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Brief: British banks turned down more than 150,000 applications for government-guaranteed business loans during the Covid-19 outbreak in an effort to prevent fraud, according to the industry watchdog. The Financial Conduct Authority told lenders not to relax their checks on potential borrowers when they offered credit under the Coronavirus Business Interruption Loan and Bounce Back Loan programs, according to Chief Executive Officer Nikhil Rathi. “Our understanding is that approximately 14% of CBILS loans were denied because of concerns around diligence and 8% of BBLS loans upon first application,” Rathi told a virtual session with a U.K. parliament committee on Wednesday. The programs, intended to fund smaller companies, have received more than 1.6 million applications since their introduction in May. Bounce Back loans have proved most popular, with companies receiving about 40 billion pounds ($52 billion) so far, but some critics have pointed to loose eligibility criteria that left lenders open to potential fraud. The initiative was launched “at great speed” to meet the need for corporate funding after the country went into lockdown, said Rathi, who took over as head of the FCA in October. The regulator made it clear that “banks must maintain relevant systems” especially when taking on new customers, he said.
Brief: Investors sold UK and Europe-focused equity funds in October as governments battled to curb Covid-19 infections with another round of restrictions. Across Europe, a record 1.5 million new cases of the virus were registered last week, prompting Germany, France, and Belgium to declare nationwide lockdowns. Equity funds focused on UK were the worst hit, shedding GBP358 million of outflows over the month according to data from Calastone. The UK has also announced a new national lockdown, which has done further damage to investor sentiment, already suffering from the failure of negotiations with the EU to agree a trade deal. Income funds, which are disproportionately exposed to UK equities, also suffered their worst ever month as GBP763 million left the sector. Meanwhile, European equity funds suffered outflows of GBP69 million, to the benefit of funds focused on North America and Asia, which saw inflows. Data from Morningstar shows that European funds performed poorly in October, with Europe-focused funds from Robeco, Schroders, Janus Henderson, Fidelity, and J O Hambro all ranking among the 10 lowest returning funds for the month.
Brief: Institutional investors are planning increased allocations to real assets over the next 12 months due to the lasting impact of Covid-19 on world economies, including the working-from-home trend, research has suggested. Nearly half of insurers and 37% of pension funds globally say they expect to increase investment in real asset strategies amidst ongoing uncertainty, according to the study by Aviva Investors. ‘Real estate long income’ was identified as the preferred asset class by over 50% of insurers and 45% of pension funds, while debt strategies were also favoured highly. The report also highlighted the increased efforts of investors to align their portfolios with net-zero emissions targets. Nearly 60% of insurers and 48% of pension funds are looking towards “energy-efficient real estate assets”, the report found. Meanwhile, the acceleration of the working from home trend by the pandemic is expected by many institutions to provide the “greatest opportunity” for real assets investing over the long-term. Mark Versey, chief investment officer of Aviva Investors’ real assets division, said: “Whilst Covid-19 clearly had an immediate and profound impact on the built environment, many investors have seen these changes as the acceleration of existing structural shifts.
Brief: The private equity industry is currently navigating a number of challenges in addition to the Covid-19 pandemic, which the whole world is facing. As regulation and political will around environment, social and governance (ESG) factors grows, PE firms are coming under increased pressure to incorporate this approach into their investment strategies. These firms are also keeping a close eye on the progress of the Brexit negotiations to make sure to maintain their access to Europe. “Covid-19 has presented much uncertainty and many challenges to the global private equity industry and market perspectives are mixed. However, this uncertainty has offered some private equity firms, who are fortunate enough to have plenty of dry powder, or who may have recently completed large closings, a unique opportunity to invest in assets at interesting price points. “It also affords private equity firms the opportunity to be closer to their portfolio companies, invest in businesses suffering from the pandemic and demonstrate added value by putting the sizeable amounts of capital they have to work. It would not be surprising, once the economic impact of Covid-19 filters through, to see private equity taking a more active role in the debt markets and continuing a trend, which has been prevalent since the global financial crisis,” says Johan Terblanche, Managing Partner and head of the Luxembourg Funds & Investment Management team at the Maples Group. So, while markets have been hit by downturns and recessions in the past, the rapidly changing situation is also presenting challenges for private equity firms and private equity fund vehicles globally.
Brief: Uncertainty remains the order of the day as the world heads into a period of slow recovery which risks being scuppered by a variety of factors including the US elections, trade tensions and the prolonged impact of the Covid-19 pandemic. Financial services practitioners in Luxembourg, like their peers in other jurisdictions, have had to navigate this volatile environment while continuing to provide a seamless service to clients. “The crisis has been a strong accelerator of change by spotlighting our resilience, as well as our ability to adapt. While organisations are considering how to accommodate working from home to a greater extent, the reduction of face-to-face contact may in turn have a detrimental impact on collaboration, connectedness and productivity. To that end, the need for support in this profound cultural change should not be minimised,” details a report published by the Digital Banking and FinTech Innovation Cluster of the Luxembourg Bankers’ Association (ABBL) and KPMG Luxembourg. Although much in the world has obviously changed, ALFI chair Corinne Lamesch told delegates at the organisation’s virtual conference that following the initial Covid shock in February and March, total assets under management in Luxembourg rebounded to EUR4.6 trillion at the end of July, approaching the all-time peak set in January. “At least for now, Luxembourg’s role as the world’s leading cross-border fund centre remains unchallenged,” she said.
Brief: Property fund managers have raised concerns over the City watchdog’s proposals to enforce a six-month redemption period, claiming the rules could reduce consumer choice and create problems for other parts of the market. Earlier this year the Financial Conduct Authority published a consultation paper floating rules which would require investors to give notice — potentially up to 180 days— before their investment is redeemed from an open-ended property fund. But some fund managers have raised red flags for how the rules would work in practice as the consultation comes to an end today (November 3). A spokesperson from Columbia Threadneedle said the asset manager did not support the FCA’s proposals, arguing the rules would limit investors’ access to such portfolios. The spokesperson said: “The proposed change would mean these funds become unavailable to retail investors, reducing customer choice and preventing access to an asset class that is an important risk and return diversifier and income-generator.
Brief: Real-estate companies are seeing clear evidence of New Yorkers and Londoners ditching city centers for suburbs as the pandemic changes the way people live and work. IWG Plc, which operates Regus-branded serviced offices in cities around the world, has seen a “a strong pick-up in demand” for suburban space versus major cities, especially in places reliant on commuting. While deals for its downtown New York offices have collapsed by 30% since the virus outbreak earlier this year, activity in southern Connecticut has surged more than 40%, according to a statement Tuesday. Across the pond, U.K. housebuilder Crest Nicholson Holdings Plc’s expected slump in full-year profit may not be as bad as previously flagged, partly thanks to developments in southern England outside of London, it said in a quarterly update. A “structural change to the balance of office and home working” featured strongly in customers’ buying decisions, it said. Shares in IWG climbed as much as 11% in Tuesday morning trading in London, while Crest Nicholson shares jumped as much as 22.5%, the most on record. The pandemic has turned the world’s financial capitals into ghost towns as nervous workers avoid mass commuting. While cities across Europe showed signs of recovery in the summer, a resurgent wave of the virus has prompted a series of new lockdowns in the region. New York is also tightening restrictions amid rising infections nationwide.
