David Solomon’s morning keynote conversation started the Forbes Iconoclast Summit on Monday, June 12.
Daniel Paik for Forbes
Almost midway through 2023, markets have bounced back from a lousy 2022 more robustly than many investors inspected, but fears of a recession haven’t faded completely. More than 30 influential investors and business leaders converged on Pier Sixty in Manhattan for the second annual Forbes Iconoclast Summit on Monday to break down how they’re positioning their portfolios and steering their companies and clients through the delicate environment.
Billionaires Ray Dalio, Bruce Flatt, Jonathan Gray, Marc Lasry and Toto Wolff are all taking the stage, as well as Goldman Sachs CEO David Solomon, Formula 1 superstar Lewis Hamilton and Ariel Investments co-CEO and Starbucks chair Mellody Hobson.
Below is live coverage of the summit as we’ll be following all of the day’s panel discussions in real time. You can also join the conversation on social media using #ForbesIconoclast.
Goldman Sachs’ Crystal Ball
Goldman Sachs CEO David Solomon started the summit with a keynote conversation with Forbes Chief Content Officer Randall Lane and addressed Goldman Sachs chief economist Jan Hatzius’ forecast last week lowering the probability that the U.S. will enter a recession in the next year to 25% from 35%.
“The economy’s been incredibly resilient,” Solomon said, “but if you’re running a business like ours, you have to be prepared for the downside…. I’ve got a sense that inflation is going to be a little stickier than the current market expectation.”
Solomon also discussed Goldman’s recent struggles with its consumer banking products, which the investment bank attributed about $3 billion in losses to since 2020 in January, and didn’t rule out further layoffs at the investment bank after it shed 3,200 jobs in the first quarter. He noted that Goldman Sachs paused its standard performance reviews that cut some staff annually during the pandemic, so this year’s cuts are part of the readjustment.
“The direct to consumer platform was harder than we thought,” Solomon said. “It’s important for a business like Goldman Sachs to always be looking for more avenues to invest in, and when you do that, some things are going to go well and some things aren’t.”
Solomon ended the conversation on a higher note about the state of capitalism and free markets in the U.S. “The system’s not perfect, but I think it’s the best system there is,” he said. “We need to advocate for the fact that this is something most of the world looks at and strives for.”
Long-Term Opportunities In China And Europe
JPMorgan asset and wealth management CEO Mary Callahan Erdoes, Brookfield CEO Bruce Flatt and Baroness and member of the House of Lords Dambisa Moyo sat down with Forbes executive editor Diane Brady to discuss the state of long-term, global investing as China re-opens its borders after years of isolation during the pandemic.
“Home-country bias is a real thing,” Callahan Erdoes said. “Assets outside the home country continue to be underappreciated.” Looking beyond companies’ home borders, especially as China continues to re-open post its pandemic isolation, the JPMorgan executive shared her excitement, with trepidation, to do business with the country.
Mary Callahan Erdoes, Bruce Flatt and Baroness Dambisa Moyo discuss global dealmaking opportunities at Forbes Iconoclast 2023.
Daniel Paik for Forbes
“If it isn’t happening at the governmental level, make it happen in business,” she added. Flatt and Moyo agreed with the opportunities in China, especially given Middle Eastern and Asian investors’ interest in growing their business in the region. “We can choose who to do business with in China,” added Flatt.
Downturn conditions for the market and regulatory uncertainty for banking also make Europe an attractive region for banks to expand their businesses to, said Callahan Erdoes, emphasizing the need for a long-term view. “You have to stress-test your portfolio.”
“The key question is how do you put money to work over a long period of time,” added Moyo.
The Changing World Order
Billionaire hedge fund manager Ray Dalio, the retired founder of Bridgewater Associates, gave the audience a history lesson with Forbes chairman and editor-in-chief Steve Forbes about how investors can learn from centuries of history before their lifetimes to understand the present and prepare for the future.
“Things that surprised me often surprised me because they didn’t happen in my lifetime, but they happened many times in history,” Dalio said. “By studying the 1920s to 1945 period, I understood the nature of the 2008 financial crisis.”
“The world is going to change in ways that we cannot anticipate,” Ray Dalio, the retired founder of Bridgewater Associates, told attendees at Forbes Iconoclast.
