Market Commentary

by Byron Wien

Blackstone is pleased to offer the following Market Commentary by Byron Wien to share his thinking on global economic developments, market insights and other factors that may influence investment opportunities and strategies.

Byron Wien is a Vice Chairman

  • Dec 06, 2010

    A Radical Approach to Asset Allocation

    During these trips I have been asked to look over dozens of institutional portfolios and to comment on their structure. In most cases the asset allocation is heavily weighted toward long-only investments in the developed markets. While bond portfolios have been trimmed, the allocation to higher yielding fixed income securities is small. Few institutions own gold or other commodities. Many have a quarter of their portfolios in alternatives, but the split among hedge funds, real estate and private equity varies widely. I believe few of the portfolios I reviewed are constructed to perform well in the investment world that exists today. The investment committees overseeing these assets have made incremental changes over time but they have failed to step back and say that the future is likely to be very different from the past and our asset allocation should recognize that fact.
  • Oct 04, 2010

    The Evolution of the Hedge Fund Industry

    The number of funds closing after the peak in 2007 was somewhat more significant than the decline in assets. About 22% of the funds operating that year closed over the next three years while the funds under management only declined 16%. There are several reasons for this. First, with increased regulation, a greater emphasis on risk control and increased client pressure for transparency and contact, it became more expensive to operate a hedge fund and the critical mass of funds under management to be profitable escalated. In the early days of the industry, back in the 1970s and early 1980s, it was possible to start a fund with less than $10 million, and Julian Robertson and Steinhardt, Fine, Berkowitz both did so. There is considerable debate about what the critical start-up mass is today. Even though management fees have doubled to 2%, you probably need $50 million, although many go into business with less than that hoping for a strong performance year which will provide substantial incentive fee income and attract new clients. The implementation of the so-called Volcker rule will result in some brokerage firms closing or spinning out their proprietary trading operations, internal hedge funds and private equity activities. As a result we may see more hedge fund start-ups over the near term run by managers with impressive records.
  • Jul 02, 2010

    The Smartest Man Thinks We Are Writing History

    This is the tenth annual essay I have written about the views of this investor who has impressed me over the past three decades with his ability to anticipate major trends before they were widely understood. He saw the end of communism in Russia and the rise of capitalism in China. He identified opportunities in the developing world before most others and he recognized the growing shortage of commodities as a result. A descendant of an international mercantile family whose roots go back to the operation of canteens selling food and weather protection along the Silk Road centuries ago, his career has been spent successfully managing his own and other people’s money, collecting art (from Canaletto to Kandinsky) and trying to understand the growing complexity of the world.
  • May 11, 2010

    Confusion and Complacency Abroad

    Even though Labor held a strong majority of seats in Parliament it looked like the conservatives would make important progress in gaining political power. Suddenly, seemingly out of nowhere, the Liberal Democratic Party candidate, Nicholas Clegg, surged forward. He was younger than the other two and proved to be a one-man Tea Party, lashing out at the other candidates and appearing to oppose everything they stood for. For the first time in its history Britain had a series of three television debates giving Clegg exposure to a broad national audience and throwing the election into turmoil. Clegg did not do well in the election, however.
  • Apr 09, 2010

    The Healing

    On the political front the passage of the health care bill was important. Almost everyone in favor would agree that it is not what we once hoped it would be, and many believe that it is a step backwards because of its cost, but for those who had lost confidence in the ability of the American legislative system to get anything done, it was a step forward. The cleavage between the Republican and Democratic representatives in Congress had become so sharp that it seemed to observers abroad that our system of government was dysfunctional.
  • Mar 12, 2010

    A Crisis In Confidence

    And the problems were not confined to the United States. Greece, with $400 billion in national debt, threatened to default on its bonds, which would throw the European Union and the euro into turmoil. As soon as austerity measures were proposed to deal with the problem the whole country went on strike. The fear was that even if the problems of Greece were temporarily solved, Spain, particularly, and other marginal European countries would follow with similar problems.
  • Feb 01, 2010

    The Market is Ahead of the Economy

    Deciding on this year’s Ten Surprises was not easy. While I had developed a list of many alternatives, coming up with the final ten proved to be difficult. It was harder to identify the consensus on some of the issues and I thought other potential entries, while of great interest to investors, were not really surprises. The final ten are generally positive on the economic outlook but reflect my thinking that the market itself may already discount the favorable fundamentals. Last year was the best ever in the twenty-five year history of The Ten Surprises in terms of accuracy. As I have often said the goal is to step back and stretch your thinking about what could happen. Doing that can help you invest more creatively. I try not to worry about how many will be right. I listed the Ten Surprises last month. Now let’s take a look at them in more detail.
  • Jan 04, 2010

    The Surprises of 2010

    For the past 24 years I have prepared a list of ten investment-related surprises that I believe are likely to happen in the New Year, but to which the average investor would only assign a one out of three probability to the event taking place. I started doing this in the 1980’s because I thought short term thinking was the curse of effective money management. Investors were too concerned about quarterly earnings, monthly sales, the latest unemployment report and other economic data. Once a year I wanted to take a longer view and reflect on what non-consensus (not necessarily contrary) events could have a major influence on the investment environment.