Here in Australia, Kerr Neilson’s asset management firm Platinum (ASX:PTM) goes public today. The initial public offering is wildly oversubscribed. Like Blackstone, Platinum has attracted the capital not just of high net-worth individuals…but anyone with lots of cash and no investment ideas and an unquenchable lust for yield.
And this phenomenon is probably just getting under way, in terms of manic psychology. China is willing to turn its accumulated reserves over to hedge funds and asset managers for higher yield. Why not Russia? Why not Japan? Why not Korea?
That’s where the leverage comes in leading to the equity melt up. If the forex reserves and petrodollar surpluses make it on to the balance sheets of companies owned by Leon Black of Apollo Advisers, Stephen Schwartzman of Blackstone, and Kerr Nielsen of Platinum, and those very rich and very smart men are taking their pirate warships and floating into the open waters of public markets, what happens next is obvious.
Wealth management firms will begin trading at huge multiples. What will the wealth management firms do with all that capital? Will they buy blue chip stocks like BHP? Copper? Oil? Zinc? Corn? All those things, probably.
Of course the companies will probably also buy each other in a kind of weird, incestuous financial love-in. And that will deliver a bastard kind of alpha. Because really, just because there’s a lot more money in the world doesn’t mean there is a lot more value.
But it does probably mean there’s a lot more upside to this manic boom. You’d think a country’s would want to keep its forex reserves AS reserves, holding them back in case of another global currency crisis.
However it has dawned on us that currency crisis isn’t coming. It’s been here for years. It started a few years ago with the dollar/euro and our expensive pains au chocolat in Paris. It’s a kind of slow-motion currency car- wreck for the dollar that your editor has noticed in rising latte prices, but that has manifested itself in rising tangible assets everywhere else on the planet.
Markets and Money