Why We’re in ‘Stagflation Lite’ and What to Do About It. Smart Tips From the NewEdge Group.

From left, Rob Sechan, Cameron Dawson, and Alex Goss, photographed in New York City. (Photograph by Cole Wilson)

The leaders of NewEdge Capital Group’s wealth operations spend a lot of time trend-spotting. The wealth business is led by what Managing Partner Rob Sechan calls a “triumvirate”—himself, Managing Partner Alex Goss, and Chief Investment Officer Cameron Dawson. They pride themselves on finding opportunity in disruption and volatility.

There has been plenty of that to go around this year. Sechan and Dawson recently sat down with Barron’s to discuss how macroeconomic conditions are shifting, where they are seeing investment opportunities, and why their firm benefits from private-equity backing.

Barron’s: What is your economic outlook?

Cameron Dawson: In today’s environment, we think that there are hints of stagflation—kind of like the hints of flavor that you have in a lite beer, so we’re calling it stagflation lite. What that means is that you’re in an environment where you have lower growth, slightly higher unemployment, and sticky inflation.

This is different from stagflation heavy, which is what we had in the 1970s. That was a period of high unemployment and high inflation. It isn’t supposed to happen in traditional macroeconomics, meaning that when you have high unemployment, there should be lower inflation. We think the biggest, most important question that investors should be asking right now is whether this lower growth, lower hiring environment will morph into a higher firing environment.

Do you think the Federal Reserve will cut interest rates in September?

Dawson: Yes, we think they cut in September to reduce political pressure, and that the recent nonfarm payrolls reports give them the air cover to do so. But November and December become a little bit more of a question mark because we think we’re going to get some spicy inflation prints over the course of the next few months. That’s going to make it harder for this Fed to deliver those rate cuts. We probably get one in September, and then we’re in a wait-and-see mode.

How is your practice structured?

Rob Sechan: We’re not an organization that is managed from the top down. It’s incredibly important to always have a two-way street with advisors. We use technology for better pricing, better execution, improved visibility into client assets, improved risk management, and security selection. We leverage financial-planning tools that are really state of the art. We package that in a way that benefits advisors and ultimately their clients. Then we surround that with intellectual capital: These are CFPs, CFAs, CPAs, tax attorneys—tons of resources that you would normally only see at the world’s leading private banks.

NewEdge’s parent company, EdgeCo Holdings, is backed by Parthenon Capital Partners and Waterfall Asset Management. How have private-equity backers helped your firm?

Sechan: I don’t want to make it seem like we were born in a laboratory, but we did think about what we wanted to achieve as we designed this organization. Having a private-equity partner allowed us to invest in a way that we wouldn’t have been able to without that institutional partner. We were able to add resources that weren’t yet profitable for a number of years—that’s both technology and human capital—and we were able to build a really high-quality business almost from scratch. In the independent space, a lot of businesses are starved for resources and capital.

I also will tell you that employee ownership at this company is very high—nearly 50% of the business. So, while we are backed by private equity, everybody here acts like owners.

What are your clients concerned about these days?

Dawson: With markets at all-time highs, there’s certainly some consternation about whether the party can continue. Most of these clients are looking to put cash to work today. We think that quality is the most important factor for long-term equity investors who are tax sensitive.

Quality allows you to stay invested through cycles. You have what’s called better downside capture, meaning you don’t go down as much as the market when you have years like 2022. That means that when you’re in an upcycle, you start from a higher base and you tend to have really good participation. That’s important psychologically for clients, to help them stay invested when times are inevitably going to be scary.

How do alternatives fit into the investing picture for you?

Dawson: We’re in a world where we think forward returns are likely to be lower over the next decade than they were in the prior decade and a half, so we look for things that generate returns even when the S&P 500 doesn’t.

Everything we do within alternatives, as well as in the rest of portfolios, is what we call thesis-driven. We look at the world, we look at the different changes and potential disruptions, and we try to take advantage of those disruptions. You also need to be fee optimized. We have a very strict rule that if we are going to pay for alpha, we better darn get it.

We will steer into disruption. When we hear the whooshing sound of people fleeing through the door, that’s when we start to sharpen our pencils and say, “Is there opportunity here?” That oftentimes presents itself in alternatives and private markets. For example, when nobody wanted to touch venture capital in 2023 after a really rough 2022, we were seeing incredible opportunities and made investments in that space. We were able to catch this early wave of AI innovation within the venture landscape. Volatility is opportunity. That’s how we put it with clients.

What is a new theme you’re adding to portfolios now?

Dawson: Infrastructure. Last year, we were looking at the S&P 500 after two years of 20% growth and saying it’s going to be headed lower. We looked across our client portfolios and realized that we were underexposed to infrastructure. We thought about being able to get high-single to low-double digit returns with lower correlation to the S&P 500. And we saw megatrend themes of big infrastructure buildouts to support artificial intelligence with power needs, as well as to revive traditional infrastructure within the U.S. and globally. There was also a lot of innovation in the fund structures that invest in infrastructure, with firms coming to market with funds that have tax advantages as well as some liquidity.

What do your clients want to know about crypto?

Sechan: It’s something that every client wants to talk about. There’s no question that, as they look at the devaluing of the dollar and the general acceptance of crypto within the administration, there has been a validation among clients, and we have to be well versed in cryptocurrencies and think strategically about it as it relates to asset allocation. It has become a more important asset class, which you have to pay attention to.

Dawson: We consider Bitcoin to be something like gold. We call it a psychological commodity, where it gives you exposure to those fears about dollar debasement, but it’s also very sensitive to liquidity dynamics within the economy. Look at years like 2022 or 2018, when liquidity was tight and the crypto space took a little bit of a tumble.

You have to understand what causes these big upcycles within crypto: certainly liquidity, as well as fears of dollar debasement. It’s important to make sure that the exposure is right-sized for the risk tolerance as well as the client’s investing timeline and liquidity needs.

Can you imagine a time when some of the largest RIAs go public?

Sechan: I actually think there is a possibility of that. Some of the very largest RIAs are so big they might not be buyable by another PE firm [when the current owner wants to exit], so I think that’s inevitable. It’s a question of when, not if, from my lens.

Thanks, Rob and Cameron.

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