Daniel Paik for Forbes
Dalio pointed to three major social and economic factors that are unique to the current cycle: “enormous” and increasing amounts of debt, internal conflict surrounding wealth inequality that has spurred the rise of populism, and the rise of another world power like China today. The billionaire investor warned in April that he fears the U.S. and China are on the brink of war over the new world order.
“If you have a financial crisis at the same time as you have large wealth gaps, and therefore big disagreements, you are likely to have populism,” he said. “Those two things coming together are an explosive combination.”
Merger Monday
Despite two billion-dollar deals closing this morning, global dealmaking has been “pretty subdued for the start of this year,” Michal Katz, head of investment and corporate banking at Mizuho Americas, said in conversation with Aryeh Bourkoff, founder and CEO of capital markets firm LionTree, and Forbes CEO Mike Federle. The M&A specialists are seeing the light at the end of the tunnel as merger activity seems to be picking up, with an influx of capital from sovereign wealth funds.
“If you’re a strong, well-capitalized company, this is your time to act,” Katz added.
Industrials, healthcare and technology are sectors with particularly high deal activity, Bourkoff and Katz pointed out. Interest in artificial intelligence is also driving capital into industries that could benefit from the automation. Indeed, Novartis announced today it purchased Chinook for $3.5 billion in its race to fight rare kidney disease, and Nasdaq announced the acquisition of fintech Adenza for $10 billion.
To Bourkoff, “liquidity is more important than scale” at a time where a shifting market is forcing dealmakers to shift on the defensive.
Forbes’ Next Chapter
Luminar Technologies CEO Austin Russell discussed his recent agreement to buy a controlling 82% stake in Forbes from Integrated Whale Media and the Forbes family, with much of the stake syndicated to other investors. The deal valued Forbes at nearly $800 million, and Russell said he has more than $500 million in commitments, with the majority from American investors but with a global footprint that reflects his hopes for international growth.
“It’s already an incredible, very profitable business right off the bat,” said Russell. “It’s still probably at a fraction of the potential of what it can be able to do.”
Luminar Technologies CEO Austin Russell discusses his agreement to buy a controlling stake in Forbes with Chief Content Officer Randall Lane.
Ethan Covey for Forbes
The 28-year-old won’t have a day-to-day role at Forbes and will continue to manage Luminar, which develops sensors for self-driving cars. He is a member of the Forbes 30 Under 30 Hall of Fame and was briefly the world’s youngest self-made billionaire before Luminar’s stock price declined. Russell has bought tens of millions of dollars worth of Luminar shares in the last few weeks.
“I have a 100-year vision to save as many as 100 million lives and 100 trillion hours on the road, Russell said. “If you can do something as simple as not allowing your car to smash into the car in front of you, then that will save countless lives.”
Moving Beyond the Tech Stack
Artificial intelligence experts discussed the new frontier of the technology’s applications across industries and around the world as the topic becomes the latest trend to overtake investors and business leaders alike.
“Finally the power of computers has reached a point where AI has pushed the threshold of what was previously considered to be the depths of its capacity,” said Amir Salek, senior managing director at Cerberus Capital Management. “This is the first time that AI has enough data and computing power at the same time.”
But investors are looking at opportunities beyond the tech stack. Companies “run the risk of mirroring the dot-com movement in the early 2000s where all these companies are fighting for the extra 2%,” said Noor Sweid, founder and managing partner of Global Ventures.
Instead, they’re looking at opportunities beyond the infrastructure and into its applications. AI for microfinancing solutions in Africa, healthcare and education are more capital efficient, added Julian Salisbury, chief innovation officer at Goldman Sachs’ asset and wealth management division.
“There’s a confluence of performance and accessibility” that is defining the new wave of AI innovation, said Salisbury.
The Allocator’s Dilemma: Balancing Risk And Return
Ashvin Chhabra, president and CIO of Euclidean Capital, which manages the portfolio of hedge fund billionaire Jim Simons, and Ed Cass, the CIO of $570 billion Canadian pension fund CPP Investments, both urged caution about the direction public and private markets are going. Chhabra was skeptical of the valuations of trendy artificial intelligence stocks and tech firms that have surged this year.
“I think technology is overhyped,” said Chhabra. “We already have the technology to solve most of our problems, and we’ve had it for the last 50 years. It’s human beings that solve problems, not technology.”
Cass noted that the assumptions that inflation will retreat from 4.5% to around 2% and interest rates will be able to come down aren’t guaranteed and recommended being underweighted to fixed income investments in the near term. CPP Investments’ portfolio is around 60% private assets, he said, where dealflow is still moving at a snail’s pace.
