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Brief: Real estate investment trust GPT Group has bled $519.1 million after tax for the first half of the year, pointing to COVID-19 related negative property movements for the heavy losses. All properties in the trust were independently valued during the period, resulting in a devaluation of $711.3 million, GPT said. "We have had all our assets revalued during the period with our retail assets revalued by independent valuers in May and again at the end of June as the effects of the pandemic were becoming more apparent," GPT chief executive Bob Johnston said. "The independent valuers have made allowances for both the near-term impacts of the pandemic and also the effects that it is expected to have on the broader economy." Government imposed lockdowns also saw rental collections drop sharply during the first half of the year, with GPT providing relief to both tenants impacted by the government's commercial tenancy Code of Conduct as well as those not eligible for assistance.
Brief: Legal & General Retirement Institutional has announced that despite COVID-19, 2020 is expected to be the second largest year on record for the pension risk transfer (PRT) market. Longevity imageUK PRT is expected to transact £20bn to £25bn, which demonstrates the resilience of this marketplace. Since L&G’s market entry in 2015, their US business has written more than $3.9bn of PRT with 56 clients, which includes four transactions being made in H1, 2020. The success of L&G’s half year results could be down to them being the only insurer who provides PRT directly to pension plans globally. In May, during the height of the UK lockdown, they undertook the first international PRT transaction for IHS Markit. This transaction secured benefits for both their UK and US pension plans.
Brief: During the height of the pandemic-induced market turmoil in March, currencies performed mostly according to how they moved with equities - their equity beta, or how risk-on or risk-off they were. That is now changing. Increasingly, currencies will start to reflect how well countries are dealing with the coronavirus pandemic. We look at which currencies could benefit from that dynamic. Each currency can be placed on the spectrum between risk-on (cyclical) and risk off (defensive). Risk-on currencies do well when equity markets rise. The opposite is true for risk-off currencies. During 2020, this equity beta explained the fate of developed and emerging-market currencies very well. The traditional safe havens of the Japanese yen, Swiss franc and U.S. dollar were the big winners during the height of the coronavirus-induced market turmoil in March.
Brief: Berkshire Hathaway Inc on Saturday announced a $9.8 billion writedown and 10,000 job losses at its Precision Castparts aircraft parts unit, as the coronavirus pandemic caused widespread pain at Warren Buffett's conglomerate. Despite the writedown, Berkshire said second-quarter net income surged 87% because of gains in stock investments such as Apple Inc as markets rebounded. Operating profit fell 10%, cushioned by a temporary bump at the Geico auto insurer, as the pandemic caused "relatively minor to severe" damage to most of Berkshire's more than 90 operating businesses. "The writedown was prudent," said Cathy Seifert, an equity analyst at CFRA Research. "It's a recognition of what the market has long believed, that the purchase price was rich, and the integration not as smooth as many would have hoped."
Brief: Working from home has become the norm during the coronavirus pandemic, and Morgan Stanley predicts that office tenants across Asia will permanently give up between 3% and 9% of their existing office space. That will result in rent declining between 10% and 15% over the next three years, a recent report by the investment bank estimated. Big tenants from the financial and IT industries, which have well established business continuity plans or work-from-home infrastructure, could give up even more office space — at 10% over the next three years, said the report. Below is the projected rental impact from June 2020 to December 2022, according to the report which assessed the rental impact on key financial centers in Asia Pacific.
Brief: Davidson Kempner Capital Management LP doesn’t usually conduct activism in public by itself. Its attempt to kill the $12 billion takeover of Qiagen NV, a European company that makes instruments that detect Covid-19, was a high-profile place to start. The hedge fund says a bid from U.S. diagnostics group Thermo Fisher Scientific Inc. is too low given the testing business will become stronger due to the pandemic. Its campaign has helped secure a justified 10% bump on the opening bid, to 43 euros ($50.71) per share. It still wants more. Judged on near-term valuation multiples, the deal can be seen as cheap despite the sweetener. It’s worth 22 times the $2.28 earnings per share Berenberg reckons the company will make this year. (Qiagen says it will make “at least” $2 per share.) That’s substantially lower than the earnings multiples on which diagnostics peers trade. It’s also at the bottom of Qiagen’s trading range prior to a shock sales warning in October that pummeled the shares and led to the sudden replacement of its chief executive officer.
Brief: KKR & Co. is betting on Brooklyn apartments as the pandemic rattles the housing market in New York City. The New York-based alternative asset manager is in contract to purchase a portfolio of newly developed rental buildings in Brooklyn from Bruman Realty in a deal that’s worth about $860 million including debt, according to people familiar with the matter. KKR is partnering with apartment operator Dalan Management on the deal and will provide the bulk of the equity, the people said, asking not to be named because the matter is private. Representatives for KKR and Bruman declined to comment. Dalan didn’t immediately respond to a request for comment. The deal would be one of the biggest commercial real estate acquisitions in New York this year. The market has largely been frozen as the pandemic roils the economy. Second-quarter apartment transactions dropped 70% in the U.S. from last year, according to Real Capital Analytics. Rental apartments have historically been considered recession-proof, performing well in times of economic turbulence as more people are priced out of owning homes. That thesis could best tested in the Covid-19 era with high unemployment and a sluggish recovery landing hard on renters.
Brief: In April, GSO and Blackstone’s Life Sciences division said they would provide $2 billion to Alnylam Pharmaceuticals to acquire drug royalties, develop new programs for the company, purchase common stock, and provide $750 million in financing from GSO. The transaction was one of the largest financings ever of a biotech company. Dwight Scott, global head of GSO, said the deal originated with Nicholas Galakatos, global head of Blackstone Life Sciences, but ultimately evolved into a comprehensive deal that included GSO, Blackstone Alternative Asset Management, Blackstone’s Tactical Opportunities Fund. “One of my core areas of focus for GSO over the last few years has been to establish tighter integration between liquid and private strategies and across Blackstone. In this quarter, we showed exactly why this has been valuable,” said Scott, speaking in his first interview since the Covid-19 crisis began. In the first half of the year almost 40 percent of the private originations that the firm did were related in some form to the rest of Blackstone’s business. It’s easy to see how GSO would benefit from doing more with colleagues in private equity, real estate, or BAAM, the largest hedge fund business in the world. In the second quarter, assets under management in credit were up by about 6 percent to $129 billion, with inflows of $6.5 billion.
