Executive Summary: Navigating Market Noise and Structural Shifts
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In a discussion moderated by Stephanie, Shakes (Managing Director of Kuwait Investment Authority) and Howard Marks (co-founder of Oaktree Capital) shared actionable insights on long-term portfolio construction, risk management, and opportunities amid market volatility. Below are key takeaways:
Core Principles for Long-Term Investors
- Ignore short-term noise: Focus on hard data over sentiment-driven fluctuations. Shakes emphasised that reacting to volatility often leads to “buying high and selling low.”
- Four pillars of success: A defined strategy, disciplined process, skilled talent, and the courage to act on opportunities.
- Risk vs. return: Higher risk does not guarantee higher returns—it also increases the likelihood of losses. Marks noted that risk must be “knowingly, intelligently taken for profit.”
Portfolio Construction and Asset Allocation
- US market exceptionalism: Both speakers cautioned against underweighting the US, citing its deep capital markets, rule of law, and innovation leadership. Shakes noted: “Underweight America at your own risk.”
- Public vs. private markets:
- Public: Active management is resurgent due to overconcentration in indices (e.g., top 5 S&P 500 stocks now ~30% of the index). High-yield debt offers equity-like returns with lower risk.
- Private equity: Large buyouts and venture capital face existential challenges due to poor underwriting, exit-optionality risks, and $3 trillion in unrealised assets. Secondaries and special situations present opportunities.
AI and Infrastructure: Practical Opportunities
- AI exposure: Invest in enablers (data centres, power, connectivity) rather than direct tech equities. Shakes highlighted infrastructure lending (e.g., leasing data centres to hyperscalers) for 10–13% IRRs with lower risk.
- Liquidity premium: Marks warned against underestimating illiquidity risks, especially in private markets. “History rhymes”—liquidity needs often surface during crises.
Common Investor Pitfalls
- Process over luck: Both speakers stressed refining investment processes to avoid behavioural biases. Shakes noted: “The best decisions are sometimes opportunities you don’t pursue.”
- Mispriced risk: Marks highlighted the danger of extrapolating past returns (e.g., the “Nifty 50” crash in the 1970s) and overconfidence in new trends like AI.
Key actionable insight: In volatile markets, focus on structural enablers (e.g., AI infrastructure) and disciplined risk-adjusted allocation—particularly in high-yield debt and secondaries—while avoiding crowded passive exposures.