The Risk Playbook Investing in Volatile Markets

Hello everyone. So um I'm a a last minute standin. I'm Chris Hughes and I'm going to moderate this session. I'm the editor-in chief of Abu Dhabi Finance Week and thank you all for joining the International Family Office Congress and uh on behalf of all of the organizers of of Finance Week, all my team and others, we just want to thank you generally for coming and supporting Abu Dhabi Finance Week, ADGM, and Abu Dhabi in general. So, thank you very much.

We're here today to talk about uh risk and we've got three incredible leaders who each have different perspectives um on risk have invested incredibly successfully and it's a great privilege and honor uh to welcome our guests. So, as I'm a last minute standing and I'm a curious person, um I want to start by asking each of us and we're going to go down the row um to introduce themselves and explain what your firm is and what it does and why you're here. Daniel. So I'm Daniel Pinto, CEO and founder of Stano Capital Group, which is a firm I built over the last uh 20 years into uh a group managing about 40 billion dollars for uh a variety of families, institutions, entrepreneurs all over the world. Uh we have four offices in Europe, four offices in the US and we just announced actually a three a three-way merger uh between uh our group um another group called Corant which is a leader in America.

Ah yes

backed by Mubada Capital

of course. Yes. Yeah.

And our friends at Stone Fleming based in London very strong both in family office services and um wealth management. The result of this three-way merger which is very ambitious.

So not big news at all then.

Sorry.

Not big news at all.

Not big news at all.

The res the result of this three-way transaction is basically the emergence of what will be the largest independent wealth management man management group in the world. I was doing that math. Yeah,

that's incredible. Welcome

and uh Arjun, please.

Thank you, Chris, and great to be here. Um, Partners Capital has been in business for about 25 years. We've got some parallels to uh Stan Hope in terms of what we do. Uh we've got about 75 billion or so of assets. We look after uh we look after money for endowments, foundations, families.

Uh it's a global business. But the exciting uh news from our side is we're opening an office in Abu Dhabi. We've we've received ins principal approval from the ADGM and so congratulations and welcome here very soon. Very excited.

And uh Yang please.

Good morning. Uh I came from Hong Kong. I was born bride in Beijing. Uh my form atlantis uh used to be set up by three exholders starf fun managers. Uh however due to China uh was booming.

I took over the form back in 209. Since then I reshift the focus in the greater China region.

Yeah. So uh I saw quite a few familiar faces today in this room but most of you may not know me or my form so well compare these two gentlemen but uh if I can show off a little bit

I manage money for Bill Gates Melinda Foundation Rose family and the Norwegian central bank. Thank you

and of course a a legend in uh in China. Daniel, we're here to talk about risk. Investors, many of whom are in the audience. We're in December. 2026 is coming up.

How should investors think about risk right now? So, as you know, the prevailing sentiment uh when you read the press and you hear strategies is that there is a large bubble in markets at the moment. And um I would like to be a bit contrary and tell you that I don't believe that. I'm more optimistic than most perhaps in this conference and the reason why I don't believe that is a variety of factors. The first one is that um you can explain the resilience of markets this year by fairly obvious things which is uh the prospect of decreasing interest rates which will obviously give oxygen if you will to both the equity and bond market.

Yeah,

you can also explain it by a very healthy earnings growth this year which reached about 13 14% in America.

Fair point

which was beyond what the market was you know everyone was expecting.

Yeah. And more importantly, and that's why I don't think we are in a bubble, that 13 14% earnings grow the the growth of the S&P of about 15% this year was matched by the growth of earnings at about 14 15% this year, which means that valuation multiples have remained fairly stable. In fact, in the sector that is criticized as being um at the center of the bubble, which is technology,

multiples came down, you know, we had uh a growth of technology stocks in the US of about 19 20%. But a growth of earnings this year of 25%. Which means that markets I mean valuation multiples came down. They are cheaper this year than they were the year before. The last point I would add and that's a very very important point.

There has never been as much cash on the sideline as you see now.

Never. We're talking about $7.5 trillion sitting in money market accounts funds all over the world. 7.5 trillion.

The reason why we have that is because people were concerned about the geopolitical uncertainty and we're very happy to keep the coupons getting healthy interest rates on their cash.

Guess what? With interest rates coming down that cash will be deployed and I think that will sustain markets into 2026. So I'm not necessarily predicting that you'll see uh another year of double digit returns. It could be,

but I certainly hope we are on on you know healthy grounds here.

An optimistic Daniel Pinto and um it's going to be a a happy Christmas in the in the Pinto household uh this year. Arjun um correlations across major asset classes have been unusually high. Um as Daniel just said in that environment manager selection becomes really critical. What has changed in what you are optimizing for? Yeah, maybe I'll take a step back and talk a little bit about what are we all trying to do when we're running an overall portfolio of investments.

