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Institutional Investments: Where Do We Go From Here? (Please tell me it’s up!). Presented by: Rick L. Smith, SVP, Institutional Investments Carolina First Bank A trade name of TD Bank, N.A.
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Institutional Investments:Where Do We Go From Here?(Please tell me it’s up!) Presented by: Rick L. Smith, SVP, Institutional Investments Carolina First Bank A trade name of TD Bank, N.A.
In a very chaotic environment for Equity and Fixed Income markets, we will have a discussion of where we have come from, where we are, and where industry professionals think we might be headed.
Events of the past 24 months: Let’s Review $600 Billion Auction rate securities market freezes S&P index declines by 50% – What’s next 2009/10? Bear Stearns forced sale to JP Morgan Unemployment approaches 10% Indy Mac seized by regulators - 2nd largest Largest Budget in US History Passed $3.1 Trillion Federal takeover of Fannie Mae and Freddy Mac 44 States issue Budget Short Fall Forecast Lehman Brothers filed for bankruptcy California issues IOU’s as money runs out US seized control of AIG in an $85 billion bailout 140 Bank failures in 2009 The $64 billion dollar Reserve MM fund freezes Merrill, Lehman & Bear Stearns no longer exists Washington Mutual seized by regulators 132 Bank failures to date in 2010 Wachovia forced sale to Citibank/Wells Fargo European debt crisis Congress passes $700 billion bailout plan Current US Deficit 13 Trillion Big 3 Auto Makers seek government bailout Madoff’s $50 billion dollar fraud 26 Bank failures across the US in 2008
How Much Is $13 Trillion? You would need to spend • $13.00 per second • $780.00 per minute • $46,800.00 per hour • $7,862,400.00 per week • $31,449,600.00 per month • $377,395,200.00 per year For The Next 32,000 years
Feds Recent US Monetary Policy Alan Greenspan Mid 2000 6.50% Mid 2007 5.25% Mid 2004 1.00% Mid 2008 2.00% Present 0 – 25bps QE2 (Quantitative Easing) Ben Bernanke Source: Board of Governors Federal Reserve
You Don’t Know Who is Swimming Naked until You Drain the Lake . . .Warren Buffet
Low Rates = Dangerous Amounts of Debt (A Slide From My Presentation October 2008) Bear Stearns Gross leverage ratio: 29.9 to 1 % of 3rd qtr. Revenue Investing its own $ 23% Morgan Stanley Gross leverage ratio: 32.2 to 1 % of 3rd qtr. Revenue Investing its own $ 24% Lehman Brothers Gross leverage ratio: 30.2 to 1 % of 3rd qtr. Revenue Investing its own $ 37% Goldman Sachs Gross leverage ratio: 24.5 to 1 % of 3rd qtr. Revenue Investing its own $ 61% Merrill Lynch Gross leverage ratio: 23.3 to 1 % of 3rd qtr. Revenue Investing its own $ 37% With Leverage of 30 to 1, it takes a reduction of 3% in assets to wipe out all equity * Source: Data from 2nd quarter 2007 Conte Nast Portfolio Magazine November 2007
As A Result of The Past 18 Months Institutional Behavior “Facing Massive Losses, Endowments & Foundations are moving lockstep out of the Endowment Investment Model after years of double digit returns.” (*) • The 10 Largest University Endowments Lost a Combined $36 Billion • Harvard alone lost 10 billion of its $37 billion endowment • 81% of Nonprofits polled have altered their Investment Models due to recent Markets *Source: Institutional Investor Magazine, Nov 2009
The Lost Decade in Equities, The S&P 500 has been Flat since 2000 . . .
Where Is The Smart Money Going? US Treasury Securities at unprecedented low yields 90 Day yield 13 bps 2 Yr. yield 36 bps (lowest is history) 5 Yr. yield 118 bps 10 Yr. yield 257 bps Yields T-Bills/Treasury's
Where are the markets heading? Conventional Wisdom, Investing 101 Equities Interest rates Stocks Fixed Income Bonds Interest rates
Take Away For 2011 1) Have A Plan (Investment Strategy/Policy) 2) Be Consistent (Follow Your Plan) 3) Rebalance to Target Allocations 4) Consistent Returns Year-Over-Year Are The Goals
