This roundtable discussion was sponsored by Solidarity Wealth and moderated by Colby Wright, teaching professor of finance at Brigham Young University (BYU).
Traditionally, public equities management has been concentrated on the East Coast. Do you see Utah developing as a serious hub for this industry?
Michael Folker | President | Town Square Capital
There’s a long way to go just in terms of market size. It pales in comparison to Houston or New York, obviously, or the California cities. But I’ve been surprised at how exponential the growth has been, both from client traction and just how much wealth there is in Utah.
Mika Robinson | Senior Portfolio Manager | Utah Retirement Systems
As someone who allocates to external managers, there’s something to be said for those that aren’t in the major centers. … We actually pay a lot of attention to groups that establish themselves away from the main center because you get more unique ideas. I think there’s a certain competitiveness in terms of the life options.
Jimmy Mortimer | Chief Investment Officer | Solidarity Wealth
I’ve always said the secret is out now in Utah. A lot of people came here for the Olympics. A lot of people stayed here from the Olympics. They realize now, and they’re seeing firsthand, “Oh, I get all the amenities from those different states, but a much better life balance.” … Plus, we have a tremendous workforce here that’s very, very skilled.
What sort of comparative advantages does Utah offer in terms of a place where you can make a successful run of it in the public equity space?
Robert Foltynowicz | Managing Director and Portfolio Manager, Family & Foundation Investments | The Larry H. Miller Company
Labor and expense. It seems like you’re getting a tremendous amount of concentration of talent here, and you don’t have to pay New York prices for it. … We had a BYU grad here recently working on my team. And for a young man who’s never been in this industry, his performance and his acumen, it was shocking. … So credit to the talent, I think that’s what it is.
Mika Robinson | Senior Portfolio Manager | Utah Retirement Systems
I can say that a lot of our team have options to go elsewhere, but they stay for the lifestyle … outdoor access, family-friendly environment. … The traffic is getting worse, but it’s not horrible compared to a lot of places. That airport access — not just to and from the airport, but everywhere else in the world from the Salt Lake City Airport — is so convenient.
Many major AI companies are choosing to stay private. How is this shifting the investment landscape?
Clint Stone | Chief Investment Officer, Family & Foundation Investments | The Larry H. Miller Company
You look at these companies that otherwise would be in the public domain that are choosing to stay private. Not longer, forever. And there’s a reason our portfolio allocation is 50/50 public-private because so much of the world now is available in private space … I think the cost of going public has just continued to increase over the last 25 years.
Jon Groberg | Senior Portfolio Manager | Ensign Peak Advisors
One thing that never changes in investing is the element of greed and fear. … Ultimately, owners will go wherever they can get the most for their company. … LPs need exits. Owners need liquidity. Now, if they can sell to one another, if they can do a fund-to-fund sell or stay in the private markets and get a better valuation than they could in the public markets, they’ll stay private. But ultimately, owners and investors are greedy and will go where they can get the best return on their investment. I don’t see that changing.
What corners of the globe excite you, or what parts of the U.S. equity markets excite you? Where do you think the opportunities are?
James Fletcher | Founder & Chief Investment Officer | Ethos Investment Management
We invest in global emerging markets, which are the non-developed markets of the world. … I just got back from a 10-country trip where we met 55 companies. … We saw pockets of exuberance and froth, but a lot of undervalued quality businesses. Across our regions, we find the most value and expected returns relative to risk in India right now and Southeast Asia. Brazil has rallied very strongly year to date, but we still find value there. And the tech supply chain across Taiwan and Korea is still trading at 40, 50 percent discounts to what you would buy equivalent quality in the United States.
Spencer Hackett | Portfolio Manager | Grandeur Peak Global Advisors
It’s hard when you’re managing a small global product to get U.S. allocation where you would want to, just given that there aren’t the small companies coming public. … The international [small-cap stocks] are as attractive as they’ve ever been. … I love my U.S. companies, but it’s always hard for me not to just continue to lean into more of the international stuff that we like because the gap has just gotten too wide for both small and international.
Jeff Carroll | Growth Portfolio Manager | Ensign Peak Advisors
I think the knee-jerk reaction here is you look at the Mag Seven and say, “OK, maybe we should be rotating into the other 493 stocks of the S&P 500,” and maybe that’s the right thing to do, but the question is when? The speed of AI innovation and adoption are critical variables in that decision. It’s very hard to get right because adoption curves of new technologies are ever faster and steeper. For example, the pace of change from the first version of ChatGPT three years ago to the state of frontier AI models today is staggering.
Does decreasing the target fed funds rate impact the way you think about the markets?
Jeff McClean | CEO | Solidarity Wealth
Unless something changes, we’re seeing anecdotally significant pain in the private equity space, where it’s focused on debt and loading up debt. … I think the biggest thing rates do is, does it do enough to ease the pain that you’re seeing in the private equity space? Do the emergence and openness of the IPO window — and we haven’t really seen that under $10 million — space open up? We’re hoping that opens up in the next 18 months here. But I think that’s the most interesting thing to me: Private equity is in pain, and does some of that pain create significant challenges across the board?