Brief: SEC enforcement officials posted a record $4.7 billion in disgorgements and penalties in fiscal year 2020, the Securities and Exchange Commission reported Monday in its annual enforcement report for the period ending Sept. 30. Parties charged by the SEC were ordered to disgorge $3.6 billion and pay penalties of $1.1 billion, an 8% increase from the previous fiscal year. More than $600 million was returned to harmed investors. The fiscal year also saw a record for the SEC's whistleblower program, which awarded $175 million. The agency's 715 enforcement actions covered a range of issues, including issuer disclosure, foreign bribery, market manipulation and insider trading. The number of actions fell 17% as agency officials adjusted to COVID-19 work restrictions. Stephanie Avakian, SEC enforcement director, said in the report that one focus during the past year was accuracy in financial statements and issuer disclosures. Along with traditional sources for such cases, SEC enforcement officials also used risk-based analysis to identify potential violations, including earnings management practices that could be masking unexpectedly weak performances and disclosure of corporate perks.
Brief: There’s a “magic bullet” for some of the biggest challenges facing the U.S. economy, according to famed value investor Jeremy Grantham. In an investor note dated October 30, the GMO co-founder called for a “new Marshall Plan” to combat problems including “depressed” economic growth, rising wealth inequality, and climate change. “The economy of the developed world has been steadily becoming less dynamic for the last 50 years and the GDP growth of the developed world has fallen from over four percent a year to less than two percent a year,” Grantham wrote. “We need a long, sustained, and massive public works program — a second coming of the Marshall Plan, if you will — to jolt the U.S. and the global economy into a few decades of accelerated growth.” The Marshall Plan, also known as the European Recovery Program, was a U.S. foreign aid initiative to help rebuild Western European cities and infrastructure that were damaged during World War II. Grantham said a similar program could be enacted now to build green infrastructure that would mitigate climate change. “We face the shorter-term economic threat from Covid-19 and the long-term economic threat from climate change,” he wrote. “We have a clear incentive, I would argue an imperative, to produce a very large and sustained public works program.”
Brief: Zoom has been the ultimate success story for 2020 as firms, globally, have adjusted to remote working. If I think about what the next best thing to Zoom will be, I would say it needs to be something that gives you the ability to walk into someone’s computer just as easily as walking into their office. At the moment, my experience of Zoom is that everything is still formalised and diarised…I’ll talk to you at 10am, let’s set the meeting for 5pm. What’s wrong with doing a quick meeting at 10.15? It still feels a bit regimented, in that regard. But Zoom and other platforms like Microsoft Teams have at least shown fund managers a glimpse into the future of how we might all be working. In the past months I have noted that firms have managed to transition far more seamlessly than they might have anticipated to being able to efficiently collaborate with their entire team connected only by their screens and telephones. One idea to help create community is conduct “office hours” on Zoom. When we are in our offices we are able to be seen either at our desk that may be in an open environment or if in an office through the glass walls. Anyone can see you as they walk by. Those spontaneous conversations are what is missing by members of the team working independently, remotely. Why should working outside of the office environment mean that no one can see us unless they arrange in advance and schedule it?
Brief: Private equity funds injected €36 billion into European companies in the first half of the year, helping them combat the “intense liquidity crisis” caused by lockdowns. The investment came as private equity funds in Europe raised €49 billion in H1, matching the previous half-year’s total. Invest Europe, an industry body, said the industry was on track to raise a sum of money for the full year that would be on a par with average fundraising levels achieved over the last three years. However, the overall figure for private equity investment was 17% lower in value . Invest Europe’s ‘Investing in Europe: Private Equity Activity H1 2020’ also shows that private equity backed 3,401 companies during the period, with about 60% of investment value going into follow-on investments. In addition, venture capital investment achieved a new half-year record with €5.6 billion invested into start-ups and scale-ups.
Brief: Oaktree Capital Management is warning credit investors to brace for unpleasant surprises in the fourth quarter, as U.S. elections loom amid the persisting pandemic. “More than ever, it is important to be wary of market exuberance and to avoid chasing risky investment opportunities to tighter levels or weaker legal protections,” Oaktree said in its third-quarter credit report, released this month. “September’s turbulence interrupted what had been a resounding recovery from the depths of the selloff in the spring, and markets now look to have entered a sideways period.” The alternative investment firm, co-founded by Howard Marks, cited its concerns over the rising cases of Covid-19, the U.S. elections, and Brexit. Industries are under stress as business activities fall off in the pandemic, while companies are shouldering heavier debt loads, the firm said. “The economic strain produced by Covid-19 will be felt for several more quarters, if not years,” Oaktree said in the report. “We remain focused on protecting the downside in our investments.”
Brief: Ken Griffin was facing a calamity. As Covid-19 roiled the economy in March, equities tanked and bond markets went haywire. Hedge funds run by Griffin’s Citadel were taking losses as the computer models that guide some of their decisions struggled to comprehend the pandemic. For Griffin, it was also a chance to profit from some of the biggest opportunities in his 30-year career. His traders went to work scouring beaten-down credit markets, snapping up finance-company debt and taking advantage of wild fluctuations globally. “It was a macro trader’s dream,” Griffin, 52, said during an event last week for the Robin Hood Foundation, a New York-based non-profit. Citadel wanted to put money to work “when people are panicking,” he said. Like many hedge funds, Griffin’s firm suffered drops during those harrowing days in March, and, like many rivals, also benefited from unprecedented moves by the Federal Reserve and the promise of a $2 trillion stimulus package from Congress. Paul Tudor Jones, who interviewed Griffin at the event, described the Fed’s actions as “so incredible and breathtaking you almost couldn’t even believe it at the time.” So much so, even the legendary hedge fund manager said he didn’t take advantage as much as he should have.
Brief: Global institutional investors are set to prioritise investments into real assets over the next 12 months, as the Covid-19 pandemic continues to have a lasting impact on global economies and financial markets, according to the latest edition of Aviva Investors’ Real Assets Study. The Study, based on responses from over 1,000 decision-makers at insurers and pension funds representing over EUR2 trillion of assets under management, found that 49 per cent of insurers and 37 per cent of pension funds are expecting to increase their allocation to real assets investment strategies. When asked which real asset markets they expect to increase allocation to over the next 12 months, both insurers and pension funds (54 per cent and 45 per cent respectively) identified real estate long income as their preferred asset class. Beyond this, insurers highlighted the desire to increase their exposure to debt strategies, with infrastructure debt (48 per cent), real estate debt (46 per cent) and private corporate debt (46 per cent) all expected to see increased investment. Pension funds demonstrated a similar view, expecting to increase their exposure to real estate debt (39 per cent), private corporate debt (39 per cent) and infrastructure debt (37 per cent).