What we're trying to create at the highest level is returns with resilience, right? So, what does that mean? It means you're you're creating a set of return streams sourced from a different set of factors, right? So, 30 years ago, uh you could do that by simply investing in different asset classes, right? So, think about private equity.

Well, private debt didn't exist as an asset class. Venture capital was relatively niche, right? And so 30 years ago, it was quite easy to to create a resilient portfolio by simply investing across different asset classes, right? You fast forward to today, uh take alternative assets, right? Private equity, private debt, venture capital, infrastructure, they're about 15% or more of global markets.

So they're not, you know, to call them alternative asset classes is a misnomer, right? Because they're all actually mainstream. And so what happens when you've got so much capital sitting in these asset classes is that correlations naturally have gone up across all asset classes. So what do you do in that environment? Well, you know the way we've adapted what we've done there is number one you have to look under the hood, right?

So you you you can't assume that if you're just investing in different asset classes, you're creating a diversified portfolio, right? A lot of them have overlapping exposures and therefore you must actually reook at what exposure you're getting from investing in a particular asset class. The second thing you need to do is really look at factor risks across them. Now what do I mean by that? Uh think about AI.

You know we're all excited about investing in AI. But what you don't want to do is sprinkle AI across everything you're doing, right? And so if you want to do AI, do it very specifically in something that actually makes sense. You don't want to sit back and realize that actually AI has permeated your entire portfolio where you're suddenly seeing that if there's a valuation correction in AI, you're going to find that the entire portfolio gets hit. Right?

So, it's critically important to actually understand and look under the hood of what you're investing in. And then the last thing I'd say in terms of manager selection is as these asset managers have grown in size, um there's a whole host of different strategies pursued by these asset managers, right? And therefore being very specific about what you're doing with every asset manager and how you're structuring those relationships is critically important because otherwise you're going to end up paying a lot of fees and not getting returns for the fees you're paying. So sort of this concept of return on investment is as important as this concept of return on fees and that's what we're really uh focused on and those things need to come together when you're picking and managers to put into an overall portfol and and Yang you're coming to join us from Abu Dhabi from from China from Hong Kong um so you know a little bit about what's going on there. shares are up more than 16% in China um this year to date.

Um but there this is after a few years of underperformance. Is this a start of a sustainable return to to growth? Are you you know how do you feel?

Wow. Return is everything for us giving that the world not look like to be settled down in the near term. the uncertainty since seems to be is the mainstream going forward. So we have to be a little bit smarter than before in terms of uh uh deployed our assets. I believe going forward in this world there are two currencies we have to watch closely beyond that of gold.

So basically uh is the red and the green of the currencies. Yeah. So it's US dollar and B and I observed that after uh about four or five years suffering uh whatever uh Chinese market and the Hong Kong market uh in the past uh three or five years uh we are taking off we are recovering in the high speed which beyond many people's expectations. So nowadays investors really look at when they um deployed their money into the greater China region. China is must go place depends on how much you understand this uh futures uh uh potential uh powerful returns.

So we are catching up in a un uh uh unbelievable unbelievable rate. In another word, uh we catch up uh by quite a few reasons. There are fundamental reasons. Uh we can this time, this round, this cycle uh to be a little bit brave than ever. Uh when you put money into the Chinese market, I combined China and Hong Kong as a whole.

Okay. So basically um the government number one our government this time did something really differently. They want to rebuild up the social safety net after our property market collapse.

So this time around government has already uh printing the money and u investing in the Chinese market. Since last September the market up more than 50%. So it's about uh uh only uh 100 billion US dollar put into the market only. So there are three times more money to be uh injected into the Chinese Asia market in the next two to three years. Chinese Asia market will be the star.

No matter you believe it or not. So our government take the first move. Uh so we have to follow them. Every corner of Chinese government in different provinces the central bankers they just realize this is a game uh about stock market after the US Mars took the uh the lead. Okay.

Uh number two uh we have huge uh savings. I think uh we have a a simple calculation. If 10% of Chinese savings the Chinese savings if you uh uh just simple mathematics calculate it uh it's just as big as the US make savings in terms of a value today. So only 10% of them will go to the stock market. our market will be doubled in the next one or two years.

It's a very simple way uh because in the past five or six years you you all know uh what happened in China. So we see cash inflow or capital inflow from elsewhere all rush into Chinese market. But most importantly is this time around the leading factor in our market will be technology le AI owing activities and you we don't want to go to details because we don't have time but all in all uh Chinese entrepreneurs uh innovators those talented people they are work so hard to catch up that of the AI space we might in creating the f future similar nadia so it's the Chinese good company in the AI industry is they are on the making put this way so so three reasons the governmentled investment opportunities policy all friendly to build up a healthy Chinese Asia stock market so I recall in 208 uh I was uh interviewing by Bloomberg. I said that this is the time you must be put your money employed into the Chinese Asia market. This time I will say that again.

