The art of balancing risk and reward

Jack Ablin, chief investment officer at Cresset Asset Management, has built a career on balancing stability and opportunity. And, as global markets face inflation, fiscal imbalances, and volatility, Ablin is focused on creating resilient portfolios that adapt to shifting risks while remaining poised to capitalize on growth.

“We’ve done a lot of work evaluating the value-add of gold in portfolios,” Ablin explained, emphasizing its reliability as a diversifier. In analyzing gold alongside the S&P 500 and long-term treasuries, he found a remarkable consistency: “There was only one year, and it was 2022, when all three asset classes were down simultaneously.”

He pointed to 2022 as a recent example when rising rates devastated both equities and bonds, yet gold was down only fractionally.

“I don’t expect anyone to have a third of their portfolio in gold,” he said, highlighting it as a prudent allocation, not an outsized bet.

On the issue of US fiscal imbalances, Ablin believes the bond market will play a crucial regulatory role.

“I think the bond market will eventually exert some discipline on policymakers,” he said, citing the Clinton administration’s response to rising rates in the 1990s as an example. But despite the acknowledged risks, he remains confident in the market’s ability to nudge legislators toward corrective measures. “I don’t think it will lead to default or anything catastrophic,” he added.

Emerging markets present a more complicated picture, shaped by competing forces. Ablin described two trends: “We have what I’ll call the broadening trade,” fueled by lower interest rates and easier financing, versus protectionist policies that could create headwinds for international markets. US small-cap stocks, however, emerge as a rare beneficiary.

“The good news, I suppose, is US small caps actually are beneficiaries of both of those currents,” he noted, pointing to their adaptability in either scenario.

Drawing lessons from past market behavior, Ablin recalls the 2016 US election and the initial sell-off in China and Mexico.

“If you look one year [on], China was the best-performing equity market in the world,” he says, underscoring the importance of long-term perspectives even in volatile markets.

Risk management, according to Ablin, requires clear distinctions between defensive and opportunistic strategies.

“We mitigate risks on the public market side,” he explained, describing moves such as reducing equity exposure or reallocating to bonds and gold. In contrast, private markets become the arena for offensive strategies. “If there’s a pre-IPO opportunity or a specific debt deal, that’s where we’ll go on offense,” he says, keeping the public side neutral-to-underweight during times of uncertainty.

The interplay of resilience and agility is at the heart of Ablin’s strategy.

“What we try to do is mitigate risks on the public side and take opportunities on the private side,” he explains.