Brief: Reef Technology Inc., a startup that manages hubs in parking lots used for food delivery and other services such as Covid-19 testing, launched a $300 million fund in partnership with Oaktree Capital Management LP. Reef and Oaktree’s infrastructure arm have formed the Neighborhood Property Group to acquire strategic real estate assets, the companies told Bloomberg News on Monday. The new business will partly target areas experiencing population booms after people left cities such as New York and San Francisco because of the pandemic. Miami-based Reef is also exploring a capital raise to fund its expansion, according to people familiar with the matter. The targeted valuation of the startup, formerly known as ParkJockey, couldn’t immediately be learned, but Reef was valued at $1 billion when SoftBank Group Corp. acquired a stake in 2018. “Reef fits our thesis that core parking facilities should be augmented with technology to transform these core assets into mobility infrastructure hubs,” Josh Connor, co-portfolio manager of Oaktree’s infrastructure investing strategy and chairman of Neighborhood Property Group, said in an emailed statement. “These alternative uses support communities with critical last block logistics solutions such as food delivery, micro-mobility, same-day parcel delivery, essential groceries and electric charging infrastructure.”
Brief: Lazard Ltd has hired restructuring banker Sam Whittaker from PJT Partners to oversee negotiations between companies and their creditors across Europe, the Middle East and Africa as a second wave of COVID-19 leaves many businesses fighting for survival. Whittaker, who started his banking career at Lazard LAZ.N in 2005 and then moved to fellow investment bank PJT in 2015, will re-join Lazard as a London-based managing director in its EMEA restructuring franchise The 45-year old Briton will work closely with David Burlison, who co-heads Lazard’s EMEA restructuring practice, and Chris Mallon, who joined Lazard in April as a senior adviser. “One of the many benefits of having Sam back is that he has an extensive network of relationships with banks, hedge funds and lawyers which clearly is a big plus for us,” Burlison told Reuters. The U.S. bank, which leads Refinitiv’s league tables for this year’s global restructurings ahead of PJT Partners and Houlihan Lokey, has also hired James Simpson as a director in October as part of a push to win business on behalf of companies with liquidity issues and their creditors.
Brief: The COVID-19 pandemic has had a devasting toll on human life, and has impacted economies and industries globally. The effect on real estate is significant, as real estate can be considered a service sector that fulfills end-user demand. But the sectors within real estate have not been equally affected. So which are the sectors that have shown to be more resilient during the pandemic and could potentially provide downside protection to a real estate portfolio? It is important to determine whether the negative impacts we have already experienced are short term and temporary in nature, or if they are part of longer lasting structural changes in real estate demands. Recently, CAIA Association and MSCI Real Estate discussed some of the long-term trends in real estate, as well as the pandemic’s impact on various real estate sectors. In this article, I explore two perspectives to further understand the pandemic’s effect. The S&P 500, a key US stock market index, has made a V-shaped recovery and has since posted a YTD return of 7.9%[i]. Other US indexes have also rebounded. This robust recovery shown by US equity markets is largely fueled by the unprecedented central bank stimulus and government fiscal policies. Importantly, the recovery is led by the technology sector, while many other sectors continue to languish.
Brief: More high-net-worth (HNW) families in Hong Kong and mainland China are setting up family offices as a way to manage their assets and address any potential challenges of passing these assets down to the next generation, according to a recent KPMG report. “An increasing trend in mainland China, and even more so in Hong Kong, is establishing a family office to operate the family business and manage assets,” says Karmen Yeung, partner, KPMG Private Enterprise in China. “Family members often don’t have the knowledge to work through governance, legal, tax and succession issues and, therefore, are looking for outside expertise. Especially for families that have assets in multiple countries, the family office model can help them to better understand and manage the complex rules they are subject to around the world.” The report also highlights how the impact of the Covid-19 pandemic could increase the pressure on families in the coming years and argues that the pandemic has added to the urgency of managing family businesses and carefully planning generational transfers.
Brief: KKR & Co. deployed a record amount of capital in the third quarter, taking advantage of turmoil spurred by the Covid-19 pandemic. The firm invested about $6.2 billion in markets across private equity, infrastructure and real estate, New York-based KKR said Friday in a statement. That figure surpassed its previous peak of $5.5 billion in the second quarter. This year “is on pace to be the most active deployment and fundraising year in our history,” co-Chief Executive Officers Henry Kravis and George Roberts said in the statement. KKR has been one of the industry’s busiest dealmakers during the pandemic and has said the crisis will be an inflection point for its business. In July, the firm agreed to buy retirement and life insurance provider Global Atlantic Financial Group in a deal that could be valued at more than $4 billion, giving it a major presence in the insurance industry and adding long-term capital.
Brief: Two Goldman Sachs Group Inc money-market funds, whipsawed in March by billions of dollars of investor withdrawals, have steadily amassed a liquidity cushion much larger than rivals, as the $4.35 trillion industry braces for the outcome of the U.S. presidential election and another global surge in coronavirus cases. The funds’ weekly liquidity - a barometer of how quickly investments can convert to cash in a week - rose to 85% of total assets this week, according to disclosures here by the bank. That is about double the level when Goldman Sachs in March injected nearly $2 billion of the bank’s own capital into the funds to prevent them from falling below the regulatory weekly liquidity threshold of 30%. “We actively manage liquidity in our funds as dictated by the market environment,” Goldman said in an email statement. Average weekly liquidity at about 111 U.S. prime institutional money-market funds, like the Goldman funds, was 66% at the end of September, up from 54% in the year-ago period, a Reuters analysis of U.S. regulatory filings show. Those 111 funds hold about $300 billion in assets, or 9% of the $4.35 trillion in money funds.
Brief: There’s a mismatch between what investors say they believe and what they actually do with their portfolios. A new study from the National Bureau of Economic Research serves up a rare real-time analysis of how the stock market crash in March shaped investors’ expectations about the market and their subsequent trading behavior. “There are many studies on investors’ beliefs and many studies on trading. But, there’s no study to link the two,” said Stefano Giglio, professor of finance at Yale School of Management and one of the authors of the paper, called “Inside the Mind of a Stock Market Crash.” “The main results were striking,” Giglio said in an interview with Institutional Investor. As one example, he noted that investors’ overall beliefs about the probability of a large stock market drop went up enormously from 4.5 percent to 8 percent between February and April, while the perceived likelihood of a GDP disaster went up from 5 percent to 8.5 percent. Researchers surveyed investors about their views of the market and economy in February, before the Covid-19 crash and near the market’s record high. They polled investors again in March near the low as the pandemic shut down global economies, and in April when markets had recovered much of the initial loss. The researchers then looked at investors’ actual trading behavior over the period.
