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Published Apr 2, 2020

Mark Baumgartner – Allocating in a Crisis at IAS (Capital Allocators, EP.128)

Mark Baumgartner, CIO of the Institute for Advanced Study, delves into the complexities of allocating assets during a crisis by discussing risk management, crisis communication, and adapting investment strategies to leverage evolving market opportunities while ensuring strategic communication and decision-making.
Episode Highlights
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Episode Highlights

  • Risk Assessment

    Mark Baumgartner, CIO of the Institute for Advanced Study, emphasizes the importance of understanding risks in the current volatile market. He suggests that decision-making should involve a balance between gut instinct and analytical data, even when faced with ten standard deviation moves that challenge conventional wisdom 1. Baumgartner believes that a successful process acknowledges the rapid changes in the world and involves establishing a strategy that reflects these shifts 2.

    It's very hard, and you are required to prioritize some of those things, and that's what's part of the additional uncertainty in this environment.

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    He stresses the need for deliberate action, such as rebalancing portfolios, to adapt to the new environment.

       

    Opportunities

    Baumgartner identifies emerging market opportunities, particularly in sectors like private credit and distressed assets, which have become attractive due to recent market stress 3. He highlights the importance of being open to new opportunities while maintaining strong relationships with existing managers 3.

    Opportunities that did not exist in February are now really interesting, really attractive potentials.

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    Baumgartner advises that while the portfolio has historically had low beta, it may need to adapt to higher variance opportunities to maximize returns in the current climate 2.

       

    Decision Making

    In high-pressure situations, Baumgartner stresses the importance of effective communication with managers, balancing proactive outreach with respecting their time constraints 4. He notes that while some managers provide updates, others require prompting to share insights, emphasizing the need for a collaborative approach 4.

    We're all in this together and we need to be leaning on each other.

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    Baumgartner underscores the value of maintaining liquidity and being prepared to act on new information as it becomes available 5.

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