Almost midway through 2023, markets have bounced back from a lousy 2022 more robustly than many investors inspected, but fears of a recession haven’t faded completely. More than 30 influential investors and business leaders converged on Pier Sixty in Manhattan for the second annual Forbes Iconoclast Summit on Monday to break down how they’re positioning their portfolios and steering their companies and clients through the delicate environment.
Billionaires Ray Dalio, Bruce Flatt, Jonathan Gray, Marc Lasry and Toto Wolff are all taking the stage, as well as Goldman Sachs CEO David Solomon, Formula 1 superstar Lewis Hamilton and Ariel Investments co-CEO and Starbucks chair Mellody Hobson.
Below is live coverage of the summit as we’ll be following all of the day’s panel discussions in real time. You can also join the conversation on social media using #ForbesIconoclast.
Goldman Sachs’ Crystal Ball
Goldman Sachs CEO David Solomon started the summit with a keynote conversation with Forbes Chief Content Officer Randall Lane and addressed Goldman Sachs chief economist Jan Hatzius’ forecast last week lowering the probability that the U.S. will enter a recession in the next year to 25% from 35%.
“The economy’s been incredibly resilient,” Solomon said, “but if you’re running a business like ours, you have to be prepared for the downside…. I’ve got a sense that inflation is going to be a little stickier than the current market expectation.”
Solomon also discussed Goldman’s recent struggles with its consumer banking products, which the investment bank attributed about $3 billion in losses to since 2020 in January, and didn’t rule out further layoffs at the investment bank after it shed 3,200 jobs in the first quarter. He noted that Goldman Sachs paused its standard performance reviews that cut some staff annually during the pandemic, so this year’s cuts are part of the readjustment.
“The direct to consumer platform was harder than we thought,” Solomon said. “It’s important for a business like Goldman Sachs to always be looking for more avenues to invest in, and when you do that, some things are going to go well and some things aren’t.”
Solomon ended the conversation on a higher note about the state of capitalism and free markets in the U.S. “The system’s not perfect, but I think it’s the best system there is,” he said. “We need to advocate for the fact that this is something most of the world looks at and strives for.”
Long-Term Opportunities In China And Europe
JPMorgan asset and wealth management CEO Mary Callahan Erdoes, Brookfield CEO Bruce Flatt and Baroness and member of the House of Lords Dambisa Moyo sat down with Forbes executive editor Diane Brady to discuss the state of long-term, global investing as China re-opens its borders after years of isolation during the pandemic.
“Home-country bias is a real thing,” Callahan Erdoes said. “Assets outside the home country continue to be underappreciated.” Looking beyond companies’ home borders, especially as China continues to re-open post its pandemic isolation, the JPMorgan executive shared her excitement, with trepidation, to do business with the country.
“If it isn’t happening at the governmental level, make it happen in business,” she added. Flatt and Moyo agreed with the opportunities in China, especially given Middle Eastern and Asian investors’ interest in growing their business in the region. “We can choose who to do business with in China,” added Flatt.
Downturn conditions for the market and regulatory uncertainty for banking also make Europe an attractive region for banks to expand their businesses to, said Callahan Erdoes, emphasizing the need for a long-term view. “You have to stress-test your portfolio.”
“The key question is how do you put money to work over a long period of time,” added Moyo.
The Changing World Order
Billionaire hedge fund manager Ray Dalio, the retired founder of Bridgewater Associates, gave the audience a history lesson with Forbes chairman and editor-in-chief Steve Forbes about how investors can learn from centuries of history before their lifetimes to understand the present and prepare for the future.
“Things that surprised me often surprised me because they didn’t happen in my lifetime, but they happened many times in history,” Dalio said. “By studying the 1920s to 1945 period, I understood the nature of the 2008 financial crisis.”
Dalio pointed to three major social and economic factors that are unique to the current cycle: “enormous” and increasing amounts of debt, internal conflict surrounding wealth inequality that has spurred the rise of populism, and the rise of another world power like China today. The billionaire investor warned in April that he fears the U.S. and China are on the brink of war over the new world order.
“If you have a financial crisis at the same time as you have large wealth gaps, and therefore big disagreements, you are likely to have populism,” he said. “Those two things coming together are an explosive combination.”
“Merger Monday”
Despite two billion-dollar deals closing this morning, global dealmaking has been “pretty subdued for the start of this year,” Michal Katz, head of investment and corporate banking at Mizuho Americas, said in conversation with Aryeh Bourkoff, founder and CEO of capital markets firm LionTree, and Forbes CEO Mike Federle. The M&A specialists are seeing the light at the end of the tunnel as merger activity seems to be picking up, with an influx of capital from sovereign wealth funds.
“If you’re a strong, well-capitalized company, this is your time to act,” Katz added.
Industrials, healthcare and technology are sectors with particularly high deal activity, Bourkoff and Katz pointed out. Interest in artificial intelligence is also driving capital into industries that could benefit from the automation. Indeed, Novartis announced today it purchased Chinook for $3.5 billion in its race to fight rare kidney disease, and Nasdaq announced the acquisition of fintech Adenza for $10 billion.
To Bourkoff, “liquidity is more important than scale” at a time where a shifting market is forcing dealmakers to shift on the defensive.
Forbes’ Next Chapter
Luminar Technologies CEO Austin Russell discussed his recent agreement to buy a controlling 82% stake in Forbes from Integrated Whale Media and the Forbes family, with much of the stake syndicated to other investors. The deal valued Forbes at nearly $800 million, and Russell said he has more than $500 million in commitments, with the majority from American investors but with a global footprint that reflects his hopes for international growth.
