The Horasis Global Meeting brought a diverse group of leaders from the worlds of government, business, media and academia to Cascais, Portugal. Princess Martha Louise of Norway, President Hage Geingob of Namibia, President Armen Sarkissian of Armenia and former European Commission Vice Chairman José Manuel Barroso were among the participants, as were former presidents or prime ministers of Sierra Leone, Finland, Romania, and Belgium. With politics seemingly replacing monetary policy and the economy as the biggest "left tail" risk for markets, Horasis sessions were a thought-provoking intersection of politics, policy and markets.
Globalization was the connecting theme for the event, and the diverse group of participants gave fresh perspective to a topic in which logic is often replaced by slogans or emotions. A commonly expressed point of view was that the U.S. may be committed to the "idea" of globalization but is uncomfortable with the reality of it. American dissatisfaction with globalization may be connected to the uncomfortable transition to a world in which the U.S. is no longer the dominant power.
Politicians at Horasis acknowledged that the merits of globalization are often difficult for political leaders to champion. Unfortunately, the benefits of globalization are not always clear, but the costs are often painfully obvious. It is very difficult for politicians who want to be re-elected to be candid with their political base about the inherent conflict between globalization's winners and losers.
The reality for investors is that the glory days for global trade are likely to remain in the rearview mirror. Consequently, global supply chains and trading relationships may be replaced by more regionally focused arrangements, with smaller Asian countries potential beneficiaries if supply chains relocate from China. American consumers may face higher prices in a less globalized world, though some leaders think that higher consumer prices would be a favorable tradeoff for the return of high-paying manufacturing jobs to the U.S.
Disruption was a common topic in conference sessions and informal discussions throughout the event. A global economy transitioning from manufacturing to services was commonly mentioned as a catalyst for change. Technology disruption compounds the impact, making it possible to increase manufacturing production without adding manufacturing jobs. The replacement of high-paying manufacturing jobs with lower-paying service industry jobs is a major factor contributing to the rise of populist movements in the developed world, as is rising income inequality.
Discussions of blockchain, machine learning and big data were also hot topics throughout the event, with participants sharing a mix of excitement and trepidation about investment and societal implications. As is the case in most events I attend, there was spirited debate about the investment opportunities created by "disrupters" and the risks and opportunities for the ranks of the "disrupted."
I spoke on a panel focused on alternative investments. Investment opportunities in private real estate, private equity and venture capital were top of mind for panelists and audience participants. Worries about economic growth and risks were also discussed. Private real estate was discussed as a desirable alternative to exchange-traded real estate investment trusts that increasingly trade more like stocks than like real estate. Multifamily residential and industrial real estate were highlighted as segments with strong potential in the private real estate universe.
E-commerce is the demand catalyst for industrial real estate, given the need for strategically located warehouses to serve as distribution hubs. With e-commerce still only 13% of retail sales in the US, industrial real estate may be in the early days of a long-term expansion of demand, while supply is still relatively scarce.
Daniel S. Kern is chief investment officer of TFC Financial Management, an independent, fee-only financial advisory firm based in Boston.