Brief: Oaktree Capital Group Co-Founder Howard Marks says the Federal Reserve’s intervention at the peak of the pandemic was necessary to keep companies afloat and avoid a potential economic shutdown, even if that’s giving his firm fewer distressed-debt targets. “If they had not done the things they did, we would be talking about a much more serious economic event, we may even be using the word depression,” or perhaps global recession, Marks said during an interview with Bloomberg TV Thursday. Global credit and equity markets have staged a dramatic rebound since March, when the Fed first took unprecedented steps to steady the economy. But the central bank has fueled such a rally that distressed debt, which approached $1 trillion outstanding at the height of the pandemic, has since fallen dramatically, presenting fewer options for firms like Oaktree to put billions of dollars to work. Distressed-debt specialists have raised record amounts of cash through the coronavirus outbreak as companies falter and bankruptcies mount. But for many corporations, additional liquidity spurred by the Fed has pushed borrowing costs to near record lows, taking the lowest-rated junk bonds out of distressed territory this week for the first time since late February. Los Angeles-based Oaktree is one of the largest distressed-debt investors in the world, with more than $19 billion committed to credit from troubled companies. The fund has thrived most in times of economic stress, when prices on bonds of companies in danger of defaulting fall to deep discounts.
Brief: The pandemic has certainly not dampened enthusiasm for sustainable investing. In the US, for example, Morningstar reported almost $10bn (€8.5bn) of inflows to sustainable open-end mutual funds and exchange-traded funds in Q1 2020 – over half the total for the whole of 2019.Of course there is always an argument that money follows transitory themes and because ESG portfolios avoid the oil/energy sector – then relative strong performance (as we have seen in recent months) is a given. But is there more to the story than ESG funds simply doing better (and attracting greater interest) because they conveniently don’t invest in hard-hit sectors? Philippe Zaouati, chief executive at Mirova, an asset manager specialising in sustainable finance, insists there is. “We have seen outperformance against the benchmark for several years – with last year a particularly good year. There is a Covid impact – but we were well positioned anyway.” Since the beginning of the year, the pandemic has led to oil price slumps and Zaouati does not see this a short-term pricing anomaly with ‘normalisation’ – so to speak – soon reversing this trend. “I think we are witnessing a cultural change. Covid is a long-term crisis and it is a crisis that is happening at a time when we need to decarbonise the economy. Oil companies’ capex in the near future is going to be low and the sector at a global level is already at a plateau – it won’t go up strongly again.” Which begs the question will we ever see a return to a high demand for oil? After all, the EU Green Deal is spearheading a lot of the recovery efforts and it is prioritising infrastructure and investments that don’t target oil and gas sectors.
Brief: French insurer AXA said on Thursday the planned 1 billion euro ($1.2 billion) sale of its AXA Life Europe unit to Cinven had collapsed, and that it would make no fourth-quarter shareholder payouts after net income fell 40% in the first half. AXA, led by chief executive Thomas Buberl since 2016, also dropped 2020 earnings target following a hike in COVID-19 related claims. The second-largest European insurer after Allianz said first-half net profit fell to 1.43 billion euros from 2.33 billion a year before. Overall revenues fell by 10% to 52.4 billion euros. Underlying earnings at the property and casualty business were down 72% to 544 million euros, largely due to COVID-19-related claims stemming from business interruption contracts and event cancellations. “In the context of the material estimated impact from Covid-19 on underlying earnings in 2020, AXA’s management has withdrawn its Ambition 2020 underlying earnings per share and adjusted return on equity targets,” the insurer said. AXA said its board of directors had decided it would not propose an exceptional distribution of reserves to shareholders in the fourth quarter, following discussions with regulators.
Brief: Aviva Investors, the asset manager owned by insurer Aviva plc, saw its operating profit tumble in the first half of the year to £35 million from £60 million in the same period of 2019. The firm said this was due to capital market weakness, de-risking of asset strategies by internal clients and lower levels of private assets investments. But Aviva Investors said it had diversified its third-party client list and “maintained the positive customer momentum” seen in the second half of last year. Flows from external clients were £1.3 billion compared to outflows in the first half of 2019 and were driven by the UK and North America. At the group level, financial performance was described as “solid”, with an operating profit of £1.25 billion, which was down from £1.39 billion in the same period last year. Amanda Blanc, who has been CEO of Aviva plc for a month, said “we must transform our business” and that this would focus on the UK, Ireland and Canada, places where Aviva has the size and “brilliant customer service”. “I have been CEO for one month and I am confident we have many of the ingredients to make Aviva a winner. From this moment on, we must deliver. Nothing else will do. My focus is making sure it happens and at pace”.
Brief: BlackRock's 16,000 employees may continue to work remotely for the remainder of the year wherever they are located, even as the firm reopens offices around the world in the midst of the COVID-19 pandemic. "Given the uncertainty in many of our locations and to help you plan ahead, we will continue providing all employees the option of working from home for the rest of 2020. When your office is available for use, you can decide to work from the office, work from home or split your time between the two," said an Aug. 3 employee memo obtained by Pensions & Investments. Where BlackRock reopens offices based on local conditions and government guidelines, it will use a split-team model for the time being to "ensure social distancing," said the joint memo from Robert S. Kapito, director, co-founder and president; Lawrence Knafo, managing director and chief security officer; and Manish Mehta, managing director and global head of human resources. Going forward, BlackRock will increase office occupancy in areas where COVID-19 conditions have improved or reduce an office's in-person head count if pandemic conditions worsen.
