Let me play the antidote to a lot of “new normal?” questions coming my way. It is important to stay methodical, thoughtful (as in historically curious), and realistic, and avoid those consultants and Twitterati whose role it is to ever pretend (and sell) the next new movement or thing. And take this from a guy who was once the futurist researcher telling another industry (the paper industry) the sky really was falling when no one would listen.
This time the sky is not falling, and I say this because of something Sam sang in Casablanca, “The fundamentals will apply…as time goes by.” And the sky I’m talking about here that won’t fall is made of two essentials to the ADISA retail alternatives family: the underlying economic principles of our overall asset class – which are sound – and the events industry, which will recover nicely.
ADISA and others have pop-up webinars which deal with the microeconomics of the various subsectors of our alts industry. There is always shuffling on which products do better or worse – background noise – so the task is to estimate how sudden exogenous variables will affect the subsectors. And the “airwaves” fill with programs to tackle those estimates. Stay tuned to those for the microeconomics.
What is foreseeable at the macro level is that retail alternatives, and alternatives at large, will be in even greater demand in the long term. Alternatives have grown relative to traditional investments for the past decade, and I would attribute much of this to three main reasons: 1) dissatisfaction with market volatility, 2) better computing (e.g., tracking tools like the spreadsheet made more complex portfolios common), and 3) increased awareness (e.g., through marketing, acceptance, etc.). Those fundamentals have not changed, and there is no substitute – á la Porter’s forces – challenging on the horizon.
As for events, a quick look at some fundamentals is encouraging. I looked back at historical trends, starting from events in the late 1800s to 2016, and the intersection with the five major pandemics during that time. Admittedly, I have not collected enough micro data to run proper statistical analyses, but the easily available data would indicate little if any effect on large events from pandemics (but apparently a lot from wars, by the way).
The fundamentals here are also social. As an old primatology professor of mine said, “primates form social groups because we like each other.” Can we “like” each other enough via telecommunications alone? I don’t think the technology can do so. Relatedly, I recently ran an experiment at Georgia State University, where we pitted ADISA’s treasurer, Mark Kosanke, against a top robo-adviser over a period of nearly two years to see who could provide the best investment returns (fees included). Our man beat the machine in 18 out of 18 portfolio scenarios. My money is on the humans.
While technology may enable or amplify the effects of some event-simulating communication, I do not predict that it will substitute for in-person meetings. Absent physical restraint, we primates always seem to return to meeting each other live and in person. I can predict with reasonable certainty that I will see you at ADISA’s Annual Conference this fall; and that will be normal indeed.
Sincerely,
John P. Harrison
ADISA Executive Director