Brief: Working from home is overrated and everyone will be back in the office before you know it. In today’s climate, with an election just days away, that could be a political statement. But for Bruce Flatt, chief executive officer of Brookfield Asset Management Inc., it’s his contrarian outlook on the pandemic, and a rationale for why he’s ready to spend billions of dollars on real estate in the next 18 months. He dismisses the flight of young families to the suburbs as an “anomaly” and the permanent work-from-home policies popular in Silicon Valley as impractical because “the efficiencies are not even close” to being in a shared workplace. If anything, he said, tech companies are leasing or buying more downtown space, not less. Flatt -- who oversees some US$200 billion of commercial property, including dozens of office towers -- argues big cities are resilient: London survived the Blitz during World War II, and New York bounced back from the 1918 Spanish Flu, the terrorist attacks in 2001 and Hurricane Sandy in 2012. “People like to associate with other people, they like to be the ‘in’ thing, there are jobs and employment, they can walk to work, they can do all the things that come along with it, and this is not stopping it,” Flatt said in a Bloomberg Front Row interview. “These cities are not going away.”
Brief: European shares have been pounded in recent days because of the tightening of lockdown restrictions in places such as France and Germany. The latter has suffered especially badly in the markets. The last eight trading sessions have wiped more than 10% off German equities. Understandably, investors are banking profits after a stellar run for the Dax index. It has been the best performer in Europe this year — up more than 50% since the March lows of the first Covid wave — driven by a resumption of exports to a resurgent China. But there is another contributor to the recent dip in European stock markets. While things do indeed look bleak again for the region’s leading economies, this drop is also being driven by a global de-risking by investors ahead of next Tuesday’s U.S. election. European bond markets aren’t reacting with quite the same concern. The havens of German and French bonds are barely changed in yield despite Wednesday’s announcement of effectively a second lockdown in both countries.
Brief: The Covid-19 pandemic produced some obvious winners and losers for equity portfolio managers: Amazon and Zoom surged, while airlines and hotels tanked. But some enterprising fund managers have wound up picking winners that, at first blush, wouldn’t seem like safe bets in the middle of a raging viral outbreak. To wit: boating stocks. An environment in which 12.6 million people are unemployed and the Standard & Poor’s 500 stock index is up just 1.5 percent may not seem like a natural time for people to run out and buy boats, a particularly expensive hobby. (An old joke posits that “boat” actually stands for Break Out Another Thousand.) But Yaron Naymark, portfolio manager of New York based, value-focused hedge fund 1 Main Capital, was early to spot the potential for growth in anything related to outdoor activities as a result of the pandemic. With restaurants and movie theaters closed in many places, he reasoned, people would look for things to do outside — and away from crowds. Sure enough, sporting goods of all stripes have been booming this year. That’s anecdotally obvious to anyone who has tried to buy a bicycle in the past few months, but it’s also borne out by the numbers: Naymark cites Walmart earnings calls in which management reported big growth in sales of all-terrain vehicles, among other outdoor-centric items.
Brief: Credit Suisse Group AG is closing down funds and laying off employees at its alternative asset management business after several of the strategies struggled to perform in the volatility caused by the Covid-19 pandemic. The bank’s actions include shuttering a quantitative fund and taking a 24 million Swiss franc ($26 million) charge on seed capital in a U.S. real estate fund in the third quarter, Chief Financial Officer David Mathers said in an interview, declining to name the funds or detail the extent of the layoffs. Asset managers are facing challenging market conditions amid the pandemic, with hundreds shuttering or in the process of closing down, including AJO Partners, a $10 billion quantitative fund manager, and macro hedge fund firm Tse Capital Management. Credit Suisse earlier this month said that Aventicum Capital Management, a joint venture with the Qatar Investment Authority, will close two groups of funds and return capital to investors. “We have seen some of these funds struggling in this environment -- their strategies have not succeeded in the volatility that has happened with Covid-19,” Mathers said Thursday. “The credit business is doing fine, it’s some of the smaller ones.”
Brief: At a time when governments around the world are burning through billions attempting to rescue citizens from the financial pain of coronavirus, which has created severe crises in healthcare and employment, Big Society Capital says there is a crucial opportunity to use private money to fund social causes.Big Society Capital was one of the first institutions to champion impact investing in the UK. It was established in April 2012 as a private company with the purpose of building the social impact investment market, under a pledge made by former Prime Minister David Cameron. “There's no doubt that the Covid crisis has really reinforced the momentum that was already there,” says its chairman, Sir Harvey McGrath, adding that there has been a “fairly strong flow” of recent inbound inquiries from investors. Some of this interest is “directly a function of the crisis”, but McGrath also considers this to be part of a broader paradigm shift taking place in the finance industry at large, as generational change boosts demand for value-aligned money management.
Brief: U.S. high-yield bond funds suffered the biggest outflows since the end of September, as investors sought to limit their risk exposure amid growing coronavirus infections across the world and ahead of the upcoming U.S. election. High-yield investors pulled $2.5 billion out of retail funds during the week ended Oct. 28, according to data compiled by Refinitiv Lipper. It’s the first withdrawal since the $3.59 billion yanked in the reporting period ended Sept. 30, and follows an inflow of $150.9 million last week. Investors fleeing the asset class to seek safety elsewhere are also taking out cash from high-yield exchange-traded funds. Two junk-bond sales were pulled from the primary market this week, and other borrowers are sweetening terms to get deals done. High-yield spreads had widened 47 basis points this week through Wednesday, the most since the week ended Sept. 25, according to Bloomberg Barclays index data. Junk bonds sold off alongside stocks and oil, which both fell to new lows this week.
Brief: ServiceNow CEO Bill McDermott told CNBC on Thursday that business leaders are making preparations for their employees to work remotely through next year due to the coronavirus pandemic. McDermott, whose company provides cloud-based software that automates IT and employee workflow, was responding to a question about his conversations with fellow chief executives as they seek to navigate a world upended by Covid-19. There will undoubtedly be a long-term shift with a larger percentage of employees who can work remotely doing so, McDermott said on “Squawk on the Street.” He predicated a “hybrid world,” where employees routinely split time between working in the office and at home. But more near term, he said, “the other thing I’m hearing is people are already preparing for working from home or working from anywhere through 2021, because even if you do get a vaccine, it’s obviously not going to get through the global population for somewhere upwards of a year, probably a year and a half from now.”
Brief: Few things divide opinion on Wall Street like the outlook for small-cap stocks or the fate of the value strategy. Yet most market players would probably agree it’s a tough time to launch a product combining the two. That’s exactly what BlackRock Inc. is doing with a new exchange-traded fund. The iShares Factors US Small Cap Value ETF began trading on the New York Stock Exchange under the ticker SVAL on Thursday. The fund screens for value-oriented stocks in the Russell 2000 Index based on liquidity, volatility, leverage and analyst sentiment and then weights securities equally. It’s an eye-catching arrival given the backdrop. Small-cap shares and value strategies have been battered anew this year as the coronavirus sparked an economic crisis. U.S. equities endured yet another bout of volatility this week, a broad selloff that has spared few sectors. Even after those declines, the S&P 500 Index has still gained 1.2 per cent year-to-date. The Russell 2000 Index, by contrast, is roughly 7.5 per cent lower and value stocks -- those that look cheap relative to fundamentals -- are down more than 15 per cent.
