Lunches with Legends: Paul Singer
In October, Paul Singer, Founder and Co-CEO of Elliott Capital Management (“Elliott”), joined us for one of our Lunches with Legends series. Paul is known for his investment acumen, conservative views, and philanthropy as a signatory of the Warren Buffet Giving Pledge. During the conversation, he shared some of his core investing principles, thoughts on both the financial market backdrop and its outlook, as well as the current public policy environment.
By way of background, Paul founded Elliott in 1977. They specialize in event driven investments across several different sub-strategies, including distressed debt, activist equity, and relative value. Elliott is headquartered in New York, and with a team of more than 470 employees, manages $34.5 billion in assets. Paul’s interest in investing, and more specifically in trading and analysis, began before he graduated from Harvard Law School in 1969. Most notably, it was his early investment experiences, and in particular his experiences losing money, that shaped his investment philosophy and his determination to preserve capital. His tremendous success as an investor is evidenced by Elliott’s track record: since its inception, Elliott’s performance has topped the S&P500 with significantly less volatility.
Paul and the team at Elliott are, first and foremost, very strong believers in the importance of broad risk management controls being in place all the time. Why? While there are learning outcomes that follow each financial crisis that inform risk management, each crisis is nonetheless different. In other words, there is no consistent way to determine what the next market inflection point will be, and thus no specific way to position for it. Paul provided an illustration of this point, noting that convertible arbitrage strategies worked well for Elliott up until the crash of 1987. Simply hedging equity market exposure by position proved to be an insufficient risk control during the crash’s liquidity crunch. Rising from that experience, and as a means of fostering true diversification, Elliott broadened its risk controls by investing across uncorrelated assets.
As for the current state of financial markets and the outlook for traditional asset classes, Paul expressed some caution. He noted the “unsound” state from which we entered the current (pandemic) crisis, evidenced by the growth in debt and the Federal Reserve’s inability to remove the “emergency” accommodation that followed from the Global Financial Crisis. He firmly believes the Federal Reserve is committed to seeing higher inflation, in keeping with the central bank’s recent shift to “average inflation” targeting. And higher inflation does not necessarily need to see a commensurate pickup in economic growth. In that type of an environment investors need to ask themselves why they own long bonds! For stock markets, Paul believes they are over-discounting the pace of the economic recovery, but liquidity is currently very supportive. Nonetheless, Elliott continues to see interesting investing opportunities, including within their public equity activism strategy, and more broadly speaking, that they are positioned, based on the broad skill set of their team, to take advantage of opportunities as they arise rather than targeting them in advance.
Our conversation concluded with some thoughts on the public policy environment and a final thought on portfolio positioning. Paul expressed deep concerns about societal polarization and its impact. From a business perspective, he added that we are seeing the “current” move against private enterprise and alongside it he expects more regulation and much higher taxes. Lastly, if central banks can create inflation, as they seem determined to do, then gold, as a means of preserving value, should be a consideration within a portfolio.