Notes from the Family Office Investment Europe Summit

On Wednesday I was a guest at the Family Office Investment Summit

I’m glad I took notes because Patrick Minford in particular was excellent!

Patrick Minford CBE (Economist) – Economic Outlook

Crisis & Response

  • Commodity shortage, US housing crash causing subprime defaults, Lehman failure in Sept 2008, bank panic & banking crisis
  • Collapse of world GDP 2008Q4-2009Q1, massive bank bailout, money printing, zero interest rates
  • Great Depression turned into Great Recession
  • Strong recovery in emerging markets, muted recovery in developed markets
  • Productivity growth held back by commodity shortage in developed countries while emerging markets productivity growth grew fast despite this.  “Commodity wall”
  • Biggest mistake was Lehman

Strength of Recovery

  • Muted recovery in the West (c2%pa GDP growth) – stock markets weak, high unemployment, weak consumer spending, high industrial production growth (exporting to the emerging market consumers).  No double dip but a slow recovery.
  • Strong growth in the East (c4-9%pa GDP growth) – leading to near record world GDP growth which is causing inflation and EM countries are having to raise interest rates to control it.
  • Strong carry trade – borrow in the West at near zero rates to lend/invest in the East where growth is at near record highs.
  • Boom in money and credit in the emerging market economies.
  • World commodity prices soaring, wages rising in EM, general world inflation (e.g. 3-4% in the West and near 10% in much of the East)

Summary & Outlook

  • Expectation of higher interest rates of around 2.5%pa in the UK for 2012 and staying around that level through 2014.
  • Supports Osborne’s plan which should bring Public Borrowing under control even with low growth rate peaking in 2014/2015 Relative price of housing pretty much on track (not over-valued) – housing is a commodity shortage Profits will go on growing as real wages fall and yet growth keeps going.
  • Real wage growth expected again in 2 years or so.
  • Structural reform will not occur in Europe where countries like Greece and Portugal don’t like reform and will only do so at a slow pace.
  • The likes of Greece will go bust, it’s just a matter of when & how.  Typically this happens by devaluing a country’s currency and dropping out of the Euro to achieve this would be the best thing for Greece, Portugal & Ireland but they don’t seem to understand economics very well on the continent so can’t say what they will do.

Asset Allocation “In the New Normal” Panel

  • Caroline Butler (Lord North Street) – Greater awareness that who you surround yourself with really matters. Hedge funds provide an alternative to bonds in reducing volatility.
  • Michael Turner (Aberdeen AM) – Regulation and government intervention to affect asset class returns much more than in the past.
  • John Moore-Stanley (Cardona Lloyd) – Strong focus on liquidity and time horizons.  Likes hedge funds & CTA’s.  We will constantly be going through cycles of uncomfortable inflation and this will push us towered cash and away from bonds.
  • John Veal (Stonehage) – Managing underlying family businesses is key because often cash calls occur during crisis just when the best opportunities arise.
  • Jean-Yves Chereau – The crisis is generating lots of opportunities and beautiful assets as banks clean their books and as lending has dried up opportunities arise providing debt looks interesting.  Do you have the management capacity to access the deal flow or who are your advisors to assist with this?