, and Keri and her team have found ways to capitalize on an overlooked market. Themes in their strategy consist of insur-tech, acquisition finance, prop-tech, fin-tech, and ag-tech.

GP Stakes

Robert Picard hosted a panel with prominent private market investors: Michael Rees, Bennett Goodman, and Robert Hamilton Kelly. The conversation covered GP Stakes; a general partner (GP) stake investment is a type of investment that gives investors a minority stake in a GP. The investor receives part-ownership of the firm, gaining exposure to management fees and carried interest costs. This form of investment financially aligns the GPs and limited partners (LP) goals and incentives. Bennett Goodman shared that one of his current best opportunities is the mid-cap space. It focuses on companies valued around $25-50 billion across all asset classes: private equity, private credit, and real estate. He noted it is much easier to double a company at a lower valuation than say $1 trillion, but it is important to have conviction, a plan, and a strong management team to get this done. Overall, we learned that GP stakes are a growing class of alternative investments that strategically align both the GP and LP.

Co-Investments and Secondaries

Frank Cordio, alongside John Fitzgerald, Bob Long, and Kunal Shah, discussed the importance of co-investments and secondaries to diversify private market portfolios. Co-investments are minority investments made alongside private equity fund managers into a company to bypass fees and other expenses. Secondly, secondaries are when an investor purchases an existing interest or asset from a primary private equity fund investor. Both of these investments offer diversification benefits to a rudimentary private equity, private credit, and real estate alternatives portfolio. John Fitzgerald, co-founder of Millennium Bridge Capital (MBC), is a pioneer of co-investment strategies. Co-investments generally deploy and return cash more quickly, and all-in costs for MBC investors are below the standard 2% fee / 20% carried interest for direct investment funds.

So Long, Savannah

We once again thank Hightower Advisors and sponsors for joining us in Savannah for the 2024 Investment Forum! Learn more about the speakers who joined the conference here, and we look forward to seeing everyone again next year!

Stephanie Link’s TV Schedule:

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.