Investors should be cautious for the rest of 2022 about US equity and credit as markets have not absorbed the Federal Reserve’s determination to keep interest rates as high as 4 per cent, advises Greg Fleming, the veteran banker who heads Rockefeller Capital Management.
The firm points to 50 years of historical evidence to support this view. Since the 1970s, the Fed has always waited for headline annual inflation rates to fall below the fed funds rate before shifting to loosening monetary policy. Inflation is now at 8.5 per cent and the Fed’s target range is 2.25 to 2.50 per cent.
“The fed funds rate has to cross before the Fed starts to pull back. They are going to want to make sure they’ve got inflation under control,” Fleming said. “It could stay 3.5 to 4 per cent for six to 12 months.”
“I’m medium-term positive on the US but . . . for the last four months of the year, the markets will stay volatile,” he said. “Markets will be trying to read into every speech, every data point.”
The group’s chief investment officer, Jimmy Chang, has recommended long-short hedge funds, precious metals and long-duration Treasuries to clients in a recent note, writing: “I doubt that a new bull market has started and would remain patient, selective, and defensive”.
Fleming, previously a senior executive at Merrill Lynch and Morgan Stanley, has run Rockefeller since Viking Global Investors bought the Rockefeller family office and relaunched it as a bigger business in March 2018
Since then, Fleming has overseen the transformation and growth of the 140-year-old business from a $18.3bn firm to a $90bn asset and wealth manager focused on modern day Rockefellers — wealthy and ultra rich clients.
Asset accumulation has at times been slower than hoped, Fleming said. “We’re still a work in progress here. There is a level of expectation when clients walk through the door and you’ve got to be sure you’ve got the ability to deliver.”
The company is gradually expanding its physical presence. It has gone from three initial offices to 40 and plans to add more, with new outposts in growing wealthy cities such as Nashville, Charlotte and Orlando. It is also expanding the range of services offered to cover everything from bill paying and financial education of its clients’ adult children to investment banking and strategy advice for the companies the clients own.
Despite attacks on investing based on environmental, social and governance factors from conservative politicians in states such as Texas, Rockefeller’s asset management arm is sticking with its historical emphasis on ESG funds. “We have clients like my Gen Z children who care about investing in a certain way. We think that is a secular shift; it’s a growth business,” Fleming says.
Inflation and bumpy markets have sharpened the firm’s already strong focus on alternatives. Fleming says that the valuations of both private equity and private credit are starting to come down, as investment committees take into account the first-half price drops in public markets and the Fed’s plans to stay hawkish.
“There’s still a ways to go here,” Fleming said of the Fed’s inflation plan. “So we’re cautious — cautious about equity markets, cautious on debt markets . . . for the rest of 2022, and then we’ll see.”