Governance Today
(December 2016)
As the equity markets reach new heights and economic indicators demonstrate strength, the US financial system has arguably recovered from the trauma that was 2008/2009. Advisors and Directors alike have jointly enjoyed a period of generally positive equity returns and market upswings, albeit volatility has been unpredictable. Yet, asset flows have been extremely concentrated and have favored those sponsors offering indexed products and most prominently ETFs. Net asset growth has very much disfavored the active manager of late. However, with the outgoing transition from DC of the Obama administration and dramatic change arguably on the horizon, one might surmise that active managers might once again have the opportunity to renew their patina.
More to the point, one would be hard pressed to argue against the notion that, with the election of Donald Trump to the office of US President, corporate and general economic scenarios will be highly unpredictable in the short-term. While many campaign promises are notoriously not kept by newly-elected Presidents, Mr. Trump threw out into the public eye many grandiose plans – the markets have responded optimistically. Consider the following quandaries as a new administration takes over. Who can say that significant infrastructure spending will be adequately covered by private funding or through approved deficit spending? Will some level of US protectionism result in better or worse returns for US companies? How will US trade policy be affected by the Trump administration? Who will take Mary Jo White’s position and how will the SEC change under the Trump administration? Will NAFTA be dismantled? What will become of Dodd-Frank, Fannie, Freddie, and financial services regulations? Will Obamacare survive and, if not, what will take its place? These current quandaries are all issues that have not begun to play out at this juncture, but should in time provide ample opportunities for profitable investment, either long or short.
From an inquisitive Director’s standpoint, many probing – arguably unanswerable – macro advisor questions emerge from the cacophony. What US trading partner agreements might be retooled and how will this affect the “flow of funds?” How might elevated government spending benefit certain sectors? How will possible tariffs, quotas etc. impact corporate profits? Most important, what specific scenarios are most realistic and that an advisor might view as actually playing out? And, what investment-related actions does an advisor view as prudent to ‘front run’ a new administration’s potential actions? Perhaps the best course for Boards is to not expect or confirm sizable and definitive movements into targeted industry segments or securities at this stage, but to obtain comfort that monitoring of economic and market developments is rigorous, anticipated asset price movements under possible scenarios are mapped, and plans for a new ‘take’ on shareholder asset deployment are in place. Those portfolio managers who “stay the current course” and/or underestimate the magnitude of economic change that is likely to occur in the near future will surely lag those who closely monitor, plan, and take swift action(s) when the appropriate time comes. The spread between winners and losers could be very polar.
The most pertinent and closer-to-home question that fund Boards are now pondering is “will probable financial services reform result in Board duties being scaled back?” Less overall regulation and fewer Board duties appears likely, but prognosticating also seems fruitless. The new administration is not yet in place, Cabinet members and advisors are still being chosen, and realistic plans for change are still being formed by the incoming administration. Perhaps the presumed shocks to many parts of the economy, financial services, and fund Boards will not be as great as forecast. One might argue that President Trump (with no political background) must acclimate to the DC way of accomplishing goals, learn to work within the system, and embrace compromise. His larger-than-life promises during the campaign must be realized not through full autonomy, but many times through convincing colleagues (of both parties) that less stringent oversight and regulation of the financial services businesses is prudent for the economy as well as consumers.
We neither know what level of priority President Trump will place on certain targeted business segments nor what the timing may be and the support he may garner. Very detailed monitoring of possibly quantum shifts in government policy, regulation, and direction appears prudent for all highly interested (and vested) parties.
(December 2016)
As the equity markets reach new heights and economic indicators demonstrate strength, the US financial system has arguably recovered from the trauma that was 2008/2009. Advisors and Directors alike have jointly enjoyed a period of generally positive equity returns and market upswings, albeit volatility has been unpredictable. Yet, asset flows have been extremely concentrated and have favored those sponsors offering indexed products and most prominently ETFs. Net asset growth has very much disfavored the active manager of late. However, with the outgoing transition from DC of the Obama administration and dramatic change arguably on the horizon, one might surmise that active managers might once again have the opportunity to renew their patina.
More to the point, one would be hard pressed to argue against the notion that, with the election of Donald Trump to the office of US President, corporate and general economic scenarios will be highly unpredictable in the short-term. While many campaign promises are notoriously not kept by newly-elected Presidents, Mr. Trump threw out into the public eye many grandiose plans – the markets have responded optimistically. Consider the following quandaries as a new administration takes over. Who can say that significant infrastructure spending will be adequately covered by private funding or through approved deficit spending? Will some level of US protectionism result in better or worse returns for US companies? How will US trade policy be affected by the Trump administration? Who will take Mary Jo White’s position and how will the SEC change under the Trump administration? Will NAFTA be dismantled? What will become of Dodd-Frank, Fannie, Freddie, and financial services regulations? Will Obamacare survive and, if not, what will take its place? These current quandaries are all issues that have not begun to play out at this juncture, but should in time provide ample opportunities for profitable investment, either long or short.
From an inquisitive Director’s standpoint, many probing – arguably unanswerable – macro advisor questions emerge from the cacophony. What US trading partner agreements might be retooled and how will this affect the “flow of funds?” How might elevated government spending benefit certain sectors? How will possible tariffs, quotas etc. impact corporate profits? Most important, what specific scenarios are most realistic and that an advisor might view as actually playing out? And, what investment-related actions does an advisor view as prudent to ‘front run’ a new administration’s potential actions? Perhaps the best course for Boards is to not expect or confirm sizable and definitive movements into targeted industry segments or securities at this stage, but to obtain comfort that monitoring of economic and market developments is rigorous, anticipated asset price movements under possible scenarios are mapped, and plans for a new ‘take’ on shareholder asset deployment are in place. Those portfolio managers who “stay the current course” and/or underestimate the magnitude of economic change that is likely to occur in the near future will surely lag those who closely monitor, plan, and take swift action(s) when the appropriate time comes. The spread between winners and losers could be very polar.
The most pertinent and closer-to-home question that fund Boards are now pondering is “will probable financial services reform result in Board duties being scaled back?” Less overall regulation and fewer Board duties appears likely, but prognosticating also seems fruitless. The new administration is not yet in place, Cabinet members and advisors are still being chosen, and realistic plans for change are still being formed by the incoming administration. Perhaps the presumed shocks to many parts of the economy, financial services, and fund Boards will not be as great as forecast. One might argue that President Trump (with no political background) must acclimate to the DC way of accomplishing goals, learn to work within the system, and embrace compromise. His larger-than-life promises during the campaign must be realized not through full autonomy, but many times through convincing colleagues (of both parties) that less stringent oversight and regulation of the financial services businesses is prudent for the economy as well as consumers.
We neither know what level of priority President Trump will place on certain targeted business segments nor what the timing may be and the support he may garner. Very detailed monitoring of possibly quantum shifts in government policy, regulation, and direction appears prudent for all highly interested (and vested) parties.