Jeff Carroll | Growth Portfolio Manager | Ensign Peak Advisors
The Fed cutting interest rates clearly indicates that they have concerns about the economy. As interest rates fall, the roughly $7.5 trillion in money market funds should begin moving into other asset classes, seeking higher yields. But will that move happen before or after a meaningful pullback in asset prices? Historically, it tends to be after. Again, I think it is a timing question.
Are we cutting rates right now because we’re authentically worried that we might be on the precipice of slipping into some labor market recession? Or are we doing this because we just want a soft landing?
Robert Foltynowicz | Managing Director and Portfolio Manager, Family & Foundation Investments | The Larry H. Miller Company
What I am seeing is that it seems like the inflation bit has been overdone. … Inflation seems to be coming down. … My opinion is that the Fed is focused on unemployment because it could be a bad break quickly if we don’t get a beat on it, but it’s not that bad at 4.2, 4.3 percent.
Jimmy Mortimer | Chief Investment Officer | Solidarity Wealth
It’s pretty understood now that we’re going to have a new Fed chair next year, and there’s no doubt that that person’s going to be very dovish. That’s going to keep the party going, much to maybe some of our valuation chagrin.
What factors have kept the labor market and economy strong, even with the rapid increase in rates? Why has the economy been so resilient?
Jon Groberg | Senior Portfolio Manager | Ensign Peak Advisors
The market would look really different if we didn’t have this AI that has masked a lot of what’s happened in the economy. But then the other thing, … predicting interest rates is hard. … An important question to ask is, if the market wasn’t that sensitive to interest rates going up, why will it be very sensitive to interest rates going down?
Brittany Christensen | SVP, Head of Business Development | Tidal Financial Group
You’re seeing record flows going into gold. … Those have historically been seen as signs of troubling stuff to come or people pulling money out of the risk and putting it in something safer. What’s also been very interesting is that bitcoin has stabilized since having ETFs [Exchange-Traded Funds] in it. … We saw people moving into crypto ETFs. This will be the first time we’re seeing variable interest rates while there’s been such easy and prolific access to specifically two coins, and I’d say that’s bitcoin and ether.
How should investors think about incorporating bitcoin or other cryptocurrencies into their portfolios, and are ETFs changing the accessibility of these assets?
Clint Stone | Chief Investment Officer, Family & Foundation Investments | The Larry H. Miller Company
I think every portfolio should have some bitcoin. … I do view coins and tokens, generally 99 percent of that as probably non-utility, called the three F words: froth, folly and fraud. … My thesis on bitcoin is not so much the price of bitcoin; … it’s the price of U.S. dollars. … It’s everything we just talked about when it comes to inflation, fiscal deficits.
Brittany Christensen | SVP, Head of Business Development | Tidal Financial Group
I don’t think all crypto is the same. … (There’s) a more verifiable way to invest if you’re not ready to dive into that bucket. You have a very reputable ETF shop, iShares, now having these products out there, so you can have some level of comfort. … I run our business development team, … but I’m not the one who’s saying, buy bitcoin, buy gold, or this or that. But it is interesting to see from a flows perspective and try to pin that back to a macroeconomy when you can get a view on what’s happening with dollars moving between ETFs.
How is the rise of passive investing and ETFs influencing capital allocation and market behavior? How do you consider the active vs. passive debate in your own investment strategies?
Michael Folker | President | Town Square Capital
We’re big proponents of making sure you’re getting the most efficient structure first and foremost. … To put a finer point on knowing your client and knowing the investment, … I’ll work with advisors and if their clients are the type that mirror everything to the S&P 500, then I will actually encourage [them] to go passive, even though my bias is more toward active management.
Jeff McClean | CEO | Solidarity Wealth
I would argue that investment coaching is our primary job, to keep them on the path of not making poor timing decisions around the market and financial decisions. … One of the most frustrating things is seeing investment managers, whether it’s venture or private, just writing data and getting paid handsomely to deliver data. It just makes no sense.
How do you see the Trump trade wars getting resolved, and do you see this as a cause to be bullish or bearish on U.S. equities?
James Fletcher | Founder & Chief Investment Officer | Ethos Investment Management
Companies are remarkable and economies are remarkable at their ability to adapt very quickly. … The market showed us that companies are very resilient in finding a way to get their parts. And in the end, if they need to share the cost of a 25 percent tariff increase and currencies help because the U.S. dollar weakens a bit, they’ll find a way. They just meet in the middle, they share the cost, pass it on, and they move on.
Spencer Hackett | Portfolio Manager | Grandeur Peak Global Advisors
I think companies are largely going to be fine. They’re run by smart people who know how to navigate different situations. … I just worry about what inflation looks like over the next five years and if we relapse a little bit. But I think companies and asset prices in the near term, we saw how fast it snapped back. I think they’re going to be fine.