Brief: BlackRock Inc. has joined a growing chorus of investors and analysts warning of resurgent inflation risks, as the global battle against the coronavirus crisis creates a convergence of ultra-easy monetary policy and expansionary budgets. The world’s largest asset manager pointed Thursday to a potential pickup in U.K. price pressures after the Bank of England held record-low interest rates and maintained its asset-purchase program. Last week, Goldman Sachs Group Inc. highlighted growing concerns over the U.S. inflation outlook, which the bank said could even threaten the dollar’s reserve-currency status. While the world’s nations are unleashing unprecedented spending to counter the economic shock from the pandemic, central banks are maintaining ultra-loose monetary conditions to cap the costs of such fiscal largess. This policy combination is now fueling fears of a spike in consumer prices down the line as more money chases fewer goods. Market-implied price expectations have climbed globally in recent months, fueling a rally in gold, and Wall Street’s heavyweights from Pacific Investment Management Co. to AllianceBernstein Holding LP have cautioned in recent months that inflation is a problem that’s bound to return.
Brief: Approvals for a potential COVID-19 vaccine later this year could threaten the recent surge in speculative investment in big U.S. technology companies and pull investors back towards more traditional growth-linked cyclical stocks, according to analysts at Goldman Sachs. Seen as "stay-at-home" winners in the coronavirus lockdowns, shares in Apple Inc (AAPL.O), Facebook Inc (FB.O), Amazon.com (AMZN.O) and Alphabet (GOOGL.O) have surged this year and now account for nearly a fifth of the S&P 500's .SPX stock market value. Bumper results from the iPhone maker last week pushed it past Saudi Aramco (2222.SE) to become the world’s most valuable publicly listed company and heading towards a $2 trillion valuation. In a global markets research note sent to clients, Goldman analysts said the current rally could last until Labor Day in early September, but would be threatened by updates on vaccines. “Approval could ... prompt the kind of rotation that started and petered out in May and early June, supporting traditional cyclicals, steeper curves and banks, and challenging tech leadership,” they argued.
Brief: The fund management sector looks set to swoop on the topic of social inequality once markets emerge from Covid-19. By now you may have read ample articles (like this) that say not only is ESG (environmental, social, governance) investing not dead, but that Covid-19 will reinforce it and, importantly, give more impetus to the ‘social’ dimension. “Whereas climate change put environmental issues front and centre, the pandemic has elevated urgency on social issues,” says Thomas Kuh (pictured below), head of ESG at Truvalue Labs in San Francisco. “Covid-19 has exposed serious, systems-level problems like inequalities of income and wealth that need to be addressed,” he says. After analysing data on information flows between January and April, Truvalue found ESG issues such as access and affordability were prominent in the context of the pandemic. Maarten Bloemen of Franklin Templeton Investments’ global equity group, echoes the finding, saying: “The coronavirus has brought a spotlight on several issues in the ‘S’ category of ESG, including social stability, employment, infrastructure, data security and keeping employees and customers safe – whether they are physically interacting or not.”
Brief: The relentless rally in American equities is emboldening hedge funds at a time their own clients are getting worried. Professional managers that make both bullish and bearish equity bets last month pushed their long positions on stocks up above their short ones by a ratio of almost 1.9-to-1, the highest reading in more than a decade, according to data compiled by Morgan Stanley’s prime brokerage unit. The S&P 500 rose 5.5% during the period, its best July since 2010, and has rallied in the first three days of August. Meanwhile, the firm’s survey of hedge fund investors showed roughly three quarters of the respondents expect the S&P 500 to finish the year lower than 3,300. The benchmark closed on Wednesday at 3,327.77, about 26 times annual earnings. People are choosing sides in a year like no other, when rebounding shares have pushed valuations to two-decade highs even as a pandemic rages. While investors in the Morgan Stanley survey cited everything from the health crisis to a weak economy and November’s presidential election as the top market risks, the people paid to ride the wave are afraid of missing out. For now, the disagreement hasn’t prompted clients to exit. In fact, interest in investing with long-short hedge funds last quarter increased to the highest level in at least two years, Morgan Stanley data showed. “Investors felt hedge funds performed well in 2Q, despite missing part of the market rally,” the firm wrote in the note to clients last week. About “90% of investors felt HF performance was in-line or better than expectations.”
Brief: COVID-19 and the associated economic crisis are set to cause the first decline in global asset management industry assets under management in a decade, according to Cerulli Associates’ latest report, Global Markets 2020: A Sharper View of the Asset Management Sector. However, moving beyond 2020, the global analytics and consulting firm expects the global asset management industry to recover and grow, fueled by increasing demand in developing countries, particularly Asia. Advances in technology and product will give global asset managers more ways to access growing investor segments. “As the coronavirus pandemic continues to impact the global economy in the second half of 2020 and beyond, asset managers will need to find ways to keep investors in their products and prevent a widespread flight to cash,” says André Schnurrenberger, managing director, Europe at Cerulli Associates. “Managers should dedicate resources to investor education on how to handle a market correction, implementing scenario analysis from the last significant global drawdown in 2008.” These resources will be especially useful in those countries where emerging middle-class investors have entered the market within the past decade and had not experienced a substantial correction before COVID-19.
Brief: Allianz said on Wednesday that it was fielding a request for information from the U.S. Securities and Exchange Commission over a series of funds that suffered sharp losses amid the coronavirus-led market meltdown earlier this year and are the subject of an investor lawsuit. The funds in question are Allianz’s “Structured Alpha” hedge funds managed by Allianz Global Investors. Allianz made the disclosure in its earnings report. In July, the Arkansas Teacher Retirement System filed a lawsuit in a Manhattan court to recover losses of least $774 million in the first quarter of 2020 for the funds. Allianz said the case was “legally and factually flawed”, but that it expects that other investor suits may emerge. Allianz said it was fully cooperating with SEC’s request for information about the Structured Alpha funds.
Brief: A handful of corporate agitators pushing for change at companies scored double-digit returns in the first half of 2020, but panic selling and bargain hunting left the average activist investor nursing big losses. Several experienced activists and newer managers reported a surge in returns even as the coronavirus outbreak led economic production to collapse and sent unemployment rates soaring. William Ackman’s Pershing Square Capital Management gained 35% while Jason Aintabi’s Blackwells Capital climbed 27% and Glenn Welling’s Engaged Capital returned 17% in the first seven months of the year, investors said… Others saw positions in financial, food and retail and industrial conglomerate stocks drop as the pandemic reshaped the world. Legion Partners lost 3.8%, Third Point’s Offshore Fund lost 7.3% and Trian Fund Management lost 13% in the first half, investors said. Trian’s concentrated portfolio includes Sysco, which fell 37% this year. Representatives for the firms declined to comment.