Brief: Wells Fargo Securities’ Michael Schumacher has a message for investors: Buckle up. The firm’s head of macro strategy warns Wednesday’s market turbulence may just be a preview of what’s ahead. “When you think about the U.S. elections, Covid worsening [and] all sorts of other news items coming out in the next couple of weeks, it could be a fairly scary time,” Schumacher told CNBC’s “Trading Nation.” On Wednesday, the S&P 500 and Dow had their worst days since June 11 due to growing fears over rising coronavirus cases across the nation. There’s speculation they could spark new containment measures and closures. While jitters over rising virus cases drove the latest sell-off, Schumacher warns election uncertainty has the potential to pummel stocks even more. “One thing we pointed to for a while at Wells Fargo is the chance the election results are delayed. In that case, it’s almost certainly risk-off. So, a lot of reasons to be concerned over the next week to ten days,” he said. “Right now, it seems the virus has the upper hand, but it’s a very close call. And, frankly, these things are intertwined.”
Brief: Blackstone Group LP said on Wednesday its third-quarter distributable earnings rose 9% year-on-year, as the world’s largest manager of alternative assets such as private equity and real estate took advantage of a rise in corporate valuations to cash out on some of its leverage buyout investments. Distributable earnings - cash available for paying dividends to shareholders - totaled $772 million, up from $710 million a year earlier. This translated into distributable earnings per share of 63 cents, surpassing analysts’ average estimate of 57 cents, according to data compiled by Refinitiv. Blackstone said its private equity portfolio appreciated 12.2% in the quarter, compared with an 8.5% rise in the benchmark S&P 500 stock index over the same period. Opportunistic and core real estate funds rose 6.4% and 3.5% respectively. Blackstone’s shares were down 2.9% in afternoon trading, in line with the broader market.
Brief: Europe’s race to contain the pandemic is raising alarm bells across financial markets. Moves from stocks to the euro and Italian bonds show investors are grappling with the economic fallout from lockdown restrictions that are now some of the toughest in the world. While markets globally have taken a dip this week, the hit was most severe in Europe. The Stoxx Europe 600 Index sank as much as 2.7% on Wednesday, reaching the lowest level since May. In contrast, U.S. equities are only at a three-week low and Asian markets have barely budged. “A second lockdown could well be the death knell for a lot of businesses who just about survived the first lockdown,” said Michael Hewson, chief market analyst at CMC Markets. The selloff on Wednesday was sparked by news that German Chancellor Angela Merkel will propose closing bars, restaurants and leisure facilities for a month. France is also expected to announce new curbs after coronavirus deaths reached the highest since April. In Italy, Prime Minister Giuseppe Conte approved a plan to limit opening hours for restaurants and shut gyms. In Spain, the government has imposed a national curfew.
Brief: Real estate debt investors are stockpiling cash, searching for opportunities to lend to commercial-property owners hurt by the pandemic. Property debt funds, including at Blackstone Group Inc., raised $14.1 billion from April through September, compared with $15.7 billion a year earlier, according to research firm Preqin Ltd. Yet the expected flood of deals has so far been just a trickle. Now there are signs of a thaw. On one side, competition is building to put that cash to work, motivating some lenders to take on higher risks. On the other, borrowers are growing desperate as loan extensions start to expire on malls, hotels and even some offices that are still struggling as Covid-19 continues to ravage the U.S. economy. “If you’re willing to do it, you’ll get a lot of deals, but you have to be willing to play in those sectors and take some risks,” said Mark Fogel, chief executive officer of Acres Capital LLC, a New York-based commercial property lender. He said he’s getting almost twice as many calls from borrowers looking to refinance their debt or get bridge loans to stay afloat than just a few months ago.
Brief: Fee pressures, growing costs, and a desire for scale are signs that the fragmented asset management industry is ripe for more mergers and acquisitions, according to Morgan Stanley. The top 10 asset management companies hold just a 35 percent share of the $90 trillion market, Morgan Stanley said in a research report dated October 25. The only industry more fragmented, the bank said, is the capital goods sector. Although strong financial markets have helped assets under management swell, this growth has masked problems like outflows, fee pressures, and lower revenue growth, the report said. The market downturn and investor exodus in March revealed some of these problems, but after the market bounced back, they stabilized. Still, Morgan Stanley expects that the market crisis will accelerate these existing trends, motivating some asset managers to make M&A decisions more quickly.
Brief: Japanese life insurers, among country’s largest institutional investors, are returning to the domestic bond market after many years of forays into foreign debt as the yield gaps between them have shrunk following the COVID-19 pandemic. Many of them plan to increase their holdings of domestic fixed income assets while planning to reduce those of foreign debt in the second half of the current financial year to March, officials said at news conferences or in interviews with Reuters. “We have long been investing primarily in U.S. dollar bonds but now that their yields have fallen to so low, we are not in a position to buy them aggressively anymore,” said Koichi Nakano, general manager for investment planning at Meiji Yasuda Life. Foreign bonds have been a major source of income for Japanese institutional investors who had been deprived of interest income at home due to the Bank of Japan’s hyper-easy monetary policy. The coronavirus outbreak and subsequent monetary easing around the world to shore up battered economies, however, knocked down bond yields in the United States and elsewhere, shrinking the yield gaps between Japan and the rest of the world.
Brief: Value managers have underperformed for over a decade — a trend that has only intensified during the coronavirus pandemic and run up to the U.S. presidential election. But they can count on at least one group of asset owners to stay committed to value strategies: private-sector pensions. Corporate and health care retirement plan investors surveyed by consulting firm NEPC have largely reported that they would maintain their current exposures to value stocks. The poll took place in September, a month when the Standard & Poor’s 500 value index fell almost 4 percent. Just under three-quarters of corporate pension investors said they would not reduce or increase allocations to value managers, as did 80 percent of healthcare plan respondents. Of the 19 percent of investors who were considering changes to their value exposure, just 7 percent planned on cutting allocations to value managers. Nearly twice as many — 12 percent — wanted to rebalance from growth managers into value strategies.
