INTERNATIONAL - In his career in finance - all seven years of it - Ben Kumar has seen some tough days.
There was 2013, when traders worried about the Federal Reserve, and 2016, with the Brexit vote.
But, at 29, Kumar and many millennials like him on Wall Street and the City of London have never endured a full-blown crash. For them, markets have always bounced back—fast—and gone on to heights.
Now, with world stocks sinking and central banks withdrawing stimulus that’s supported markets for years, elders worry Kumar’s generation isn’t ready for its trial. Kumar is chill.
“Find me someone who worked in the era of 15 percent inflation and I’ll talk to them about Bitcoin and the Internet,” said the 29-year-old, a fund manager at Seven Investment Management in London who helps oversee 12 billion pounds ($17 billion).
After $3 trillion was erased from global stocks in a week, he’s weighing whether to buy on the dip now—or wait a bit longer. “I don’t even think that this move is a wake-up call,” he said on Tuesday.
Many bankers older than 40 shudder at the thought of what will happen if – or when – some unforeseen trigger sparks a crash that drags down not just stocks, but also bonds and currencies together. Etched in their memories is the Lehman Brothers collapse in 2008. In its wake, stock market valuations alone were cut in half.
By contrast, most millennial investors have only worked in an era where central banks printed trillions of dollars to prop up their economies and markets. Since starting their careers, average interest rates in the developed world have barely nudged above 1 percent, inflation all but vanished, the S&P 500 Index more than doubled and bonds rallied so high that more than $7 trillion of debt is negative yielding.
“You have to have had that stage where you’re looking at the screen through your fingers to really appreciate risk-reward in this industry,” said Paul McNamara, who heads a team of five at GAM U.K. Ltd. in London managing $11.5 billion. “Not just seeing things go wrong, but going so much more wrong than you imagined was possible.”
McNamara avoids hiring anyone who hasn’t endured an “absolute disaster”—the youngest member of his team is 39—for fear they may be too complacent. He should know. When he was 28 in his first gig as a junior fund manager at Julius Baer in 1997, he loaded up on the Indonesian rupiah and bought some more on the way down. It kept sinking and the bet lost him single-digit millions.
But McNamara’s hiring restraint puts him in the minority. A survey of more than 4,800 fund managers in London, New York and Paris conducted last year by crowd-sourced data provider Emolument showed half of respondents had nine years of experience or less. That means there are hundreds of managers who didn’t live through the 2008 collapse and its run-up, let alone the dot.com bubble that burst in the early 2000s or the 1997-1998 Asian financial crisis.
“One of the dangers of a long detour is that people start to forget what we are detouring from,” Jacob Frenkel, the 74-year-old chairman of JPMorgan Chase International, said on the sidelines of an investment conference in Moscow last month. “If you have unconventional policies that are lasting for so many years, they may become the new convention.”
After years of near-zero interest rates, central bankers are walking a tight rope of deciding how quickly to raise interest rates. If they’re too fast, it could send shock waves through markets. If they’re too slow, inflation—which erodes investment income—could start spiralling.
The stimulus not only dulled price swings, it also artificially distorted asset prices. For perspective, in 2007, a 10-year U.S. Treasury note yielded what short-dated debt issued by a junk-rated country like Ukraine pays now.
“History doesn’t repeat, but it tends to rhyme,” said Chicago-based Jim Schaeffer, co-head of public fixed-income at Aegon USA Investment Management LLC, whose firm oversees $105 billion of assets. “Many investment professionals sitting out there today have only lived through one market.”
The response from millennial traders: don’t underestimate us.
“Who says we’re going back to the old era?”
“I think I am ready for the next downturn,” said Victor Massue, 28, a senior fixed-income fund manager at AISM in Luxembourg. He learned his lesson in 2016 when he bet that Donald Trump’s election would be bad for markets and the opposite unfolded.
“Humility is one of the most important values in finance, it prevents you from having an over-inflated ego,” Massue said. “Markets are risky, new traders should know that the aim of the game is not to earn money, at first—it’s trying not to lose and survive.”
With age and experience tends to come greater caution. Christian Hille, Deutsche Asset Management’s global head of multi-asset, is concerned enough about the generational gap that he holds regular training sessions to try to “put things in perspective” for the younger members of his team.
“I’m aware the juniors who we have hired and trained don’t have experience of working in normal market conditions,” Hille said. “They are themselves more concerned about what happens going forward. What happens when stimulus is withdrawn.”
Kumar, from Seven Investment, said the generation gap goes both ways. When seasoned investors woke up to the realization in October that the meteoric rise of a virtual asset called Bitcoin was becoming too big to ignore, he was counting his profits after putting some personal savings into it in June at around $2,500. He sold some of his Bitcoin at the end of December when it approached $20,000.
It’s since dropped to about $7,000 and the jury’s still out on whether it’s the “biggest bubble in history” that economist Nouriel Roubini, 59, thinks it is, or the currency of the future that’s leading many millennials to ditch boring bank jobs.
“I haven’t worked in a different era to this one, but who says we’re going back to the old era?,” Kumar said.