Brief: The US dollar [USD] will suffer as global growth rebounds from the Covid-19 crisis, potentially triggering the end of its bull market run, however any weakness will be muted in comparison to the multi-year downtrend that followed the global financial crisis. This is the view in new research, “COVID-19: The Trigger That Ends the US Bull Market?” published by Insight Investment, a global investment manager with $909bn under management. Francesca Fornasari, author of the research and Head of Currency Solutions at Insight Investment said, “During the global financial crisis, the US dollar surged as investors fled to the deepest and most liquid market. But, as equities bottomed in March 2009, the USD peaked and embarked on a multi-year downtrend. As the global economy faces another severe downturn, caused by Covid-19, so the USD has moved to historic highs. However, this time around the underlying structural support of many currencies is much weaker than 10 years ago. We expect a more muted rebound and greater differentiation amongst currencies with a high beta to the economic cycle.
Brief: Before the coronavirus pandemic hit, investment firm GAM Holding’s turnaround strategy seemed to be working. But its results for the first half of 2020 show that the pandemic — and subsequent market volatility — may have stymied GAM’s immediate comeback efforts after its 2018 bond fund liquidation. During the first half of 2020, the company’s outflows grew while its 2019 profits turned to 2020 losses. Prior to this year, following the implementation of some of its turnaround plan, GAM’s 2019 second-half net outflows had declined and its profits, compared to the first half of 2019, had improved. As for the first half of 2020, GAM’s earnings results, published on its website Tuesday, show that its underlying loss before taxes was CHF 2 billion (US$2.1 billion). This is compared to the first half of 2019, when the firm brought in CHF 2.1 billion, its presentation shows. Meanwhile, GAM reported outflows of CHF 8.5 billion outflows for the first half of the year, driven by its specialist fixed income strategies, which lost CHF 5.7 billion, its half-year 2020 report shows. According to that report, net outflows in the second quarter were lower than those in the first — CHF 2 billion versus CHF 6.5 billion.
Brief: The coronavirus is likely to trigger a tsunami of U.K. fraud cases when courts and law enforcement get back to full strength, accounting firm KPMG warned. Although there have been fewer fraud cases compared to previous years, that will change as the courts get back on their feet, KPMG said in a report released Tuesday. “The Covid-19 environment has led to increased financial pressures on individuals and organizations leading to more opportunities to commit fraud,” Roy Waligora, KPMG’s head of investigations in the U.K., said in an emailed statement. “This is likely to lead to further risk of financial misreporting and of misconduct and fraud in traditional hot spots.” The backlog of criminal cases in England and Wales stood at 37,434 at the end of 2019 and likely has grown considerably during the outbreak, when several courts closed their doors and others scaled back operations. Several cases may stem from the government’s job-retention program, the accounting firm said. KPMG says the U.K. tax authority received as many as 1,900 reports of furlough fraud in May. Last month, revenue and customs officials made their first arrest in relation to the program, which paid 80% of wages up to a cap of 2,500 pounds. “We are likely to see a lot more HMRC activity where government aid schemes have been abused,” Waligora said. “We are likely to see a tsunami of Covid-19 related fraud cases.”
Brief: The Federal Reserve and other central banks are heading for a collision with shadow lenders -- the firms with a sinister nickname that are increasingly dominating global finance. Even as policy makers struggle to reopen their economies in the midst of the coronavirus pandemic, they’ve launched a review of what went wrong with markets in March, when a worldwide dash for cash by investors nearly crashed the financial system and forced unprecedented rescue actions by central banks. Their focus is on loosely regulated money market and hedge funds, mortgage originators and other entities. Already, some watchdogs have pointed to highly leveraged trades involving U.S. Treasuries as one source of the turmoil. “In many cases they have reached systemic importance,” Bank for International Settlements General Manager Agustin Carstens said of the non-banks. He added that it’s time to move toward more regulation. There’s a lot at stake should the scrutiny lead to tougher oversight. The alternative financiers are major providers of credit to households and companies, making their smooth functioning critical to the health of financial markets and the economy. Non-banks are marshalling their lobbyists in Washington to argue that casting blame on the industry is misplaced. A point in their favor is that unlike Wall Street banks a decade ago, shadow lenders didn’t cause the recent meltdown. Instead, the financial-market stress was triggered by a health crisis.
Brief: Cybersecurity companies are warning that they’ve seen an exponential rise in attempted “phishing”, banking-email compromises, and illegal cryptocurrency mining. And it’s hedge funds that may be most vulnerable. “We’ve definitely seen an increase in phishing and crypto-mining, and an uptick in hacking attempts,” Ed Cowen, CEO of Remora, a cyber security consultancy which specialises in hedge fund and asset manager clients, told Financial News. “It’s part of an overall trend that has been accelerated by the digitisation of business and the evolution of crime. ”Soaring cases of cyberattacks have been plaguing every sector of the financial industry as the pandemic-driven lockdown forced workers to scatter beyond the firewalls of secure offices. But it’s an especially acute issue for hedge funds, given that many firms in the sector tend to lack the large-scale, in-house security of bigger firms. The rewards for crime are also high: hedge funds manage billions in assets, making them more exposed. “The real challenge for funds is that many of them are large micro-businesses,” Cowen said. “They have to look, talk and feel like they’re large corporations, but typically they’re between 10 and 20 people ... I don’t think funds and businesses in the UK are fully aware of the scale of cyber fraud. If a bank gets robbed, people talk about it; if the [hedge fund] office gets robbed, no one talks about it.”