“It’s already an incredible, very profitable business right off the bat,” said Russell. “It’s still probably at a fraction of the potential of what it can be able to do.”
The 28-year-old won’t have a day-to-day role at Forbes and will continue to manage Luminar, which develops sensors for self-driving cars. He is a member of the Forbes 30 Under 30 Hall of Fame and was briefly the world’s youngest self-made billionaire before Luminar’s stock price declined. Russell has bought tens of millions of dollars worth of Luminar shares in the last few weeks.
“I have a 100-year vision to save as many as 100 million lives and 100 trillion hours on the road, Russell said. “If you can do something as simple as not allowing your car to smash into the car in front of you, then that will save countless lives.”
Moving Beyond the Tech Stack
Artificial intelligence experts discussed the new frontier of the technology’s applications across industries and around the world as the topic becomes the latest trend to overtake investors and business leaders alike.
“Finally the power of computers has reached a point where AI has pushed the threshold of what was previously considered to be the depths of its capacity,” said Amir Salek, senior managing director at Cerberus Capital Management. “This is the first time that AI has enough data and computing power at the same time.”
But investors are looking at opportunities beyond the tech stack. Companies “run the risk of mirroring the dot-com movement in the early 2000s where all these companies are fighting for the extra 2%,” said Noor Sweid, founder and managing partner of Global Ventures.
Instead, they’re looking at opportunities beyond the infrastructure and into its applications. AI for microfinancing solutions in Africa, healthcare and education are more capital efficient, added Julian Salisbury, chief innovation officer at Goldman Sachs’ asset and wealth management division.
“There’s a confluence of performance and accessibility” that is defining the new wave of AI innovation, said Salisbury.
The Allocator’s Dilemma: Balancing Risk And Return
Ashvin Chhabra, president and CIO of Euclidean Capital, which manages the portfolio of hedge fund billionaire Jim Simons, and Ed Cass, the CIO of $570 billion Canadian pension fund CPP Investments, both urged caution about the direction public and private markets are going. Chhabra was skeptical of the valuations of trendy artificial intelligence stocks and tech firms that have surged this year.
“I think technology is overhyped,” said Chhabra. “We already have the technology to solve most of our problems, and we’ve had it for the last 50 years. It’s human beings that solve problems, not technology.”
Cass noted that the assumptions that inflation will retreat from 4.5% to around 2% and interest rates will be able to come down aren’t guaranteed and recommended being underweighted to fixed income investments in the near term. CPP Investments’ portfolio is around 60% private assets, he said, where dealflow is still moving at a snail’s pace.
“We’re definitely seeing areas of the market that appear to be broken,” Cass said. “The volume of activity right now is very low. You have a big gap between expectations on the part of buyers and sellers that hasn’t been crossed.”
Family Offices as Catalysts of Change
HRH Princess Jahnavi Kumari Mewar, founder of private equity firm Auctus Flora and a senior member of one of India’s most powerful royal families, urged family offices to work together to solve some of the world’s most pressing issues.
“Are we doing anything to actually influence social policies?” she asked Forbes Women president Moira Forbes. “I don’t think we are.”
The royal, who started working at her father’s investment company when she was 16, has spent a large portion of her career building up her family office and her own investment firm. “It was shocking how apathetic people can be within your own family,” she said. From consolidating real estate assets, implementing legal contracts and delineating a clear investment strategy, she has seen the family office’s structure mature.
Her private equity firm, Auctus Flora, has been an outlet for the Princess to invest in causes she cares about. “If that capital is a bit more meaningful in the way that it is invested, it will actually propagate the thought process of creating clusters of investments.” Any kind of disruption in the world will inevitably impact the family, she added.
Cooperation with other family offices is in both parties’ best interest, she said. To established family offices with a history of sizable returns, it is even more important to act on social causes like climate change and war.
“We need to look at family offices as not only us, but look down five generations down the line,” said the member of the Mewar family’s 77th generation. “It’s not just for the world, but also your immediate self-interest.”
The Dissenters: Where To Make Contrarian Bets
Alternative asset managers Victor Khosla, founder and CIO of Strategic Value Partners, and Boaz Weinstein, founder and CIO of Saba Capital Management, both shared ideas of where to find attractive investments during a period of slow growth in the U.S. For Khosla, it’s across the pond, where Germany’s economy has contracted and asset prices have fallen in other areas of Western Europe like the United Kingdom. For Weinstein, it’s in closed-end funds, many of which can be purchased at discounts to their market value of around 15% to 20%, he says.
Both are otherwise largely taking a wait-and-see approach with high rates and trillions of dollars of debt maturing, but Khosla pointed to commercial real estate maturities on the horizon that could fall to enticing levels with that industry in a precarious state.
“We’re in for a four-year or five-year slog as we work through these higher rates and what they mean for valuations, especially in the debt markets,” said Khosla. “All of this stuff is going to start to get repriced quite dramatically.”
Weinstein is still looking for good arbitrage opportunities and cautioned that investors who wait too long for a perfect level could miss out on a good enough place to buy. He also thinks Treasuries yielding upwards of 5% are a good place to stash capital while waiting for opportunities to arise.
“I look at the market and see incredible complacency, whereas you could find a lot of safety and security in T-bills,” said Weinstein.
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