Wall Street Titans Warn of the Next Big Risk

Cathie Wood sees deflationary pressures brewing. Mohamed El-Erian says there’s a risk of a “lost generation” being created as inequality deepens. For Scott Minerd, a hack could debilitate the financial system.

In an era where meme-stocks and wild crypto prices steal headlines, and policymaking from Washington to China rattles investors, three Wall Street veterans look to the long term. They voice concerns and optimism about how technology will shape the economy, and where markets may be blindsided by drastic disruptions. It’s the job of a money manager, after all, to assess risk.

These are just a few of the next big risks.

Cathie Wood, the founder of Ark Investment Management, describes the deflationary forces behind a wave of innovation that we’ve never seen before:

“The problem is this innovation is going to be very disruptive to the traditional world order... Companies haven’t been investing enough in innovation, and we’re going to see a lot of carnage out there increasingly during the next five to 10 years. At the beginning of the S&P 500 index’s initiation, the average lifespan of a company was 100 years. We believe it’s down to a little over 20 years now — but it’s going to collapse going forward.”

Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion columnist, says Covid-19 hit “fast-forward” on a tragic movie playing out in society, with opportunities drying up in both developed and emerging economies:

“A highly unequal society is not an economically healthy society. But the thing that worries me even more than that is inequality of opportunity. We know what Covid did to people who had no WiFi at home, who had no computers. We know that public school districts lost touch with a lot of their students and these students were not only becoming unemployed, but unemployable, which means a lost generation of young people.”

Scott Minerd, the CIO of Guggenheim Investments, describes a financial system that’s entirely out of date, with a high probability of it being victim to a cyber hack.

“If there was a synchronized attack, we would essentially bring the global financial market to its knees. The first response would probably be that securities prices would crash, and the second is we would probably have to close all the exchanges in the world in order to figure out how to restore the global payments system.”

Minerd’s concerns echo those of Marty Chavez, the former Goldman executive who’s since joined Sixth Street. Chavez told us earlier this year that cyber security in the financial ecosystem was among his biggest risks. If you want to hear more from the latest set of executives in their own words, here’s the entire group on video.

Back to Work

It was about three years ago when we broke the news that Deutsche Bank, one of the last big Wall Street firms actually on Wall Street, would be leaving the area for a new spot in Columbus Circle. The firm has just moved into the “Deutsche Bank Center,” the space formerly known as “Time Warner Center.

The bank’s top deputy in the Americas joined me for an exclusive interview, the first in the new space. “The demise of New York is vastly overstated,” said Christiana Riley, as she aims to bring 5,000 staff back to New York City over the next six months.

Here’s her full interview for Bloomberg Television, where she also explains the leadership challenges inherent in Covid-era work-life balance, and a plan to hire again after many thousands of job cuts.

Revealing Data

ESG data among private companies has been extraordinarily hard to track. Carlyle, in one month alone, fielded more than 40 requests from institutions on different metrics across its portfolio companies. So now, the firm is joining up with rivals across the industry in a new effort to track progress.

Calpers, the largest pension in the U.S., has spearheaded an effort with Carlyle that’s rallied more than a dozen investors -- including Blackstone and Canada’s largest pension fund -- to share and aggregate data across closely held companies.

Here’s more about the effort, and how the group plans to expand ESG reporting. “Private equity has been the highest performer for Calpers, but these are private companies,” Calpers CEO Marcie Frost told me. “Even if you are a private company, limited partners do need some transparency into how these companies are managed.”

Frost and Carlyle CEO Kewsong Lee are joining me next week for Bloomberg Invest, our three-day, virtual event where you’ll also hear from Steven Mnuchin, Orlando Bravo, Soros’s Dawn Fitzpatrick and many others. I hope you’ll watch and send questions -- as well as join me each day next week, Monday through Thursday, from 2-5 p.m. for Bloomberg Television, where I’ll be filling in as an anchor.

And if of interest, I will also be moderating a panel next week on the future of markets with Nasdaq’s Tal Cohen at the Security Traders Association on Oct. 6 and a keynote at CB Insights on the future of fintech on Oct. 5. All of your ideas are welcome at [email protected]. Hoping you have a great weekend ahead.