Brief: Despite the longest economic expansion in U.S. history, the gap between the present value of liabilities and assets at U.S. state pensions is measured in trillions of dollars. To make matters worse, pensions are now faced with the reality that standard diversification — including extremely low-yielding bonds — may no longer serve as an effective hedge for equity risk. While I was at CalPERS, concerns arose in 2016 about the effectiveness of standard portfolio diversification as prescribed by Modern Portfolio Theory. We began to recognize that management of portfolio risk and equity tail risk, in particular, was the key driver of long-term compound returns. Subsequently, we began to explore alternatives to standard diversification, including tail-risk hedging. At present, the need to rethink basic portfolio construction and risk mitigation is even greater — as rising hope in Modern Monetary Theory to support financial markets is possibly misplaced. At the most recent peak in the U.S. equity market in February 2020, the average funded ratio for state pension funds was only 72 percent (ranging from 33 percent to 108 percent). That status undoubtedly has worsened with the recent turmoil in financial markets due to the global pandemic. How much further will it decline and to what extent pension contributions must be raised — at the worst possible time — remains to be seen if the economy is thrown into a prolonged recession.
Brief:Four among the six shuttered debt schemes of Franklin TempletonMutual fund saw a fall in their Net Asset Values or NAVs after two entities - Nufuture Digital (India) Ltd (NDIL) and Future Ideas Co Ltd (FICL) – defaulted on payments. The net asset value of Franklin India Income Opportunities Fund fell by 4.73% on Friday. The NAV of Franklin India Credit Risk Fund also saw a dip of 2.28%, Franklin India Short Term Income Plan’s NAV dropped by 1.75% and Franklin India Dynamic Accrual dropped saw a fall of of 1.343%. “Due to default in payment, the securities of FICL and NDIL will be valued at zero basis AMFI standard hair cut matrix and interest accrued and due will be fully provided. Securities of RTVPL will continue to be valued at 75% basis recommended valuation,” Franklin Templeton MF said in a note. "This is a bad news for sure. A debt mutual fund investor has capital protection on his/her mind always. A 4.7% dip in NAV is huge. And when you can't pull out your money or do anything, it is worse. I believe this may lead to further fear psychosis in the minds of debt investors. In such situations, debt investors may report to redeeming from other debt schemes as well, which is not good," says Babu Krishnamoorthy, Chief Sherpa, FinSherpa InvestmentServices.
Brief: Australasian sustainable funds attracted inflows worth more than $207 million in the second quarter of 2020, with Australian Ethical and Dimensional reaping the majority of these rewards. Morningstar's latest Global Sustainable Fund Flows report, which examined 3432 sustainable open-end funds and exchange-traded funds (ETFs) across the globe in the second quarter of 2020, found that sustainable funds outperformed following the March market sell-off. Assets in Australasian sustainable funds increased substantially during the second quarter, up 18% from $14.9 billion (US$10.6 billion) at the close of the first quarter to $17.7 billion (US$12.6 billion). At the end of June, sustainable assets recorded one of their highest levels, only outpaced by their peak at December 2019. Morningstar found there are now 108 strategies in the Australasian sustainable fund universe, up from 86 at the close of the first quarter 2020. Interestingly, the Australian sustainable funds market is relatively concentrated, with the top 15 funds accounting for 60% of all assets in the sustainable fund arena.
Brief: Concern is growing over a likely spike in defaults among so-called ‘zombie’ companies that have stayed afloat during the coronavirus pandemic by relying on government stimulus and increasing their debt loads, but will struggle to keep servicing loans as government schemes roll back. ‘Zombie companies’ are indebted businesses that only generate enough cash to cover operational costs and interest payments on their loans, but not the debt itself. In the UK, financial services industry body The City UK estimates that businesses may build up GBP100 billion of debt by next March which they would be unable to repay, with 780,000 SMEs in danger of insolvency. A global forecast by fund manager Janus Henderson for overall corporate debt predicts a jump to a record USD9.3 trillion in 2020. Jub Hurren, senior portfolio manager of AIMS Fixed Income at Aviva Investors, says that many companies won’t fail immediately, thanks to supportive monetary policy: “The fact that interest rates are going to stay at extremely low levels means that even companies with low earnings can probably survive longer than they would otherwise because of the reduced burden in terms of servicing debt.”
Brief: Investors in property funds should wait up to six months before they can get their money back to avoid a stampede for the exit leading to widespread suspensions in rocky markets, Britain’s Financial Conduct Authority proposed on Monday. UK-regulated open-ended property funds offer daily redemptions to entice investors, but nearly all those targeted by Monday’s proposal are suspended following market volatility in March due to the pandemic, trapping more than $7.5 billion in assets. Policymakers have warned that property funds should not be viewed like a bank account that can be tapped at will, given they contain “illiquid” assets such as commercial real estate that can take several months to sell even in normal market conditions. Concerns over daily redemptions began when several property funds were suspended after Britain voted in June 2016 to leave the European Union, as investors pulled out money. The Financial Conduct Authority (FCA) proposes that property funds publish a “notice period” or irrevocable pre-agreed gap of between 90 and 180 days from the request for a redemption to the return of cash. It would affect new and existing customers, but also mean that property funds don’t have to hold as much cash as they do now, the FCA said.
Brief: Wall Street was set to open higher on Friday after tech titans Apple, Amazon.com and Facebook posted blowout quarterly earnings, helping keep nagging pandemic nerves at bay. Apple Inc surged 7% premarket, setting the stock on course to open at a record high, as it delivered year-on-year revenue gains across every category and in every geography.
Amazon.com Inc jumped 6.2% after posting the biggest profit in its 26-year history, while Facebook Inc gained 6.7% as it reported better-than-expected revenue. Trading in Alphabet Inc was more subdued as quarterly sales fell for the first time in its 16 years as a public company.
Brief: Pacific Investment Management Co. runs a hedge fund registered in the Cayman Islands, a common structure for avoiding certain U.S. taxes. But when a profit opportunity arose from the ashes of America’s coronavirus crisis, that international location did not stop it from seizing the moment. The Federal Reserve opened a highly anticipated emergency lending program in June, a revamped version of one it used during the 2008 financial crisis. This time around, Congress stipulated that only American companies could participate as borrowers in such programs. Despite being offshore, Pimco’s fund had an easy way to benefit. The offshore fund is invested in an entity registered in Delaware. That entity can be used by investment managers to buy and sell bonds. The Delaware operation borrowed $13.1 million from the Fed program by pledging a bundle of debt as collateral. Investors in the Cayman-based hedge fund ultimately stand to profit from the transaction.