“We’re definitely seeing areas of the market that appear to be broken,” Cass said. “The volume of activity right now is very low. You have a big gap between expectations on the part of buyers and sellers that hasn’t been crossed.”
Family Offices as Catalysts of Change
HRH Princess Jahnavi Kumari Mewar, founder of private equity firm Auctus Flora and a senior member of one of India’s most powerful royal families, urged family offices to work together to solve some of the world’s most pressing issues.
“Are we doing anything to actually influence social policies?” she asked Forbes Women president Moira Forbes. “I don’t think we are.”
The royal, who started working at her father’s investment company when she was 16, has spent a large portion of her career building up her family office and her own investment firm. “It was shocking how apathetic people can be within your own family,” she said. From consolidating real estate assets, implementing legal contracts and delineating a clear investment strategy, she has seen the family office’s structure mature.
Her private equity firm, Auctus Flora, has been an outlet for the Princess to invest in causes she cares about. “If that capital is a bit more meaningful in the way that it is invested, it will actually propagate the thought process of creating clusters of investments.” Any kind of disruption in the world will inevitably impact the family, she added.
Cooperation with other family offices is in both parties’ best interest, she said. To established family offices with a history of sizable returns, it is even more important to act on social causes like climate change and war.
“We need to look at family offices as not only us, but look down five generations down the line,” said the member of the Mewar family’s 77th generation. “It’s not just for the world, but also your immediate self-interest.”
The Dissenters: Where To Make Contrarian Bets
Alternative asset managers Victor Khosla, founder and CIO of Strategic Value Partners, and Boaz Weinstein, founder and CIO of Saba Capital Management, both shared ideas of where to find attractive investments during a period of slow growth in the U.S. For Khosla, it’s across the pond, where Germany’s economy has contracted and asset prices have fallen in other areas of Western Europe like the United Kingdom. For Weinstein, it’s in closed-end funds, many of which can be purchased at discounts to their market value of around 15% to 20%, he says.
Both are otherwise largely taking a wait-and-see approach with high rates and trillions of dollars of debt maturing, but Khosla pointed to commercial real estate maturities on the horizon that could fall to enticing levels with that industry in a precarious state.
“We’re in for a four-year or five-year slog as we work through these higher rates and what they mean for valuations, especially in the debt markets,” said Khosla. “All of this stuff is going to start to get repriced quite dramatically.”
Weinstein is still looking for good arbitrage opportunities and cautioned that investors who wait too long for a perfect level could miss out on a good enough place to buy. He also thinks Treasuries yielding upwards of 5% are a good place to stash capital while waiting for opportunities to arise.
“I look at the market and see incredible complacency, whereas you could find a lot of safety and security in T-bills,” said Weinstein.
Rebalancing Act: Adapting the Wealth Equation
Asset diversification is at the top of mind for clients of top investment managers Sonia Gardner, president and managing partner of Avenue Capital, Robyn Grew, president and CEO of Man Group, and Ida Lu, global head of Citi Private Group.
Investors have to “understand what [they] want to achieve in the long term,” in order to best position themselves for returns, said Grew. The newly named CEO of $3.6 billion (assets) Man Group urged investment managers to practice liquidity management with customer assets following the banking closures of the past months.
“As long as we have a very customized investment proposal that is aligned with what [the clients’] long term challenges are, they’ll have very little repositioning,” said Lu.
Energy and sports were top areas where panelists were looking to expand their investments. Gardner sees particular growth in sports as Avenue Capital, co-led by billionaire Marc Lasry, launches a new sports fund.
Geopolitical tensions are another reason to diversify portfolios given the “possible bifurcation between” the United States and China, added Lu. As emerging markets trade at a 40% discount and the U.S. dollar reaches a 50-year high, Lu is looking at Southeast Asia for investment opportunities.
The Future Of Alts
In 2012, 85% of unicorns were based in Silicon Valley, says Howard Morgan, chair and general partner of venture firm B Capital and the cofounder of Idealab and renowned hedge fund Renaissance Technologies. Now, just 20% are in Silicon Valley, with 40% in China and 40% in the rest of the world or elsewhere in the U.S.
“We see a huge opportunity in India, Indonesia and Southeast Asia in general,” Morgan said. “We put a third of our funds outside the U.S., and we think that’s where the growth is coming.”
