Steve Rattner, Chairman of Willett Advisors, details the firm's strategy for managing Michael Bloomberg's assets, which is founded on the endowment model pioneered by David Swenson.
Willett supplements its external manager portfolio with a significant direct private equity program, primarily motivated by the desire to reduce the substantial fee drag associated with traditional fund structures.
The firm holds a strong conviction on China as the most exciting global investment market, citing cheap valuations relative to growth, while being significantly underweight Europe due to poor economic fundamentals.
Rattner expresses skepticism towards the hedge fund industry, viewing it as a 'fee structure' rather than a distinct investment strategy and predicting a future shakeout due to diminishing alpha and high costs.
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Concerns Raised
Excess capital ('dry powder') in the private equity industry may depress future returns.
The high-fee structure and diminishing alpha in the hedge fund industry make it a challenging area for net returns.
Unattractive economic fundamentals and structural issues in Europe limit investment opportunities.
Increasing political polarization in the U.S. creates an uncertain policy environment.
Opportunities Identified
Investing in China's public markets, which are viewed as the cheapest major market in the world relative to growth.
Utilizing a direct investing program in private equity to reduce fee drag and improve net returns.
Finding skilled active managers in less efficient emerging markets to generate alpha.
Capturing long-term market appreciation through a robust, strategic allocation to public equity beta.