Brief: The Covid-19 pandemic has produced winners from a wide array of sectors, with technology leading the charge, but there are several surprising stories that have come to the fore. Citywire + rated manager Raphael Pitoun, who runs two equity funds at CQS Investment Management, told Citywire Selector about one area that has proven its worth for his portfolios – pest control. Pitoun said Rollins Inc is a market leader in pest control but showed its ability to pivot during the crisis, switching from dealing solely with pests to redeploying its workforce to aid in the major drive to improve workplace hygiene. ‘It’s typically a business that is not particularly sexy or maybe it is less flashy than the likes of Tesla or the other Faangs [Facebook, Amazon, Apple, Netflix and Google],’ he said. ‘It’s a business that exists for a very long time with a good amount of growth. What we learned over the last few years is that people that have a leadership position in one market they tend to accentuate this position and do little else
Brief: Principal Financial Group has discovered that COVID-19-related deaths are only about half as damaging to earnings as the company once expected. The Des Moines, Iowa-based insurer has been trying to estimate how much COVID-19 will affect after-tax operating earnings. The company has now cut the predicted impact to a $10 million reduction in operating earnings per 100,000 U.S. COVID-19-related deaths. Earlier in the year, the company had estimated it might face $20 million in impact per 100,000 U.S. COVID-19-related deaths. “This reduction reflects a lower incidence of COVID-related deaths in our insured population,” Deanna Strable, Principal’s chief financial officer, said Tuesday during a conference call.
Brief: Investment bank Lazard Ltd (LAZ.N) on Friday reported an 8% fall in second-quarter adjusted earnings per share, a smaller drop than analysts had expected, as the slowdown in corporate dealmaking due to the COVID-19 pandemic weighed. The slump came as global M&A activity, one of Lazard’s main revenue drivers, tumbled to its lowest level in more than a decade in the second quarter, as companies gave up on expansion plans to focus on protecting their balance sheets and employees in the wake of the coronavirus outbreak.
Larger M&A activity has shown signs of picking up in the third quarter with 40 deals worth at least $1 billion announced during this month, down almost one third on July, 2019 but up 29% from June, according to Refinitiv data. “The one thing we’ve learned from this pandemic is that it’s reasonably difficult to predict the future. That said, it feels like Q2 probably turns out to be the low (M&A activity),” Lazard Chairman and Chief Executive Kenneth Jacobs said in an interview.
Brief: We're starting to get second-quarter investor letters from hedge funds, and as would be expected, COVID-19 features prominently in them. One fund manager pointed out that despite the recession caused by COVID-19, the bulls are running in the market. Other fund managers have highlighted the opportunities presented by share price dislocation due to the coronavirus. At least one fund manager firmly believes the concerns around COVID-19 are overdone despite the running of the bulls in the market. Bull Market Coincides With Recession: Jacobs Asset Management Managing Partner Sy Jacobs said in his second-quarter letter to investors that it's strange how the bull market has continued despite the recession triggered by COVID-19. He said a short list of story, momentum and growth stocks has been leading the bull market.
Brief: BNP Paribas Personal Finance has announced that it will use Experian’s Open Banking technology and Aryza’s Debtsense digital platform to provide online account reviews to customers who have been affected by the Covid-19 pandemic. Debtsense from Aryza uses Experian’s Open Banking service to allow people to share their account and transaction data, giving a clear and detailed picture of affordability, financial circumstances and commitments. The insights will enable BNP Paribas Personal Finance to assess people whose finances have been affected by the pandemic and who may now be vulnerable. They can then be offered a payment break or an affordable payment plan based on their specific circumstances. The app uses the lender’s credit decision policy rules to create a personalised payment plan. More than 200 organisations are currently using Experian’s Open Banking service, many to help resolve financial hardship as a result of Covid-19 pandemic. Charities including Citizens Advice Liverpool and Mental Health & Money Advice are using the service to support clients through the pandemic, tailoring advice based on the individual’s situation.
Brief: Macquarie Group chief executive Shemara Wikramanayake says the turmoil unleashed by the coronavirus will make it tougher for the company to reap the benefits of asset sales, as profits dipped and it warned of extreme uncertainty. The financial group on Thursday highlighted challenging conditions across all of its businesses, with the banking division hit by rising provisions for bad loans and the global recession hampering deal-making. As the company faced shareholders for a virtual annual meeting, chairman Peter Warne also said there was a possibility it would resume dividend payments to the group from the banking division, which had been paused, but this was not certain. Macquarie is a major investor in infrastructure projects and part of its business model involves selling assets to realise the gains from these investments.
Brief: The evolution of media has led to a “disconnect” between the reality of coronavirus and public perception of the pandemic, according to Enrique Abeyta of Empire Financial Research. The reality: The coronavirus crisis is in the “seventh inning,” Abeyta said on the Contrarian Investor Podcast. In six weeks, or by mid-September, there will be “maybe less than 50” daily fatalities from COVID-19, corresponding to about one 10th current levels, he says. “I think the war on COVID is almost over.” This clashes with the perception reported by media, that the U.S. doesn’t have COVID-19 under control. Cases and deaths are growing, states are forced to shut down, and the situation is spiraling out of control. So goes the narrative. This narrative misses several key facts, according to Abeyta. In the U.S., the virus has hit different regions at different times: first New York, where mortality rates were “awful,” and more recently states like Florida, Arizona, California, and Texas (the FACT states).
Brief: Bitcoin is doing that thing again. After a 50% slump in the cryptocurrency’s price to about $4,000 in mid-March, when Covid-19 panic was gripping the financial markets, it has bounced back to trade at about $11,200. Veteran crypto-watchers have seen this rapid shift from fear to greed many times before, and know it can have painful consequences. The first time Bitcoin’s price went past five figures in 2017, it fueled a speculative frenzy that ended almost as soon as it began, leading to an 80% slump over 12 months. And when Bitcoin rose above $10,000 in February this year, any hope for a rally was snuffed out by Covid. The subsequent mad rush to trade digital coins for cash was made worse by the fact that many people were using large amounts of debt to back their trading. Several crypto hedge funds closed. Is anything different this time? Bitcoin’s wild price swings undermine its case as a reliable store of value or safe haven. It’s still 43% below its high of almost $20,000. But as a “store of fear” — Warren Buffett’s description of the short-term pessimism that pushes investors into cryptocurrency — it has its fans.
