Falls: Sharp Fed rate hikes will trigger bankruptcies and higher defaults
Amy Falls · Amy Falls – From Bonds to Boards to Leading Northwestern (Capital Allocators, EP.316) · May 22, 2023 · at 46:45
Amy Falls, CIO of Northwestern University, assesses the macroeconomic consequences of rapid Federal Reserve interest rate increases on corporate credit markets.
0:00 / 0:19exact quote · 19.4s
720p mp4 · rendered on demand · StarZero watermark
“I do think the Fed is probably at the end of the tightening cycle, but it's been a very sharp, short move. I think it's going to result in bankruptcies, credit events. So I think there will be higher default rates, and I'm not sure that's fully reflected in corporate spreads.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Amy Falls
Amy Falls: Northwestern targets 8% to 10% portfolio exposure to China
“We've sort of defaulted to eight to 10% of the portfolio, which is probably underweight relative to GDP, but probably bad on when you look at market cap and percentage of total private equity. So I think we're kind of neutral, but we're not abandoning the fiel…”
Falls: SVB faced a liquidity crisis while First Republic faced insolvency
“So in one case, it's probably more of a liquidity crisis, too much reliance on short-term funding, and in the other, it may have been more of a solvency crisis, real loan impairment.”
Falls: Long tail of managers and stock positions drags down performance
“Somehow the tail of managers seems to drag you down more than it pulls you up, and I think that's true with stock positions, too. I think it has probably to do with conviction levels.”
Amy Falls: Portfolio allocation ranges are sloppy compared to fixed targets
“I think rebalancing just doesn't happen by itself. It's a reason I love targets rather than ranges. Ranges are really sloppy. Just having someone sit in the seat forces you to say, you know, we're actually way overweight this or that.”
Amy Falls: Endowment fixed income portfolios should only hold U.S. Treasuries
“For us, we wanted to have something that was liquid, highly safe, or would have a negative correlation with equities and not complicated. So I don't really want the Barclays Ag. I don't need a bunch of mortgage-backed securities in there that have complicated …”
Falls: Siloed asset classes sacrifice cross-thinking across investment teams
“It's really easy to know what to do when you own an asset class. Each person runs their little business, and the CIO just makes sure that everybody's doing a good job running their business and sets the big picture. I think you lose some cross-thinking and cro…”