Morgan spoke on a panel on alternative investments with JPMorgan executive Paul Zummo, SkyBridge Capital founder Anthony Scaramucci and New Mountain Capital managing director Laura Holson, moderated by iConnections cofounder and CEO Ron Biscardi. Holson, who specializes in private credit, cited direct lending as an enticing growing asset class that makes deal faster and easier for borrowers and lenders and is now offering returns as high as 12% with base rates around 5%.
Scaramucci vouched for the resurgence of traditional hedge funds, which have fallen out of favor in the last decade compared with other areas. He noted assets in the hedge fund industry in the last 10 years have gone from $2 trillion to $3.8 trillion, while most other asset classes have at least doubled or tripled with interest rates near zero. “We’re now embarking upon a normalized interest rate market,” said Scaramucci. “While asset gathering has been tepid, you could be in a scenario where we see more activity and more inflows into the space.”
‘Great Time To Invest’
A cooldown from the high valuations of 2021 and 2022 may be the best time to invest, say venture capitalists Lydia Jett, managing partner at SoftBank Investment Advisers, Anton Levy, co-president, managing director and chairman at General Atlantic and Carter Reum, cofounder and partner at M13 Ventures.
In conversation with Forbes’ Steve Bertoni, the investors are optimistic that public and private market corrections are fostering a healthier relationship between venture capital firms and founders. “Injection of technological innovation in the middle of a market correction is healthy,” said Levy.
While artificial intelligence becomes the shiny new toy in the world of investing, investors were cautious of repeating past boom-and-bust investment cycles. Early-stage companies with sky-high valuations run the risk of succumbing to the burn-and-crash pattern of crypto, Web3 and metaverse-focused companies. The solution? Looking inside their own portfolios for new applications of AI, betting on their own instead of looking for the next big thing.
“The better risk-adjusted value is not in new AI companies but looking at companies in your portfolio and seeing where they can use AI,” said Reum. “We just have to be careful that we don’t get caught up with the next big hype like we did in the past,” he added.
Public markets in particular are seeing heavy interest in AI-exposure, said Jett, who emphasized the role of revenue-generating applications of the technology.
Beyond AI, Levy and Reum are still betting on the future of blockchain technology, despite regulatory uncertainty in the United States as the crypto market has shrunk by over 60% since its peak of $3 trillion in November 2021. “There’s actually some really interesting blockchain companies that have real products with real unit economics that are making a huge impact in industries,” Levy said.
Impact Investing For A Better Tomorrow
Investing with strong returns and a positive impact can coexist—Roy Swan, director of mission investment at the Ford Foundation, calls it “patriotic capitalism.” “Everything we do has the goal of making the world and this country a better place,” Swan says.
Swan says 65% of the Ford Foundation’s assets under management are allocated to women and people of color, a rarity in the investing industry. He spoke on a panel with Erin Harkless Moore, senior director of investments at Pivotal Ventures, a firm founded by Melinda French Gates, who noted only 16% of check-writers at venture capital firms are women and and 2% of venture capital funding at the early stage goes to startups founded by women.
“To drive impact at scale and to find meaningful change and address the biggest problems that are facing our society, we have to lean on each other,” said Moore, who noted that improving those numbers takes willpower and patience.
The View From The Top
Billionaire Jonathan Gray, president and COO of Blackstone, presented an optimistic view of the state of the economy, with inflation “increasingly moving to the rearview mirror.” Blackstone has had very few defaults in its corporate credit portfolio, Gray says, and even its holdings in commercial real estate, an industry that has been a popular punching bag in the pandemic era, have held up. Looking ahead, he’s still all in on credit investing.
“There’s no question that credit is quite attractive. Spreads have gone up, so in many cases you can get double-digit returns lending in the senior capital structure,” said Gray. “I would say whenever you can get equity-like returns taking debt-like risk, that’s something you should do.”
Eric Wilmens, president for the Americas of Singapore’s sovereign wealth fund GIC, echoed his bullishness on private credit and also said GIC is still investing in technology and climate-related companies on the panel moderated by Forbes executive editor Matt Schifrin. 40% of GIC’s capital is in American companies, making the U.S. easily its largest market, and Wilmes called China “a bit of an enigma.”