Brief: Private Equity Advisor, BluWave, Finds 71% of Private Equity Resources Devoted to Portfolio Companies Was Spent on Value Creation Initiatives During the Second Quarter of 2020 BluWave, a private equity-focused advisory firm, today released new data on how private equity funds are allocating resources. The results demonstrate that in the immediate aftermath of the COVID-19 pandemic, the private equity industry was far more focused on investing in portfolio companies than slashing jobs or cutting costs. Among the most common investments at portfolio companies were human capital and digitization. “We’ve seen a clear trend toward value creation over the past two years,” says Sean Mooney, CEO of BluWave. “That trend has accelerated following the outbreak of the COVID-19 pandemic. Although many assumed the pandemic would force private equity funds to focus on operational efficiency, cost cutting and layoffs, what we’ve actually seen is agility and a focus on valuation creation that has spurred new investment in human capital, IT and software strategy, and data-driven decision making.”
Brief: Man Group has seen its funds under management tumble 8 per cent this year, as investment performance took a hit and investor redemptions spiked during the coronavirus crisis - but CEO Luke Ellis says the London-headquartered publicly-traded hedge fund group remains well-positioned despite 2020’s ongoing challenges. Man’s funds under management fell to USD108.3 billion in the first six months of the year, down from USD117.7 billion at the start of January. The drop stemmed from investment performance losses of USD5.4 billion, together with USD1.2 billion of investor outflows. Negative FX translations and other movements wiped off another USD2.8 billion. Man CEO Luke Ellis conceded the first half of 2020 was a “challenging time” for the group. Man, which runs a wide assortment of discretionary and systematic investment funds across hedge fund and long-only strategies, is often considered a barometer for the UK’s broader alternative asset management industry.
Brief: On July 21, 2020, Caixin International Roundtable invited Mr. Stephen A. Schwarzman, Chairman, CEO & Co-founder of The Blackstone Group, to the High-end Dialogue. Mr. Shi Bo, Deputy General Manager & Chief Investment Officer (Equity) of Southern Asset Management, had a dialogue with Mr. Schwarzman on the topic “What It Takes in a Post-Pandemic World”. During the dialogue session at the roundtable, Mr. Schwarzman introduced how Blackstone navigated the coronavirus crisis, attributed the success of Blackstone to timely learning from mistakes and resolutely capturing opportunities over the past 35 years and also shared his current focus of investment. Mr. Shi commented that Mr. Schwarzman is successful because he is contrarian and open-minded, giving him enough foresight to predict how to make the right investment. And, these two factors can also help us seek out opportunities from a crisis and thus invest successfully. Besides, Mr. Shi talked with Mr. Schwarzman on other issues, including the rationale behind Blackstone’s real estate investment, China’s real estate sector outlook and possible changes in the post-pandemic business models.
Brief: In May 2020, Orchard Villa, a long-term-care home in Pickering, made headlines for a bad COVID-19 outbreak. Just two months into Ontario’s lockdown, 77 patients in the 233-bed home had died. A report by Canada’s military revealed horrifying conditions, short staffing, and neglect. Some family members blamed for-profit ownership, arguing that COVID-19 had simply exposed, in tragic fashion, the impact of prioritizing profits in the operation of seniors’ housing. Notably, Orchard Villa had been purchased in 2015 by private-equity firm Southbridge Capital, adding it to Canada’s growing stock of “financialized” seniors’ housing — bought by financial firms as an investment product. This has followed the trend of what’s known as financialization in the global economy, in which finance has come to dominate in the operations of capitalism, prioritizing investor profits over social, environmental, and other goals. In seniors’ housing, financialization has arguably intensified the profit-seeking approach of private owners, with harmful outcomes for residents and workers alike.
Brief: The COVID-19 pandemic has pushed global financial markets into a prolonged period of volatility and uncertainty, reminiscent of the 2007-08 financial crisis. Many businesses have languished since March. Private equity professionals are optimistic for the industry to adapt and play a meaningful role in a global economic recovery. Takeaways: Private equity firms are sitting on a highly concentrated source of capital available for deployment given fruitful fundraising efforts in recent years. The pandemic has spawned a number of potential investment opportunities from: (a) assisting existing portfolio businesses; (b) investing in emerging industries that have thrived in light of the current economic conditions; and (c) purchasing distressed assets or providing businesses with additional capital. Powder Reserves: Generally speaking, liquidity becomes a primary concern during market turmoil as financial institutions begin to retreat from their traditional role as market makers for bonds and financial assets. The "Big Five" banks of Canada have recently announced billions set aside during the second quarter of 2020 as loan loss provisions, concentrating on helping existing borrowers avoid default instead of extending further credit.
Brief: Institutional plan sponsors saw significant investment gains during the second quarter of 2020, according to the Northern Trust Universe, with a median plan return of 10.6% as markets rebounded from a massive sell-off in equities at the start of the COVID-19 pandemic in the first quarter of the year. The Northern Trust Universe tracks the performance of more than 320 large U.S. institutional investment plans, with a combined asset value of more than $1 trillion, which subscribe to performance measurement services as part of Northern Trust's asset servicing offerings. Public Funds had a median return of 11.14% for the second quarter, outpacing the other institutional segments tracked by Northern Trust. Corporate ERISA pension plans returned 10.55% at the median and Foundations and Endowments produced a 9.24% median return in the quarter ending June 30, 2020. "Investors’ willingness to take on additional risk propelled returns in the equity and corporate fixed income sectors, bringing those markets close to their all-time highs by the end of the second quarter," said Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust.
Brief: Aritra Chakravarty, founder of London-based online accounts and investments provider Dozens, admits it’s a tough time to be seeking up to 15 million pounds ($19 million) for a start-up. “It’s definitely a bearish market” said Chakravarty, who is seeking funding for Project Imagine, the company behind his fintech ventures. He is looking to crowd funding and government-backed COVID 19-support schemes for technology firms to make up for any reticence from venture capital investors. Data suggest his caution is warranted. Fintechs, which have been one of the hottest draws for venture capitalists in recent years, raised $6.3 billion in the second quarter, down 41% on the year, according to data from analysts at Forrester shared with Reuters. Investors and entrepreneurs say that while the COVID-19 pandemic has boosted demand for fintechs in areas such as digital payments and online trading, it has hurt more vulnerable sectors such as online lending.
