(Bloomberg) — The co-head of activist investor Elliott Investment Management said rising interest rates and inflation threaten to put an end to an 18-month rally in equities that has rewarded investors across the board.
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Jonathan Pollock, Elliott co-chief executive officer, said low rates and ultra-accommodative monetary policy have buoyed the markets in recent years.
“Anyone that’s managed to put risk on the page in the last 13 years, but more specifically the last 18 months, has been well rewarded,” Pollock said during an interview at the Bloomberg Invest Global conference Tuesday. “I’m not sure it’s all genius. I think those tailwinds have made us all look good.”
Pollock said he couldn’t predict when a correction would occur. But he noted that household wealth has increased by $5 trillion in the past five quarters, with nearly 50% of that allocated to equities. He said playing with the numbers, a 100 basis point move could result in a sell-off of roughly 20%.
“I’m not saying that the market’s going to go down 20% tomorrow but I am saying that there is sensitivity,” he said. “I think it’s really, really difficult to know right now. It feels like we’re in this Goldilocks moment with the Delta variant behind us, people coming back to value, rates rising.”
Pollock was appointed co-CEO in 2015, serving alongside Elliott’s founder, Paul Singer, in the role. He said the two work closely together and their 32-year relationship has resulted in a “bit of a marriage” between the two.
“You can kind of complete the other person’s sentences. But at the same time, you know you’re able to constructively disagree. And so we view ourselves as the ultimate risk managers in the firm,” he said.
Elliott is largely known as an activist investor. But it has a multi-strategy approach that spans public and private equity, credit, and direct real estate, among other platforms. In recent years, it’s also become one of the non-bank lenders that has displaced traditional lenders in the distressed debt space, alongside private equity giants like Blackstone Group. He said that has changed the dynamics in the credit markets, and could have long-term consequences as the market evolves.
“The composition of the players has changed. Changed to the point where they’re better placed to own credits — distressed credits — through the entire cycle,” he said. “I don’t know exactly what that means for the next cycle. But it could mean that opportunities are less plentiful.”
China and Crypto
Two areas that Elliott remains reticent to invest in are China and cryptocurrency, Pollock said. Elliott’s reservations around China are focused on rule of law, he said. In cryptocurrency, it’s the threat that a federally-backed digital dollar could effectively wipe out the current market, he said.
“I think the whole value of Bitcoin, Ethereum would be challenged if that were to occur,” he said. “I mean, it’s hard for us to invest in something that could be effectively regulated out of existence with the stroke of a pen.”
Elliott was one of the New York hedge funds that relocated its headquarters to Florida during the pandemic, specifically to West Palm Beach. Pollock said he didn’t think such moves would have much of an impact on the culture of Wall Street because modern technology has reduced the need to be in any one specific place.
That has been proven out in the pandemic, he added. Elliott was able to seamlessly move to a remote model in the aftermath of the outbreak of Covid-19 last year, he said. The firm’s 470 employees have yet to return fulltime to its offices in West Palm Beach, New York, and Greenwich, Connecticut, he added. As a result, the firm has yet to really test how having its employees in three locations will work, he added.
The plan is to adopt a hybrid model in January, he said, where employees will work three days a week from the office.
“We’ve been connected remotely for so long that I don’t think working in other locations is going to be problematic,” he said.
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