Risk management through scenario planning is crucial for navigating uncertain markets.
Monetary and fiscal policies play a significant role in managing the economy and investment opportunities.
Higher interest rates have the potential to impact liquidity-sensitive assets and require a cautious approach to equities.
Deep dives
Rebecca Patterson's Career Path and Experience in the Financial Industry
Rebecca Patterson has had a diverse and challenging career in the financial industry, working in asset management, wealth management, and hedge fund firms. She started her professional life as a journalist before transitioning into finance, leveraging her skills in research and analysis. Her experience spans major events such as the Asian financial crisis, the global financial crisis, and the COVID-19 pandemic. Throughout her career, Patterson has been known for embracing change and taking on new challenges, contributing to her success as a researcher and investor.
Risk Management Process and Scenario Planning
Patterson emphasizes the importance of uncertainty and the need for robust risk management processes in navigating the market. She discusses how her team at Bessemer Trust engaged in scenario planning to assess potential market impacts, including the 2016 U.S. election shock and the COVID-19 pandemic. Patterson highlights the critical role of considering alternative scenarios and their potential outcomes, allowing for effective risk mitigation and informed decision-making.
The Impact of Monetary and Fiscal Policies
Patterson highlights the significance of monetary and fiscal policies in managing the economy and markets. She discusses the importance of policy responses in times of crisis, such as the 2008 financial crisis and the COVID-19 pandemic. Patterson also emphasizes the interplay between growth, inflation, and policy decisions, and how these factors shape investment opportunities. She provides insights into the challenges policymakers face in balancing economic growth, inflation, and financial stability.
Market Outlook and Portfolio Construction
Patterson discusses her views on the current market environment and provides insights into portfolio construction. She emphasizes the importance of considering the economic cycle, growth, inflation, and policy dynamics when making investment decisions. Patterson offers a cautious stance on equities, highlighting the potential impact of tighter liquidity conditions. She also notes the attractiveness of emerging market debt, depending on the global growth outlook, relative valuations, and currencies. Additionally, she discusses the importance of valuations and earnings growth when evaluating investment opportunities.
Higher Interest Rates and Impact on Economy and Valuations
Patterson examines the potential impact of higher interest rates on the economy and valuations. She explains the sensitivity of liquidity-sensitive assets, such as technology stocks and some cryptocurrencies, to rising rates. Additionally, she considers the potential consequences of higher rates on the private market and the cost of capital. Patterson discusses the potential implications for portfolio positioning, suggesting a cautious approach to equities and potential opportunities in emerging market debt.
Rebecca Patterson has always sought out new career challenges, willing to take risks in the process. Amidst the Asian financial crisis in 1997, Rebecca was hired into a Strategist position within the asset management side of JP Morgan, giving her early exposure to one of those 100 year market storm events that seems to actually happen every 10 years. She began building out a macro, data driven framework that was underpinned by the vast array of complex linkages between the economy and markets. In 2012, she joined Bessemer Trust, serving as the CIO and overseeing $85 billion of client assets.
At the heart of our conversation is uncertainty, a reality in markets that Rebecca has considerable respect for. In this context she shares her risk management process going into the 2016 US election and the detailed work her team did to game out a number of scenarios and their potential impacts.
We shift to Rebecca’s time spent at Bridgewater Associates, where she served as the firm’s Chief Investment Strategist until recently, and learn about her assessment of the US macro climate. Here, Rebecca reviews the asset price damage that occurred in 2022 due to the fast rise in real rates and expresses a cautionary view on risk markets. On her mind is the potential that implied Fed cuts do not materialize as currently implied by the inverted shape of the yield curve. While the big picture - one in which overall growth is decelerating and monetary policy remains tight – leaves her cautious, Rebecca does see potential opportunities on the long side in emerging market debt, where countries like Brazil are close to done with their monetary policy hiking cycles.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Rebecca Patterson.
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