Brief: Private equity relies heavily on manager skill (alpha) with a large divergence between the strongest and weakest performers in a cohort. Studies have shown that it is possible for some investors to effectively navigate this disparate market and consistently add value, through careful fund selection. Robust due diligence processes, both investment and operational, are a critical part of successful fund/manager selection, but how has this changed during the pandemic? The most obvious impact is from travel restrictions preventing on-site, in-person due diligence meetings. Investors are aware that reviewing track records and strategy can only provide a certain amount of comfort. A large part of the investment consideration is around the people, team dynamics and culture. There is a lot that can be gained from seeing how a team interacts with each other, when visiting a private equity firm’s office - it is often the smaller clues or comments before and after the formal meeting that provide the most insight. Forming a view over a conference call with the team in multiple locations is hard: there is a lack of “vibe” and nuance that can only be gleaned when in-person.
Brief: President Jair Bolsonaro’s stimulus spending spree won praise far and wide for saving Brazilians from the worst of the pandemic’s economic pain. But now, as the worst of the health crisis eases, anxiety is mounting in financial circles about how he’s going to pay for it. Investors have been unloading the currency and stocks, sparking routs that are almost unparalleled in the world this year, and they’re increasingly refusing to buy anything but the shortest of short-term government bonds. At $107 billion, Bolsonaro’s relief program looks more like the massive stimulus packages engineered by the world’s wealthiest nations than those cobbled together by Brazil’s junk-rated peers in emerging markets. Equal to 8.4% of the country’s annual economic output, it’s even proportionally bigger than the plans enacted by the U.K. and New Zealand. All of which turns Brazil into something of a Covid-19 economic case study: Can a mid-tier developing nation emulate the fiscal and monetary response of the world’s most credit-worthy countries and get away with it? Or will it sink into financial crisis?
Brief: In the 12 years since the 2008 financial crisis, many large institutional investors have adopted Dedicated Managed Account (DMA) structures in order to address the challenges in commingled hedge funds that were exposed during the crisis (click here for a brief refresher). These investors were well-prepared to more effectively manage their portfolios through the market volatility which has resulted from the Covid-19 pandemic while eliminating many of the structural risks that can be exacerbated during a crisis scenario. Let’s look at some of the ways that allocators in 2020 have been able to use the benefits of DMAs to more effectively manage through the market impact of Covid-19.
Brief: According to the research data analysed and published by ComprarAcciones.com, merger and acquisition (M&A) deal activity in the pharmaceutical sector rose by 17 per cent in H1 2020, disregarding the economic toll of the global pandemic. It saw a total of 41 deals during the period, but the Q2 2020 deal value total of USD3.3 billion was the lowest quarterly total since Q1 2018. According to PwC, the pharma sub-sector posted a drop of 56 per cent in deal value from H2 2019 to H1 2020. For the PLS sector as a whole (pharma, biotech and medical devices), the decline in deal value was a massive 87.2 per cent during the same period. Pharma and Life Sciences (PLS) M&A Total Deal Value Sank from USD272.9 billion to USD35 billion YoY. The total deal value for the pharmaceutical sub-sector in H1 2019 was USD100.1 billion. In contrast, its total deal value in H1 2020 was valued at USD7.7 billion.
Brief: More than 60% of listed companies sponsoring defined benefit plans issued a profit warning in the first three quarters of the year as they worked to balance cash flows with meeting pension obligations. Of the 524 profit warnings from U.K. companies, 228, or 44%, came from firms that sponsor a DB plan. Many of the warnings cited the impact of the COVID-19 pandemic as a reason, showed analysis by Ernst & Young. Also, 48 sponsors of U.K. DB funds issued more than one warning in the nine-month period. The sectors with the highest number of warnings were travel and leisure, industrial support services, construction and materials, retailers and household goods and home construction. While these sectors were the hardest hit, a third of all listed companies issued profit warnings in the nine months to Sept. 30. However, in the third quarter, listed companies that sponsor a DB plan issued 32, largely COVID-19 related, profit warnings, down 25% from the same period in 2019.
Brief: The biggest private equity and alternative asset manager in the Middle East is on the lookout for deals after the economic fallout of the pandemic made companies cheaper to buy and scandals thinned out the competition. Investcorp Holding BSC, which manages about $34 billion, is looking to do more in the region across the health-care, transport, logistics and industrial sectors, said Walid Majdalani, the firm’s head of private equity for the Middle East and North Africa. The firm, which has channeled $1.4 billion into the region over the past decade and made a return of about 1.8 times on invested capital, is also facing less competition from other private equity investors, he said. Over the past four years, Investcorp helped sell three family-controlled companies in which it held stakes on the Saudi stock exchange. “We see a lot of opportunity to replicate what we have done already in Saudi Arabia -- the difference is now business owners are a lot more realistic about valuations,” Majdalani said. “Also, in terms of other people who do what we do and have teams on the ground, today we don’t see a lot of competition.”
Brief: Investors have thronged the largest hedge funds since the last financial crisis as they sought safety in size. Now, they’re paying a hefty price. Supersized funds are failing their clients during a period of market upheaval that in theory should pose an unprecedented chance to make money. Instead of profiting, though, some of the world’s biggest hedge funds have barely managed to protect their investors from losses. A Hedge Fund Research gauge that gives more weight to larger players was down 4.4% this year through September, while all hedge funds on average managed to eke out a small profit. Gold-plated names that have slumped include Bridgewater Associates, quant powerhouses Renaissance Technologies and Winton, Michael Hintze’s CQS and Lansdowne Partners. The losses are largely hurting influential institutional investors -- pension funds, insurers and endowments -- that contribute most to the industry’s assets and back the biggest funds. A reckoning looms as clients accelerate their flight. Investors pulled $89 billion from hedge funds in the first nine months of the year, mainly from large firms, according to Eurekahedge data. “A very large portion of the assets invested in large hedge funds have not performed all that well and so it’s causing investors to reassess their objectives,” said Chris Walvoord, global head of hedge fund research at investment consultant Aon Plc. They’re asking, “Why am I invested in this? What’s the purpose?”
Brief: U.S. stocks decline picked pace on Monday afternoon, setting the Dow for its worst day in more than seven weeks, as soaring coronavirus cases and a political deadlock over the fiscal relief bill raised doubts about the fate of the economy recovery. New infections have touched record levels in the United States, with El Paso in Texas asking citizens to stay at home for the next two weeks. In Europe, Italy and Spain imposed new restrictions. Travel-related stocks, vulnerable to COVID-19 related curbs, dropped. The S&P 1500 airlines index fell 5% and cruise line operators Carnival Corp and Royal Caribbean Cruises Ltd shed more than 9.5% each. “People are nervous about the expansion in cases,” said Christopher C. Grisanti, chief equity strategist, MAI Capital Management, Cleveland, Ohio. “The administration has said it does not want to slow down the economy yet as cases rise they may not have a choice.” Energy index tracked a more than 3% fall in oil prices. Other economically-sensitive industrials and financials sectors posted the steepest percentage declines among S&P sectors.