Capitalism For All
In the wake of George Floyd’s murder in May 2020, JPMorgan CEO Jamie Dimon called Mellody Hobson, one of his board members and the co-CEO of $17 billion (assets) Ariel Investments to pick her brain about what his firm could do to support Black-owned businesses. Hobson wrote up a memo in a weekend that became the genesis for Project Black, Ariel’s first private equity fund, which is dedicated to buying minority-owned businesses or companies where Ariel could install management from underrepresented groups which generate revenue between $100 million and $1 billion.
“We are our own headhunters,” Hobson said in a keynote conversation with Maneet Ahuja, Forbes’ founder and editor-at-large of Iconoclast. “We know where all the people are in corporate America who maybe have a big job but aren’t going to get the top job, and we can tap into that talent potential to transform businesses in America.”
Right now, only 2% of the spending from America’s 500 largest companies, amounting to $125 billion per year, goes to minority-owned businesses, and many have stated goals to increase that number to 10% or 15%, creating a near-trillion dollar opportunity. Project Black’s first investment was a minority stake in Sorenson Communications, which provides services for people who are deaf and hard of hearing.
Most of Ariel’s assets are in its mutual funds and separate accounts chock full of small- and mid-cap value stocks. Its flagship Ariel Fund is having a middling year, up 0.7% through May while the S&P 500 Index was up 9% in that span, though six megacap tech stocks are responsible for half of the S&P 500’s year-to-date gain so far.
“We don’t have to go to the scary stuff to find opportunity,” said Hobson. “We’re finding opportunities in some of the financial services names that we think have been thrown out because of the recent trauma that we’ve had in the banking space, and then we’ve been finding names in some of the light industrials or anything that could be remotely affected by this long-awaited recession.”
Power Brokers: Media Rights In Sports
On the heels of Avenue Capital Group’s newly announced sports fund, its billionaire cofounder and CEO Marc Lasry says everything is about the team. Speaking in conversation with pro football Hall of Famer Michael Strahan, who will serve on the fund’s advisory board, and Forbes’ Randall Lane, Lasry revealed that the fund will likely be around $2 billion to $3 billion in size and is aiming for a first close in September.
The former owner of the Milwaukee Bucks’ new fund will focus on investing in women’s sports in the United States, basketball teams in Africa and other sport teams in Asia.
“We’re investing in sports, in the businesses around sports and in the technology of sports,” said Strahan, adding that beyond just access to dealflow, the fund and its advisory board are about “giving entrepreneurs access to individuals who can help.”
Strahan and Lasry also discussed the driving force of media rights behind sport and team valuations. “The point is finding the leagues that are going to grow where more and more people are going to watch them later,” said Strahan.
After selling the Bucks at a $3.5 billion valuation for a sevenfold return over 10 years, Lasry is looking for more undervalued sports teams for the new fund. “The major sports will keep appreciating, but I don’t think the appreciation will be as much as if you buy a women’s soccer team,” he said.
F1 Overdrive: Lewis Hamilton And Toto Wolff Close Iconoclast
Seven-time Formula One world champion Lewis Hamilton took the stage alongside billionaire team owner, CEO and team principal Toto Wolff in the last panel of the first day of Iconoclast.
Wolff credited the growth of the eight-time championship-winning team to its racing legend Nikki Lauda and attributed its success to the entire team of engineers and Mercedes F1 employees. “We’re not a team of a few stars, but we’re a team of 2,500 stars,” he said.
Hamilton first joined the team in 2013 after winning his first world title with the McLaren, saying he “wanted to be a part of something bigger.” Hamilton’s success in the sport extends beyond his racing titles as the driver focuses also on “increasing diversity not only in the team but the entire sport.” In 2019, Hamilton spearheaded efforts to launch the Hamilton Commission, an effort to increase representation of Black people in UK motosport. “Toto has been an amazing leader,” he said of Wolff’s support for his efforts in and outside the track.
Hamilton’s newest venture – Mission 44 – aims to increase the number of engineers in the sport.
After a controversial end to the 2021 racing season, both Wolff and Hamilton acknowledged the tough seasons the team has had, coming in third in the constructor’s championship in the 2022 season. “We need to acknowledge that we need to re-energize the group and sometimes that takes a while,” said Wolff. Hamilton’s contract with Mercedes expires at the end of this season, but he’s in discussions on a new contract and Wolff gestured that they’re close to an agreement.
Formula One’s popularity in the United States has skyrocketed in recent years since the Netflix show “Drive to Survive” brought in 643,000 viewers in its season five debut in April. “We’re actually seeing our strongest growing fanbase is young females in the sport,” said Wolff.
