Top Traders Unplugged

ALO16: Beyond 60-40... A Bold Approach to Asset Allocation ft. Troy Gayeski

Oct 11, 2023

Troy Gayeski, Chief Market Strategist for FS Investments, discusses asset allocation in a higher yield environment, highlighting the shift from 60-40 benchmark to a 40-30-30 allocation. He explores opportunities in real estate, private equity, and alternatives. The podcast also touches on institutional investor allocation trends and the impact of AI on markets.

01:04:00

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Troy Gayeski

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Quick takeaways

Fluctuations in the yield curve present risk-reward opportunities that can be advantageous for certain investment strategies.

Diversification across various strategies and themes is crucial for survival in today's uncertain global landscape.

Alternative investments and private markets offer opportunities to complement existing investment expertise and consistently deliver upper quartile performance.

Deep dives

Steepening yield curve as a risk-reward opportunity

The podcast discusses how fluctuations in the yield curve, such as bull steepeners and bear steepeners, can present significant risk-reward opportunities. The speaker highlights that the current environment indicates a probability of the yield curve steepening, which can be advantageous for certain investment strategies. The extreme levels of inversion in history, excluding the 70s or early 80s, further support this view. The importance of understanding market history and analyzing macroeconomic factors is emphasized in order to identify the best risk-reward profiles in asset classes.

Introduction

3min

Navigating Market Cycles and Identifying Risk-Reward Opportunities

8min

Asset Allocation and Shift to Alternatives

28min

The Growing Shift in Institutional Investor Allocation

13min

Building a Diversified Liquid Alternative Portfolio

5min

The Impact of AI on Markets and Trading Strategies

3min

Career advice, market history, and book recommendation

3min

Troy Gayeski, Chief Market Strategist for FS Investments, joins us today to discuss asset allocation and investment opportunities in today’s higher yield environment. We discuss how higher interests rates are impacting the risk and reward across capital markets and why higher interest rates mean equity valuations may be stretched at the current juncture. We discuss how asset allocation has evolved from the 60-40 benchmark to a 40-30-30 allocation for many institutional investors with a 30% allocation to alternatives. We delve into where Troy sees opportunities within alternatives particularly in real estate, private equity, secondaries and liquid alternatives given his view that we are late in the economic cycle.

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Episode TimeStamps:

02:44 - Introduction to Troy Gayeski

11:36 - A top-down macro perspective

19:43 - The state of the 60/40 portfolio

26:37 - How do investors react to the interest rate?

30:47 - Analyzing the alt space

35:50 - Advice for allocating to real estate

40:00 - An overweight of privates?

44:02 - A mockdown in valuations - an unfolding process or mostly done?

46:30 - Opportunities and positioning in the liquid space

52:42 - Building a diversified liquid alts portfolio

55:09 - Is old school global macro still viable?

57:15 - Troy's perspective on AI tools

01:00:25 - Advice for other investors

01:02:54 - Thanks for listening

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