Partners Capital: Endowment-Style Portfolios Will Bounce Back

Institutional investors with endowment-style portfolios can expect to see a 6.7 percent return this year, as rising populism and protectionist trade policies weigh on gains at the same time that activist fund managers may finally be given an opportunity to shine, according toPartners Capital’s 2017 outlook.

The 2017 return expectation is little changed from last year and remains below the 9.5 percent gain expected in 2009 during the financial crisis, when central banks began propping up markets with their low-interest rate policies, Stan Miranda, co-founder and CEO of Partners Capital, an outsourced investment office with $18 billion of assets, said in a phone interview. Partners Capital provides investing services to endowments and foundations and ultra-high-net-worth families in Europe, North America and Asia.

“Falling interest rates raises all boats. You can’t pick good or bad stocks,” Miranda said. But as central banks step back, he added, it will be easier for talented management – that is, sector specialists who have deep expertise – to achieve returns.

That will be a welcomed shift for many active fund managers, as investor capital has increasingly flowed into low-cost passive strategies since the financial crisis amid a growing backlash against high management fees and lagging hedge fund performance. Investing successfully in 2017 will require navigation through an environment of shifting global order, characterized by rising economic nationalism, fiscal stimulus replacing “ultra-accommodative monetary policy” and strengthening global economic fundamentals, according to Partners Capital, whose clients include 11 Oxford and Cambridge Colleges, Eton College, the Research Foundation for the State of New York’s University System, the Royal Academy of Arts, Milton Academy, the New York University School of Law School and the Cancer Research Institute.

“As we roll forward into 2017 and beyond, it is clear to us that we are at the start of a shifting ‘global order’ which is critical to understand as the macro context for investors,” Miranda said in a March 10 statement announcing the firm’s Insights 2017 outlook report. “The great monetary policy experiment is coming to an end,” he said.

The report said that the various populist movements around the world, particularly those in the U.S. and Europe, are likely linked to growing negative sentiment around globalization or “a dilution of national identity.” While the benefits of globalization are well documented, Partners Capital’s report said “it is not without cost to certain segments of the population largely because the pace of globalization has exceeded the pace of skills development in many countries, creating this universe of those left behind. The Brexit and Trump victories are manifestations of this over-extension of globalization, as is growing anti-EU sentiment in Europe.”

Miranda said by phone that while declining returns and much of Partners’ outlook is not a surprise, the one movement that has struck him is what the report calls a “pause” on globalization, or rising populist sentiment driven by people who saw their skills become outdated or lost their jobs to automation.