Money Management in Flux

Rising interest rates, falling oil prices and worries of a Chinese trade war came together to make 2018 a volatile ride for capital markets. Equity investors endured multiple “corrections,” or drops of 10 percent or more. On the other hand, as recently as Dec. 26, the Dow Jones Industrial average posted its largest one-day increase in history, gaining 1,086 points in a single trading session. For professionals in the finance industry, the volatility had varying impacts, depending on their exposure to the stock market. For example, Morton Capital Management in Calabasas specializes in alternative investments such as public storage facilities, direct debt lending to businesses and college student housing. Wealth Advisor Chris Galeski sees the current stock market with “relatively elevated valuations,” and thus looks for private investment opportunities. On the other hand, Robert Katch, chief executive at Manchester Financial in Westlake Village, said some clients react to volatility with “plan abandonment,” which often causes them to sell at the worst possible time. While “long-term success requires mid-term adjustments,” a good advisor can keep clients on track. Morton Capital had a little more than $1 billion under management, and Manchester had $670 million, according to 2017 data published in the Business Journal’s Book of Lists last month. Looking forward, a report from accounting firm Deloitte Touche Tohmatsu Ltd. titled “2019 Investment Management Outlook” confirmed that change is on the horizon and financial professionals must adapt. “Investment management is in a period of rapid change, driven by shifting investor preferences, margin compression, regulatory developments and advancing technologies,” the report stated. “Successful investment … in 2019 will likely be the ones that can continue to manage these challenges with plans designed to withstand changing market conditions.” In terms of the markets, the report found that many investment funds have failed to reach their benchmark, despite the rising overall market. “A study has shown that 86.7 percent of U.S. active funds have underperformed their benchmark, on a net-of-fees basis, over the 10-year period ending in 2017,” the report states. “European funds have similar results: 85.4 percent of actively managed European equity funds underperformed their benchmark over the same period.” Instead of public markets, private equity and real estate have emerged as alternates for those seeking capital growth, a long-term trend that will redefine the industry. In profiles on the following pages, both Katch at Manchester Financial and Galeski at Morton Capital cite real estate as a viable path to wealth. Meanwhile, while Katch maintains that private equity “is too much for most people,” it will continue to grow as part of the macro economy. “In the private equity world, consistent strong performance rewarded accredited and institutional investors, which led to large capital inflows and record dry powder (undeployed capital),” the Deloitte report concluded. “As of March 2018, global private equity dry powder stood at $1 trillion, ready to be invested in new portfolio companies with growth potential.”