Okay. So if you don't do that, you might if you're a smart investor, you might not become a good diversification strategy player. So we see the government they react positively into our stock market. This is ideology change. So that's all.

So we have three very great minds on the stage but we have a lot of great minds in the audience as well. Can I just get a show of hands who feels that 2026 will be a year of portfolio growth? Okay. Not as optimistic in the crowd. Um I think we'll go back to um we'll go back to Arjun um this environment.

Um how are you leveraging private markets to build resilience? Where do you see genuine upside heading into 2026?

Yeah. Um look, there's a lot of negative press on private markets, okay? And we are massive believers in private markets. But again, going back to what I said previously, you need to really look under the hood because it's not a monolithic asset class, right? So now, you know, I'll I'll give you three reasons why I think uh private markets are are very valuable to have in the portfolio.

Well, firstly, uh access access to innovation, access to certain types of opportunities. We all know that companies are staying private for longer and therefore if you really want to tap into interesting investment opportunities, not having private markets as part of the mix just simply means that you're going to miss out on a whole range of opportunities, right? So number one is access. Number two is there are real inefficiencies in private markets because guess what? A lot of people don't want to take their liquidity, right?

And therefore again I would suggest that if you look under the hood uh as an example you look at the lower mid-market private equity firms in the US you know on average if you partner with the right types of managers you're going to get access to companies which are growing earnings at four to 5% higher than the public markets right so tapping into that opportunity set uh is actually very interesting so that's sort of reason number two and then the last thing I'd say is uh there's a range of dislocations happening ing in private markets, right? So there's we've talked about how private equity, for example, we haven't seen distributions of private equity. Uh the credit markets, we expect stresses in the credit market over the next 12 to 24 months. We don't necessarily expect a full distress cycle, but there's certainly going to be stresses in parts of the credit market. And we think if you're a provider of liquidity into either the secondary space to provide liquidity in private equity or for that matter uh sort of capital solutions into uh situations in the credit side

uh there's actually going to be outsized returns available and so

there's a lot of opportunity there for sure

lots of opportunity and if you're not in private markets you're not going to be able to tap into these sorts of opportunities. So I think this concept of private versus public misses the point. You need to have both, but you need to do it in the right way to actually uh make sense of the portfolio.

Yeah, understand. Um Daniel, let's go to the United States. Does the US still offer uh good long-term value? There's been a lot of concentration major indices. Is it still?

So I I uh find comfort in the fact that most people in these rooms are pessimistic because it's a reliable indicator that

Well, you did say contrarian.

That's right.

But it is a reliable indicator something good might happen next. Yeah. Contrary to the consensus. Um look uh yes there are value pockets in certain areas in in uh in markets and in the US as well. Well, I am not overly concerned about the concentration of markets which was uh your question.

Clearly, you have 10 companies representing a third of uh the S&P 500 or thereabouts and some people are concerned about that. I'm not concerned about it for the reason I've mentioned before which is that uh their growth in stock price has been sustained in fact more than sustained by the growth of their earnings which mean that they are not overly expensive in my opinion. The bubbles if there are bubbles are not there they are in uh I would say private credit certain segment of private credit I as an asset class private credit is a is an important asset class and uh it's been providing good returns for investors in the last few years but there have been excesses um and uh some funds created in the last five 10 years did not have the level of professionalism that was required hence cases like first brands and others and I think you'll see more of these and uh thankfully the fact that interest rates are coming down will probably save a few people but otherwise they would not have survived. The other uh bubble I see and just uh I see it as a potential warning for next year is that um again I'm not concerned about the mega caps I'm concerned about the venture capital market.

Yeah. and the valuation levels uh in C rounds and A rounds in venture capital which are insane.

Yeah.

Insane. So maybe some of these companies will, you know, will become uh the giants of tomorrow, but most of these companies will not.

And when you see fundraisings being done uh at pre- money values of five and 10 billion dollars for companies that did not exist a year ago,

you said to yourself there is certainly a bubble there. So I think it's 26 will be overall a good year, but it's a year where you need to watch. Um, I would recommend uh not just staying invested in technologies, the the large technology stocks, but also expanding uh your footprint into small and midcap stocks in the US, which are um have been lagging behind uh in terms of valuation, in terms of stock performance. And I think with decreasing interest rates will probably have some uh wind in their sales, if you will. And I I would recommend expanding uh your your footprint in this area in America.

We we love optimism and I think you make some very persuasive cases. Um but uh I think that brings us to the end of our time. There's a big flashing light light there saying time is up. Um I think we probably could have done this for a lot longer. Um but thank you all for listening and please give a round of applause to our guests.