“Multitasking, in short, is not only not thinking, it impairs your ability to think.”
-Farnam Street

Shane Parrish who runs the Farnam Street website summarized and weighed-in on a recent study published by Stanford Researchers on the topic of “Multitasking.”

The study set out to understand why college students can multitask more effectively than working adults (I don’t know what previous evidence prompted the hypothesis). 

The conclusion was that they can’t and more importantly they don’t

The illusion of being more productive was due to focused, undistracted attention and not an ability to multitask. 

In fact, the group in the study who was defined as being multitaskers based on their real-life routines and habits, was actually worse at multitasking than the “nonmultitasker” group because they were so scatterbrained as a result of their daily habits. 

Allocator or Global Macro PM? - zbra

Back to the Global Macro Grind… 

I sent our macro team a report published by Prequin yesterday about the surge in committed capital for Tech-Focused private funds. Here are a few highlights: 

  • “Private equity buyout firms are on course to make more investments in the technology sector in 2018 than in any year prior.
  • In 2018 YTD there have been 286 tech-focused private equity funds closed, raising a total of $68bn.
  • Strong interest in the sector has helped push tech-focused AUM to a record high of $569bn as at the end of March 2018.
  • This brings the average fund size to $238mn – the largest ever for tech-focused private equity funds.” 

One of the first questions asked was, “Where is all this money coming from?”

Our Director of Research, Daryl Jones, was quick to point out the obvious Public-to-Private hand-off that has taken place. 

In terms of gathering assets, the email chain reminded me of a hypothetical conversation this same group joked about when walking through New York in between meetings (we had just walked by the headquarters of one of the most longstanding well-known buyout shops): 

Allocator: How have you made-out with this huge surge in volatility to start Q4?

PE Manager: We haven’t. Our NAV is the same. We don’t plan to sell anything any time soon. 

Allocator: Wow, my public equities manager is a multitasking, stressed out mess. More assets for you, guy. You’re way less irritable. 

In my opinion, a model that forces long-term thinking from both the allocator and manager is a great concept that hopefully catches a structural tailwind in public market asset allocation. For many managers, I’m sure this set-up has major appeal. 

If you could sit in your quiet office with only hard copies of important reading material all-day, without having to worry about your mark-to-market risk, you’d probably have to multitask a little less. Those public market investors with long-term track records that sit in a quiet office outside of financial hubs are probably on to something. 

I’m by no means making a big call here other than stating the facts, and saying that 30+ years of nominal interest rates moving lower and very easy money over the last decade has helped this model and the AUM flow we see in the Chart of the Day.  Because of those “capital funding” facts, economic downturns have probably been a little less painful in PE broadly. 

AND, I don’t think a prolonged downturn in a growthier, cyclical part of the economy or an extended period of time where rates move higher, should either of those happen soon, is going to make a portfolio that bets on asset price appreciation and takes less-frequent marks a “Savior” strategy (how much of that committed capital in Tech-Funds is planning to sit on their hands and wait for carnage rather than join the party ASAP I don’t know). 

Daryl was also quick to point out that Long-Short equity is such a contrarian allocation right now which is of course cyclical. For example, how newsy is market-neutral quant underperformance in 2018? Note: It’s gotten less bad since Q4 started.

I had the chance to go to a Manager-Allocator conference last week, and it was fascinating seeing the interaction between allocators looking risk-adjusted diversification and managers that operated in very esoteric arenas who were trying to get allocations.

To add an anecdote to the Prequin study, one thing that stuck out was the explosion in “Interval Funds” which I knew very little about before last week. It’s a fund that is a mix of public and private securities that gives investors quarterly liquidity. The push to raise new money for private deals, particularly from individuals who haven’t traditionally had access, has exploded. 

Overall, allocators who can look across a global spectrum have increasingly more access to private markets and have more low-cost variety in public markets. However, this also comes with All-time-highs in distractions luring them into short-term thinking. 

I thought to myself that, in a way, an allocator with the ability to cast a wide net and move money around at ease with more targeted exposure is like a different mold of a Global Macro Fund structure... At least for now until too many get stuck in the wrong stuff at the wrong time. 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now: 

SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7045-7421 (bearish)
Utilities (XLU) 53.30-55.96 (bullish)
Consumer Staples (XLP) 54.99-57.25 (bullish)
REITS (VNQ) 78.00-81.91 (bullish)
Industrials (XLI) 69.12-73.60 (bearish) 
Shanghai Comp 2 (bearish)
Nikkei 210 (bearish)
DAX 113 (bearish)
VIX 15.82-23.40 (bullish)
USD 95.55-97.60 (bullish)
EUR/USD 1.11-1.14 (bearish)
YEN 112.52-114.40 (bearish)
GBP/USD 1.27-1.30 (bearish)
Oil (WTI) 55.08-61.32 (bearish)
Nat Gas 3.50-4.90 (bullish)
Gold 1192-1226 (neutral)
Copper 2.65-2.82 (bearish)

Good Luck out There Today, 

Ben Ryan
Macro Analyst

Allocator or Global Macro PM? - 11.15.18 EL Chart