Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.
With so much money flowing into new markets like renewables and cleantech, we will see some companies succeed and perhaps become the next Tesla. We will also see some companies fail spectacularly. In other words, there will be a great deal of dispersion. We have seen hundreds of special purpose acquisition companies (SPACs) raised in the last few years, with many focusing on cleantech and other forms of energy and transportation disruption. Most of them assume a J curve in their revenues and profits, and I think it’s reasonable to expect that they won’t all achieve their projections. However, given limited sell-side coverage, identifying those that will make it and those that will not could prove to be lucrative.
In thinking about energy investment opportunities, I believe having a differentiated time horizon is essential — that is, focusing on the long term when others are focused on the short term, and vice versa. When things go bad in the energy sector, it’s difficult for investors to imagine how things can go back to normal. During the COVID crisis, for example, many were ready to write off the oil market, believing that prices were permanently impaired and treating the equities and debt of the companies accordingly. But as we saw…
In recent years, nearly every asset owner I have spoken with has had questions about their fixed income allocations: With yields as low as they are, can a traditional fixed income allocation still serve as an “all-in-one” diversifier? Should I be worried about risks in the credit market? What role should alternatives play in filling gaps in my portfolio?
The pandemic only added to the questions. It created an unusual level of disruption in capital markets, leaving diversification, the bedrock of strategic asset allocation, in short supply. At the same time, asset owners have had to contend with unprecedented market narrowness and structure issues, and the risks of monetary and fiscal policy experiments. And the likelihood of continued low yields (despite the recent uptick) suggests that traditional fixed income will struggle to produce the total return that many have come to expect and may offer less protection from volatility. While I still see a role for government bonds as ballast, I think complementary allocations need to be considered.
For many asset owners, the first option that comes to mind is private credit. But while private credit may well support return-seeking objectives, I don’t think it does much to…
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