Brief: The coronavirus pandemic has dealt a body blow to the quantitative model-based style of investing, with a majority of the firms using such strategies negatively impacted, a study by Refinitiv has found. In a report, financial data provider Refinitiv said 72% of such investors were hurt by the pandemic. Some 12% declared their models obsolete and 15% were building new ones. Machine-learning refers to the use of complicated mathematical models and algorithms based on historical data in order to make predictions without being explicitly programmed to do so. While such machine-driven models had success in the past as historical correlations among different asset classes held firm, they have suffered in the wake of the pandemic as these linkages have broken down. These quantitative models have also suffered in 2020 as the amount and complexity of the inputs that go into such algorithms to generate trading signals have exploded in recent years. “COVID-19 presented a large shift in many of the market dynamics and many institutions would have had to revisit a large portion of the models that they had in order to make them cope with what has been extreme market events,” said Amanda West, global head of Refinitiv Labs at Refinitiv.
Brief: Bob Prince, co-chief investment officer of the world’s biggest hedge fund at Bridgewater Associates, said an unusual combination of low interest rates and rising debt during the pandemic will “severely” limit potential growth rates in the aftermath of the pandemic. Fiscal policy will remain the primary source of stimulus, fueling the risk that government debts become too high and leading to pressure on exchange rates, he said. These problems will be more acute outside of Asia. “Global investors tend to be very Western-centric,” Prince said on Bloomberg TV. “The East is nothing like that. It’s not just China. A number of countries have done a much better job managing the virus without ballooning their fiscal deficits and printing money.” Bridgewater’s Prince Says Bonds Are Risky in Zero-Rate World Prince said his colleagues in China meet at the office without masks, whereas Bridgewater’s U.S. employees still work from home. “That economy is much closer to normal and the pricing of assets is much closer to normal,” he said. “There’s a substantial divergence occurring economically between East and West. As investors, you shouldn’t let yourself get completely locked into the West.”
Brief: It takes a high degree of due diligence for investor capitalists to rifle through the mass number of investment opportunities to find that next big initial public offering (IPO). Just like how Microsoft was started in a garage, a lot these new generation IPOs will probably start in someone’s bedroom given the way Covid-19 has changed the world. According to a CNBC MakeIt article: “Another change toward a work-from-home world courtesy of Covid-19: Bill Gurley, who has invested in the likes of Uber and Zillow, says he’s now investing in start-ups that do not have a traditional office.” “We are now backing start-ups without offices, which isn’t something we had done before,” Gurley, who was a long-time investor with Silicon Valley venture capital Benchmark, said in the article. Furthermore, the article pointed out that “in a June survey by venture capital firm NFX, ‘60% of VCs said they were less likely to invest in start-ups that had the majority or all of its employees working remotely,’ the San Francisco Business Times reported.” “Remote companies are seen as more fragile, because employees can easily leave for the next remote job, NFX managing partner James Currier told the publication,” the article added. “And according to Trulia co-founder and NFX managing partner Pete Flint, being nimble and creative, as start-ups need to, is more easily accomplished when people are together in the same physical space.”
Brief: The COVID-19 pandemic has changed the opportunity set and risks to which institutional investors are paying attention, with credit and potential bankruptcies high on the agenda. One challenge has been finding the right combination of the "least-worst" performing asset classes, said Troy Rieck, CIO of the A$13 billion ($9.2 billion) LGIAsuper, Brisbane, Australia, on a panel discussion Friday at the Pensions & Investments WorldPensionSummit conference. Mr. Rieck added that the super fund's executives do not try to second-guess forecasts related to political risks arising from elections or geopolitics when building the portfolio. Executives are trying to build portfolios with a focus on credit rather than equity, he said. Mr. Rieck added he is excited about infrastructure debt, real estate debt, regulatory capital arbitrage, high-yield and bank loans. "If it is credit-related, I want to own it," he said, adding that investors get "zero for cash and nothing for bonds. Besides those assets, "there is not much out there we like," he said. It could be a challenging decade if inflation does turn up, he said.
Brief: Asset managers plan to outsource functions such as data management and middle and back office operations in order to cut costs and focus on their core job of generating investment returns for clients, according to a survey by US manager Northern Trust. The poll found that 45% of respondents consider data management as the function most likely to be outsourced within the next two years. Some 40% are looking to outsource back room operations, and 38% at middle office functions. The survey of 300 asset managers, including 40% in Asia, was conducted in the first quarter of 2020. Respondents’ assets under management range between US$10 billion and $500 billion. According to Ryan Burns, head of global fund services at Northern Trust, asset managers are facing rising cost pressures, including those related to regulations and technology.
Brief: Citigroup (C), JPMorgan (JPM), Bank of America (BAC), and Goldman Sachs (GS) are all fresh off earnings with the highly disruptive COVID-19 backdrop still festering. The headline numbers were fantastic with beats on both the top and bottom line for Citigroup, JPMorgan, and Goldman Sachs, with Back of America missing on top-line revenue but beating on bottom-line profit. Big banks are evolving to the COVID-19 landscape domestically and abroad despite the possibility of widespread loan defaults, liquidity issues, ballooning credit card debt, and stressed mortgages. To exacerbate these COVID-19 impacts, interest rates, Federal Reserve actions, yield curve inversion, and liquidity are critical elements. The business's customer side continues to be problematic as the pandemic's duration continues to drag on with no signs of slowing. A segment of the consumer base is faced with lost wages and the real possibility of not meeting their financial obligations, which will unquestionably have a negative impact on revenue and earnings.
Brief: In a Thursday morning appearance on CNBC's Squawk Box, billionaire hedge fund manager Paul Tudor Jones said he believes the next six to 12 months could be the most volatile period for markets he's seen in more than 40 years of trading, as a result of a blue wave election outcome that could pump trillions into the American economy. Tudor Jones, who founded Stamford, Conn.-based Tudor Investment Corporation in 1980, said he believes the U.S. presidential election will result in a victory for former Vice President Joe Biden and a blue wave in which Democrats gain control of the Senate and retain a majority of the House. That would allow for a "massive" $1.7 trillion stimulus in the next six to 12 weeks that would "undoubtedly benefit Main Street America," with an estimated $700 billion going toward another round of stimulus checks, the 66-year-old said.
Brief: Goldman Sachs has sent some employees at its Plumtree Court headquarters home after two staff on its London trading floors tested positive for Covid-19, as banks in the City keep some key workers in the office amid a spike in virus infections across the UK. In a memo to staff sent on 15 October, seen by Financial News, the bank said that one employee on the fourth floor of its London office and another on the fifth floor were self-isolating after testing positive with Covid-19. Equities trading is on the fourth floor, and its fixed income currencies and commodities unit is on the fifth, according to a person familiar with the matter. "If you have been identified as a close contact of these individuals, the Wellness team has already reached out to you to share guidance," the memo said.
