Never before have so many wealth-management executives spent so much time speaking with disease experts.
One of them is Avy Stein, co-founder of Cresset Capital Management, which oversees about $6 billion in assets.
Stein, who co-founded a private equity firm before starting Chicago-based Cresset in 2017, spoke with Bloomberg shortly before a scheduled call with clients and Ian Lipkin, director of the Center for Infection and Immunity at Columbia University’s Mailman School of Public Health.
“There are a lot of rumors going around,” said Stein, whose firm caters to ultra-high-net-worth individuals and families. “It will be a sort of level-set for them.”
The interview has been edited for space and clarity.
What is the mood among your clients?
We use a lot of private investment vehicles with our clients and our correlation to the market turned out to be relatively low. So the level of freakout isn’t quite as high as it might be on a retail level.
Most people’s attitude is that this is going to be longer and worse than thought. They see the stimulus and things like that that and wonder, ‘Why are we focused on this rather than on containing the disease?’ I’ve talked to a lot of epidemiologists and most believe we should go to complete lock down for a minimum of a few weeks.
I talked to a client the other night who wanted to put money to work in stocks because they think it’s the bottom. I said I’d be slow on that — I think we have a ways to go. The only thing that will get the economy and the market back to normal is getting control of the disease.
Do you see any targeted market opportunities?
If you have the capital to buy private equity secondaries, this is a really good time.
In the past when things have gone down, some people with long-term illiquid assets want to sell, because of bank requirements or people just feel the need for more liquidity, whether endowments or individuals. To the extent you can buy diverse pools of private market assets at a discount, those have been pretty good ideas in the past.
Distressed high-yield debt is going to be very interesting. Looking hard at the underlying cash flow of every business is really important, staying vigilant about liquidity. Depending on the length of this, some companies aren’t going to be able to survive. If Boeing doesn’t get a bailout, it’s effectively bankrupt. (Read more: Boeing weighs deep cuts with $60 billion bailout bid pending)
What are your business-owner clients doing?
People are looking at what costs they can cut, how they can be good stewards to not only shareholders and themselves but to employees and stakeholders. How can they can keep as many people employed as possible yet have the enterprise succeed?
Any business that depends on people going out and doing things is going to be hit really hard. It won’t stop consumption of groceries and won’t stop people from buying from Amazon. It will hurt activity in some of the big consumer product areas — consumer durables have to be very difficult.
Are clients doing much with their portfolios?
Some people are frozen. Usually when there is uncertainty they either panic or freeze. Our job is to make sure they don’t panic, and if we’ve done this right, we set up portfolios so they can withstand these kinds of downturns. People are listening to the advice not to panic.
My advice to every businessperson, harking back to my days in the private equity business, is you have to think boldly. There can be nothing that’s not on the table now, whether you look at positions that you need to temporarily eliminate, or furloughs, changes in compensation, lines of business that aren’t going to make it or even markets that won’t make it.
With compensation, maybe give people an equity interest instead of cash. There’s a lot you can do to defer things. This is definitely not a time for inability to make decisions. It’s a time for bold and decisive action. I heard an analogy the other day– it’s almost like we know the hurricane is off the coast and you’re starting to get the rain and the wind. It’s not like we’re halfway through it and it’s going to be better tomorrow.
This article was provided by Bloomberg News.
