 The Sharpe Angle Interviews: What we've learned so far The world's top investors on navigating a low return world, green investing and inflation  We're muddling through a pandemic, with rates of return outside of stocks muted around the world and inflation threatening to eat away further at those returns. The hunt for yield in a world where equities continue to take center stage has forced some creativity by investors who want diversification without taking on too much risk. But then there's also an added element of stakeholder capitalism and the broader impact investment dollars have had on society and the planet. Alpha's become not just about outperformance but also awareness of a corporation's footprint.
Tackling the nuances of investing today is no easy task, and there are inflection points at just about every turn. We've been speaking with some of the world's top investors about how they've been navigating. For some, like Chris Ailman of California State Teachers' Retirement Systems (CalSTRS), that's meant largely avoiding alternative investments, like private equity and hedge funds, where the fees are too high relative to returns (according to Ailman).
Others, like Carlyle CEO Kewsong Lee and Apollo CEO Marc Rowan said alternatives are worth their weight -- and more -- in fees, but have somewhat different approaches. Lee described his vision for "modern" private equity, while Rowan has built up a massive credit and insurance business in addition to the firm's bread-and-butter buyouts. Patrick Healy, the CEO of Hellman & Friedman, which recently closed a $25 billion private equity firm, said that the privatization of the markets will continue and thinks it's a good time to be a buyer.
Other investors have been digging in even deeper and pursuing alternatives to traditional alternatives. Nuveen CEO Jose Minaya put billions of dollars to work in farmland, partially as an inflation hedge. And Gavin Baker of Atreides Management, has been sifting through the SPAC, or special purpose acquisition company, market to separate the wheat from the chaff (if we're sticking with the farmland theme here).
SPACs, of course, have been a key way to take electric vehicles public, but the private market for climate-oriented investing is booming as well. TPG raised a multi-billion dollar fund to focus on that space, and the firm's executive chairman Jim Coulter told us that green investing is not just an upcycle phenomenon nor is it in a bubble, although there are certainly some aspects of it that reminds him of the dot-com era.
These themes and more will be prevalent Wednesday at CNBC's annual Delivering Alpha conference. There's still time to register at DeliveringAlpha.com.
Higher-quality SPAC sponsors must emerge for once red-hot space to turn around SPACs are getting a much-needed reality check after investors and regulators grow wary of the Wall Street craze, and the majority of deals could have a hard time surviving with time running out.
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Many saw the burst of the bubble coming as the industry had grown too far, too fast in a market full of speculation. SPACs, as an IPO alternative, attracted massive amounts of capital from investors hoping to get in early on the next Tesla. However, the reality is that small-time investors often miss out on long-term gains, while insiders are able to get rich sometimes at the expense of shareholders.
SPACs stand for special purpose acquisition companies, which raise capital in an IPO and use the cash to merge with a private company and take it public, usually within two years. SPACs are typically priced at a nominal $10 per unit, and unlike a traditional IPO, they are not priced based on a valuation of an existing business.
During the record first quarter, the SPAC market saw 89 new deals with $28.6 billion capital raised per month, and now the number tumbled to just 9 deals a month with $1.6 billion funds since April, according to data from Bespoke Investment Group.
"Regulatory and legal concerns continue to cloud the issuance outlook," David Kostin, head of U.S. equity strategy at Goldman Sachs, said in a note. "SPAC returns have been weak, especially following deal closure."
Increased scrutiny on the market has brought to light some SPAC features that are unfair to shareholders, especially retail investors.
Last week, Elizabeth Warren and other Senate Democrats called out some of the biggest names behind SPACs, including Chamath Palihapitiya, questioning the "misaligned incentives between SPACs' creators and early investors on the one hand, and retail investors on the other," they said in a letter.
SPACs tend to have an outsized benefit for sponsors. Blank-check company sponsors are paid so-called "promote fees," which typically entitle them to 20% of the total shares outstanding following the IPO for free or at a big discount. This reward usually results in immediate dilution for the target-company shareholders.
Meanwhile, most SPAC sponsors refrain from investing in the companies they take public and can quickly flip their sponsor promote shares regardless of the short- or long-term success of the company, according to Conforti.
"We expect that the vast majority of these types of sponsors and market activity will ultimately go away as company executives and boards demand more aligned incentives," Conforti said.
In April, Altimeter announced its Altimeter Growth Corp. will merge with Southeast Asia's ride-hailing giant Grab in a deal that values the company at $39.6 billion — one of the largest blank-check mergers to date.
The Grab deal has a three-year lock up on sponsor promote share, while Altimeter Capital Management put up a direct $750 million investment as the largest PIPE investor.
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Delivering Alpha Headlines
Big thoughts from the big money
Jim Chanos sees China as a 'terrible place' for U.S. investors
Short seller Jim Chanos believes it's a mistake to go long Chinese stocks amid the struggles of debt-laden Chinese property giant Evergrande Group. "This has been a terrible place to keep your money as a Western investor and I think it will continue to be," said Chanos, the Kynikos Associates founder. "Shareholders and creditors are just not treated well in the Chinese economic model, and I think that will continue." Chanos has warned for more than a decade about a bubble in the Chinese real estate market.
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Cathie Wood warns about traditional growth stocks
Cathie Wood said she might rather choose to own a government bond yielding near 1% over some of the U.S.′ largest market-cap companies over the next decade. "I do really think the Treasury bond will do well and a lot of what people consider growth stocks right now will be surprisingly poor performing," said the founder and CEO of Ark Invest. She believes that more than half of the S&P 500 could be full of companies that have leveraged up to buy back shares and pay dividends instead of spending aggressively in research and development to stay on top.
Gary Gensler says the SEC is 'short-staffed'
SEC Chairman Gary Gensler said Wall Street's top regulator is trying to juggle an long list of challenges with a smaller staff. Gensler said his team is spread thin investigating fraudulent China-linked companies, managing those looking to enter public markets and monitoring cryptocurrencies. "We've got an IPO boom, we have a SPAC boom, we have cryptocurrencies to deal with.... We are short-staffed," Genser told CNBC. "I'd like to at least get back to where we were in 2016 and I think we should probably be 5% or 10% larger than that."
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