Brief: Investors are losing trust in the Land of Lincoln. Illinois, the fifth largest state economy in the United States, is being forced to pay sky-high interest rates on its general obligation municipal bonds to compensate investors for the risk of lending the state money. The three largest credit rating agencies have not only classified Illinois debt as on the brink of junk, but they’ve also issued negative outlooks to boot. The Prairie State has plenty of company in this regard. Moody’s recently lowered the credit ratings of both New York State and New York City. New Jersey, despite being known as the state with the most millionaires per capita in the U.S., is considered a problematic bet—two credit rating agencies have it on negative outlook.
Brief: The percentage of workers around the world that is permanently working from home is expected to double in 2021 as productivity has increased during the coronavirus pandemic, according to a survey from U.S.-based Enterprise Technology Research (ETR). ETR in September surveyed about 1,200 chief information officers from around the world across different industries. The CIOs also expressed increased optimism about business prospects in 2021, as they see an increase in tech budgets by 2.1%, compared with a 4.1% decline this year due to the lockdowns triggered by the pandemic. The survey said information technology decision-makers expect permanent remote work to double to 34.4% of their companies’ workforces in 2021, compared with 16.4% before the coronavirus outbreak, a result of positive productivity trends.
Brief: The next month or two has the potential to wreak havoc in the health-care sector and the market as a barrage of Covid-19 vaccine test results roll in at the tail end of the U.S. presidential election. “The vaccine outlook will ultimately dwarf the election in terms of market impact,” Goldman Sachs’ strategists said. An earlier-than-expected vaccine would send equity values higher while a delay could send the market lower no matter what the election’s outcome, the bank’s analysis shows. With an emergency use authorization now expected around year end, the U.S. Food and Drug Administration is convening a meeting Thursday to set the stage. Mostly it will be the agency looking to get a public endorsement on their stance on Covid-19 vaccine safety guidance and to ease concerns over the politicization of an approval, SVB Leerink analyst Geoffrey Porges said in an interview. Results from vaccine front-runners, Pfizer Inc. and German partner BioNTech SE, are expected within the next few weeks. Moderna Inc. may follow closely behind in November. And the first late-stage data from a single-shot regimen, Johnson & Johnson’s vaccine, could have results before the end of the year. The study however, is currently paused.
Brief: Harvard University posted a $10 million operating loss in fiscal 2020 and said it’s likely revenue will decline for a second straight year due to the Covid-19 crisis. That would be a first for the school since the 1930s, Harvard said in its annual financial report Thursday, adding that measures including coronavirus testing and tracing and reconfiguring classrooms and dorms have driven up costs. “The financial effects on Harvard from the onset of the pandemic in March of this year were significant and sudden,” Thomas Hollister, vice president for finance, and Treasurer Paul Finnegan said in the report. “The hardest part likely lies ahead with ongoing challenges” from the virus, they said. Higher education has been hit hard by Covid’s economic fallout as schools have been forced to empty campuses, offer courses remotely and close facilities. That has led to a sharp drop in enrollment across the U.S., especially among first year students. Yet even with the bleak outlook, Harvard said its net assets increased by $893 million to $50.2 billion as of June 30 due to the strong performance of the endowment under N.P. “Narv” Narvekar. The endowment, valued at $41.9 billion, returned 7.3% in the last fiscal year and distributed $2 billion of revenue for university operations, according to the report.
Brief: Established Asian hedge funds have attracted the lion’s share of new money this year, while startups have been hamstrung by global travel curbs that have made it impossible for face-to-face meetings with European and U.S. asset allocators. Well-known firms including Tribeca Investment Partners Pty, Pleiad Investment Advisors Ltd., Dymon Asia Capital (Singapore) Pte. and Sylebra Capital have drawn more than $3 billion of new money among them this year. That contrasts with the net $3.1 billion that flowed out of regional funds in the first eight months of 2020, according to Eurekahedge Pte. Meantime, the median raising for new Asia funds this year is just $20 million. “Asset raising has been possible this year, but it has been materially more challenging,” said Matthew Whitehead, chief operating officer of Hong Kong-based Sylebra… With a shortage of local institutional allocators to hedge funds, Asian managers rely on U.S. and Europe sovereign wealth funds, university endowments, charitable foundations and pensions for stickier money. That makes them particularly vulnerable to the Covid-19 travel restrictions.
Brief: A new study of financial crime compliance costs found spending by American and Canadian financial institutions is up sharply in 2020, driven in part by the coronavirus pandemic. The True Cost of Financial Crime Compliance Study, released Wednesday and compiled by LexisNexis Risk Solutions, projected the cost of financial crime compliance at $42 billion across U.S. and Canadian financial firms this year. The costs break down to $35.2 billion for U.S. firms and $6.8 billion for Canadian firms. Total costs are up 33 percent over 2019, the report said. Survey respondents included 150 financial crime decision makers (120 American, 30 Canadian) polled via telephone during August. The individuals worked in financial crime compliance at banks, insurance companies, investment firms, and asset management firms. The total annual cost of compliance across firms was calculated using survey data on financial crime costs as a percent of total assets and secondary data that provides the total assets for all financial institutions in the United States and Canada. The spend amount was generated by multiplying the average percent allocated to financial crime costs by the reported total asset amount, according to the survey’s methodology.
Brief: Earlier this year DWS announced it would donate EUR1 million (GBP905,000) to charitable organisations in countries around the world where DWS is active, and which have been particularly hard hit by the pandemic. In order to show commitment as a firm and to achieve the greatest possible impact, DWS also encouraged employees to make their own donations to these organisations. Nominated by DWS employees, GBP370,000 (EUR400,000) of this total has now been donated to three UK-based charities that provide services for socially disadvantaged people – especially the homeless and children, and a UK-based social enterprise to support research efforts to combat Covid-19 as well as other global epidemics and disease. “The Akshaya Patra Foundation UK” strives to tackle the issues of hunger, malnutrition and education by providing freshly cooked and nourishing meals to children in India and the UK. With the help of DWS, 170,000 meals and 5,250 dry grocery kits were distributed to vulnerable families, providing a total of 390,500 meals since the pandemic lockdown in India.
Brief: Asset managers are at a crossroads. Having faced the COVID-19 pandemic on top of years of pressure from shrinking fees and shifting investor preferences toward the industry's giants, money managers are debating whether to stick it out on their own or enter the deal market in search of scale or complementary products, Wall Street investment bankers, analysts and other experts say. All the while, the likes of BlackRock Inc. and Vanguard Group Inc. keep gobbling up assets. "The stars seem to be lining up for more [deals]," said Mark Timperman, a managing director and head of asset management investment banking at Hovde Group who recently joined the Chicago-based company from Wells Fargo Securities LLC, in an interview. "After having been through a real scare with the COVID cycle, when there was another big market correction, people realized that it's time to think about where the industry ends up in five years." M&A has played a critical role in the investment management industry's evolution in recent years. Inexpensive passive investment vehicles and exchange-traded funds have driven down fees for the entire industry, with the race to the bottom going so far that some ETFs dabbled in paying investors, not the other way around. Asset managers have been buying up their peers in an effort to expand their offerings and asset bases so they can more competitively price their products.
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