David Tatkow

You might have caught a glimpse of David Tatkow when he joined our Consultant’s View webinar earlier this month to discuss alternatives and hedge funds. He was recommended by a CIO with his team at Albourne Partners for being “invaluable covering multiple asset classes globally, with best-in-class coverage in Asia and Europe.” The nominator noted that the team’s “differentiators are unrivaled operational due diligence, an extraordinary technology platform, and its commitment to DE&I [diversity, equity, and inclusion].”

Tatkow, a portfolio consultant at Albourne since 2010, advises a mix of pension, endowment, foundation, and wealth adviser clients on all stages of portfolio construction across alternatives.

Prior to joining Albourne, David worked as a hedge fund analyst at the investment management firm Core Capital Management, specializing in alternative investment solutions for high-net-worth investors and family offices. He interned at Cantor Fitzgerald in debt capital markets, and established a risk management infrastructure to measure credit risk and loan loss reserve balances at HVB Group, New York. He has a Master of Business Administration from Booth School of Business at the University of Chicago and a bachelor’s from Dartmouth College.

CIO: What new qualities do you look for in a manager/service provider given the pandemic’s financial and economic impacts?

Tatkow: While several consumer and business behavior trends were observed and integrated as themes in investment portfolios prior to the pandemic (e.g., a move toward e-commerce, cashless transactions, online learning), the advent of COVID-19 accelerated many of these, and the resulting impact on companies and the economy was rapid and profound.

Literally within days of the pandemic’s onset, behavioral patterns changed, and even investment managers who were starkly aware of these trends were caught flat footed. While it is impossible for investment managers to fully prepare for all tail risk events, especially one which had not occurred in over a century, an open-mindedness to the possibility that fundamental change can occur more quickly and with less warning than expected is an exemplary quality in an investment manager.

Microsoft CEO Satya Nadella once said that the technology industry does not respect tradition, and, in many ways, I believe the same can be said for the investment industry, where the pandemic showed that prior assumptions about behavior and competitive moats can be rendered invalid at a moment’s notice. While nobody could have predicted the occurrence or scale of the pandemic, many successful managers were already positioned in a favorable manner relative to changes that were apparent, and thus avoided the worst of the market drawdown when behaviors unexpectedly changed at once.

CIO: What changes are you making to your asset allocation advice?

Tatkow: Inflation should be more top of mind in asset allocation discussions today than at any time in the past 30 years. The question over the longer-term stickiness of inflation that has been seen during the recovery period from the pandemic is, of course, on the forefront of most investors’ minds right now. 

While a number of consequences to financial markets could potentially result from a new inflationary period, one that we have been attuned to is the impact to the now 30-year period of negative correlation between equity and bond returns. This period has made bonds an excellent diversifier to equities, and has powered strong returns in traditional 60/40 equity/bond portfolios. The extended period of outsized performance in 60/40 portfolios has led some to question the need for relatively complex alternative assets; however, we believe that this is as compelling a time as ever to not be tempted to reduce alternative assets in portfolios, and is likely a good time to consider increasing allocations to alts.

In particular, fixed income portfolios will likely be especially vulnerable to a higher-inflation, rising-rates environment, and a number of hedge fund and private credit strategies may be better alternatives right now. Equity portfolios may turn out to be more insulated from inflation; however, given current elevated valuation multiples, we are hesitant to call for tilting these exposures upward. Hedged vehicles, which are less dependent on the direction of equities, and which can generate alpha through security selection in a global economy still in the midst of dislocation from the pandemic, we believe are attractive.

CIO: What do you think will be the biggest innovation in your industry in the next 10 years?

Tatkow: The pandemic-era brought to the forefront issues of wealth disparity and racial inequality in a way that I believe will significantly influence our industry over the next 10 years. I believe that managers who acknowledge these issues, both in how they build their portfolios, and run their businesses, demonstrate great character, which is an essential factor in building fiduciary trust. Whereas even five years ago, many investors and managers regarded environmental, social, and governance (ESG) investing as a niche consideration, the events of the pandemic, I believe, have compelled many investors to elevate social concerns, and evaluate prospective managers in part through those same concerns.

Investors are looking at managers more closely both in terms of what companies they invest in, but also in how they manage their organization: What is the manager’s commitment to building a diverse organization, and how is this demonstrated through practices in hiring, terms of employment, and career development? I believe that the invigorated focus on ESG that the pandemic brought on will be a win-win in terms of creating a more equitable society, but also in strengthening organizations that embrace best practices.