Darren Friedman, partner at alternative investment firm StepStone, focuses his portfolio on the technology, healthcare and infrastructure sectors in the United States. However, he expresses concerns about Europe, saying: “It is striking that countries like Greece, Italy and Spain now look like the bright spots on the continent.
Friedman, a Jewish American investment manager and ardent supporter of Israel, has visited Israel several times since the beginning of the war. He toured the Gaza border area, met with hostage families, and even prepared meals for soldiers in the north. “After October 7, I came with 18 friends from the community. It is important to me that Israelis know that they have broad and unwavering support in the United States, despite what they may hear on the news or on social media. Many friends, colleagues, and friends Investors have been called up for standby duty. I recently met someone who was called up for the fourth time.
Globes spoke with Friedman during another visit to Israel, this time as part of a collaboration with Value Advanced Investments, which is “working with us to raise money for our main fund.” According to Friedman, working on Wall Street has always been his dream: “I love the dynamic nature of the investment world, which is constantly evolving.”
Friedman grew up in New York, worked in banking in Chicago (where he met his wife), and returned to live in New York. Now, 56, he is a senior partner at StepStone, a Nasdaq-traded alternative investment firm with a market capitalization of $7.3 billion. The firm manages $176 billion in assets and advises companies, accredited investors and various entities, including “some of the largest pension funds in the world.” The company’s total revenues for the first half of 2024 amounted to $458 million, and a net profit of $111 million.
Friedman emphasizes that his visits to Israel also reflect a deep belief in the local economy. “It is too early to gauge foreign investor sentiment, but in my view and in the view of many in Stepstone, the Israeli economy is resilient and strong. Over the past 14 months, Israel has faced war, the mobilization of mass reserves, and economic challenges. If we take the traffic jams “In Tel Aviv as an indicator, business continues as usual and Israel remains a leader in technology and healthcare, and investment, especially from venture capital funds, continues to flow in seeing more innovation, some of it drawn from military experience and learning.”
“Developments such as laser defense systems and underground mapping and tracking technologies could also be relevant to civilian areas such as construction and mining,” he explains. “The ability of the Israeli economy to withstand these challenges shows exceptional stability. I believe that significant investments will come, but they will “. Take more time.”
Trump will have a positive impact
Amid a two-year bull market in the US stock market and historically high valuation multiples on Wall Street, Friedman asserts: “We can expect a correction and a return to a more rational valuation environment. Certain areas of the market are almost stretched to their extreme limits, and it is difficult to see how they can Repeat performance of recent years In my view, a reversal and pullback is a natural and necessary course of action.
“It is true that over the past two years, the general markets have performed very well, but it is important to remember that there are years of declines, such as 2022 or 2018,” he adds. He also notes that “the likelihood that seven stocks, while notable, will continue to push the S&P 500 higher is debatable. However, there is no debate about the fact that their heavy weighting in the index creates a certain distortion in its composition, which undermines effective diversification.” Which it previously presented before the huge rise in its ratings.”
But he emphasizes that “looking forward to 2025, US companies appear to continue to grow at an annual rate of 10%-12%, and therefore, we remain optimistic about the US economy.”
Regarding the expected impact of President Donald Trump’s return, Friedman expects that he will continue to promote pro-business policies, and some market gains have already been driven by these expectations.
On the other hand, Europe seems to be facing a difficult period, especially in France and Germany. Surprisingly, southern European countries such as Greece, Italy and Spain, once considered the “black sheep of Europe”, now appear to be the bright spots on the continent.
Regarding the bond market, Friedman considers it attractive, saying: “Over the past decade, we have become accustomed to a near-zero interest rate environment, but from a 50-year perspective, this is not the norm. There have been years of bond yields exceeding 5%, and it may be… There is room for small interest rate cuts, but even this will only happen gradually.
To build on infrastructure
When asked to create an investment portfolio, Friedman chose one similar to the general portfolio of institutional investors in Israel, which combines stocks, bonds and alternative assets. 40% is allocated to stocks, especially in the United States
As for the bond component, it divides it into 12.5% in government bonds, and 12.5% in corporate bonds, with the majority of this allocation (65%) in the United States, 30% in Western Europe, and 5% in Israel.
The remaining 35% of the portfolio will be allocated to alternative assets, with 20% in private equity funds that invest in private companies and 15% in private sector debt, also primarily in the United States.
In terms of sectors that he finds interesting in the future, Friedman focuses on the technology sector, which “will continue to be an important and dominant driver of growth and is involved in almost every industry. We invest in manufacturing companies where the real growth driver is technology or automation. We prefer manufacturing companies that require reduction.” “minimum employment.”
In addition, he believes the healthcare industry is interesting but warns that “the sector could be affected by legislation from the new administration, so selectivity is essential. IT companies in the healthcare space look promising.”
He also views the infrastructure sector positively, saying: “The world depends on this growth, and it is evident everywhere. These are stable assets that generate high returns along with steady cash flows.”
Risks in alternatives
While leading an alternative assets firm, Friedman acknowledges that the broader Israeli public has been exposed to some problematic funds in this space. To avoid bad investments, he recommends working with “existing entities that are highly transparent, publicly traded companies (like ours), and those that are regulated like the U.S. Securities and Exchange Commission.”
He also recommends examining managers’ track record and experience in relevant sectors, as well as stability within the management organization – frequent changes can be a red flag. Finally, he suggests speaking with former partners who have worked with the organization to gain insight into the quality of its management.
According to Friedman, the main disadvantage of the alternative investment world is the lack of liquidity – the inability to enter and exit investments at any time. However, he points out, “You are compensated at a significant premium for illiquidity. Most investors, including institutional investors, overestimate the level of liquidity they actually need.”
Published by Globes, Israel Business News – en.globes.co.il – on December 10, 2024
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