Download Morgan Creek whitepaper: Approaches to Investing in a Desynchronized World
During the period of rapid economic growth following World War II, global economies were highly synchronized. Whether you lived in New York or New Delhi, if you experienced growth, you could reasonably assume that the rest of the world was also experiencing growth to a similar extent. Because of this, the investable themes through the second half of the twentieth century were simple: economic growth and declining risk.
The world today, however, reflects a marked departure from synchronization and simplicity. The economies of the developed world face uncertainty on nearly all fronts (rates, inflation/deflation, length of cycle), while capital markets in the G7 are still struggling to recover to pre-2008 financial crisis levels. Emerging economies, on the other hand, are experiencing rapid growth and myriad opportunities for innovation. As a result, the global balance is shifting. While, for the past 30 years, G7 countries (15% of the world’s population) have experienced increasing wealth through trade, industrialization, education, and productivity growth, emerging economies (50-55% of the world’s population) are now on that trajectory. Although the G7 are readjusting to deflationary and deleveraging pressures, half of the world’s population is benefiting from very strong growth trends. These conflicting crosscurrents have created a world in profound disequilibrium, leading to a much more complex environment with many more variables.
In this paper, Sam DeRosa-Farag of Morgan Creek Capital Mangement addresses the impact of the G7 slowdown, the role of credit expansion in postponing that slowdown at the expense of leverage, and the deleveraging that has resulted in declining demand and, as we are seeing today, deflation. The paper will argue that, in contrast to the historically accepted approach of more diffuse exposure to growth or risk, investing in today’s environment requires a focused exposure only to desired factors and segments. It is Morgan Creek’s belief that alternatives are more adept at achieving this than blunt, long-only tools.
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