Brief: The number of deals are down, but the chatter’s not. The COVID-19 pandemic and the accompanying economic crisis have significantly reduced the number of merger and acquisition deals, especially in the Canadian startup space. But some investors and experts speaking to the Financial Post say pent-up demand and economic upheaval could lead to a wave of activity in the next little while. “There’s no question that the M&A market is heating up,” said Rick Nathan, senior managing partner with Kensington Capital, a Toronto-based investment firm that pursues a mix of venture capital investment and private equity. Kensington has backed such Canadian tech firms as D-Wave, TouchBistro and Pandora. “I certainly can’t get into anything specific, but I can tell you that several of our portfolio companies are actively considering different kinds of M&A. That could be bulking up by buying something, or it could be that they are thinking about putting themselves in play to sell the company.” Nathan said three companies in Kensington’s portfolio have been involved in M&A activity in just the past six weeks.
Brief: For a sense of how dramatically perceptions of remote work are changing in the coronavirus era, consider Koji Motokawa. Like many traders in office-obsessed Japan, the deputy head of fixed income at Mizuho Securities Co. had never even considered working from home until the pandemic hit. Now, for the first time since he stepped onto the trading floor 25 years ago, Motokawa spends at least one day a week outside the office and plans to keep it up. “My initial thinking was that it was going to be pretty difficult given the way markets operate,” he said. “The reality is it’s actually doable.” As Covid-19 forces financial professionals around the world to re-examine the way they operate, anecdotal evidence from Japan -- ranked last among developed markets by the OECD for work-life balance -- suggests the move toward more remote work could be widespread and enduring. Tokyo-based brokerage employees from Goldman Sachs Group Inc. to CLSA Ltd. report a similar shift in attitudes that they expect will outlast the pandemic. Motokawa says Mizuho has gradually beefed up its infrastructure for remote bond trading, including distributing extra screens and computers. In Tokyo, which has recorded more than 10,000 coronavirus cases, authorities have urged residents to avoid unnecessary trips outdoors but haven’t imposed blanket restrictions on working in offices.
Brief: Invesco Ltd. is having a tough year, even by 2020 standards. Investors continued to yank money from the asset manager’s funds in the second quarter, bringing total first-half net outflows to about $31.6 billion, according to a statement Tuesday. The stock has tumbled more than 40% this year, versus a roughly 9% drop for an S&P industry index, putting it well below peers. Fee pressure and a move away from active management has hurt the Atlanta-based firm in recent years. While senior executives made a series of bets to keep pace in a changing industry, some have yet to pay off, creating concern among clients and investors. Invesco has aggressively pursued acquisitions ever since Chief Executive Officer Martin Flanagan, 60, joined from Franklin Resources Inc. in 2005. The moves helped boost assets under management to about $1.1 trillion, but two years of outflows put Invesco in a tougher position than peers, even before the crisis triggered by the Covid-19 pandemic. “They came into this downturn more vulnerable,” said Bloomberg Intelligence analyst Alison Williams. On Tuesday, the firm reported second-quarter adjusted earnings of 35 cents a share, short of the average estimate of 43 cents by analysts in a Bloomberg survey. The stock slid 2.9% at 11:34 a.m. in New York.
Brief: It’s a hedge-fund summer idyll: Chickens strut, tomatoes grow ripe and the Atlantic breeze floats over this Hamptons refuge like a sweet balm. Here, in socially distanced splendor, Boaz Weinstein is printing money. As the pandemic consumes the outside world, Weinstein has repaired to his gated estate in Sagaponack, replete with tennis court, pool and a Vegas-style card room. When New York shut down, he left his office in the Chrysler Building and decamped to Long Island, like others from high-caste Manhattan. Unlike much of that crowd, however, Weinstein has settled here to make money -- lots of it. He’s added to his profits every month this year, trading credit and derivatives of companies including Wirecard AG, retailers Staples Inc. and Macy’s Inc. and loading up on cheap closed-end mutual funds. That’s helped him outperform all of his hedge fund peers, generating an eye-popping 90% gain in his main fund after years of uneven returns. He’s attracting new money, pulling in $1 billion to his now $3 billion Saba Capital Management. And he sees room to profit, even as stocks and bonds rebound. “Markets are at an unstable place right now. I look out at the next five months, and there are lots of known unknowns,” he said in a phone interview, pointing to everything from the course of the pandemic to the U.S. election and relations with China.
Brief: Hedge funds based in North America are providing a haven to investors grappling with rising U.S.-China tensions and a global economy stalled by the Covid-19 pandemic. About 32% of allocators plan to increase investments to North America-based managers, compared with 18% at the start of the year, a JPMorgan Chase & Co. survey found. Most other regions, including Asia-Pacific, saw decreased interest. “Covid has created a lot more investment opportunities,” said Michael Monforth, global head of capital advisory at JPMorgan. “In some respects, there is a safe haven element to investors wanting to invest in the U.S., but it’s also being driven by the investment opportunity.” Investors are betting on hedge funds headquartered in North America as the world deals with a pandemic that’s halted commerce and sparked turbulence across markets. Escalating Chinese-American tensions remain a concern as the two superpowers have clashed on issues ranging from trade to the early handling of the coronavirus.
Brief: Bridgewater Associates, the world’s largest hedge fund, has laid off dozens of employees as the pandemic has hit the company’s bottom line. In an emailed statement, Bridgewater, based in Westport, said employees will be working more from home “so we won’t need the same number of support people, new technologies are changing what type of people we need and how we serve our clients, and we also want to become more efficient.” As a result, the shifts “will produce more than normal attrition in terms of people leaving the firm this year,” but it won’t be “greatly more than normal,” it said. Those leaving Bridgewater will receive “generous severance and extended health coverage,” according to the statement. The statement did not detail how many employees are affected, but The Wall Street Journal, which first reported the layoffs Friday, said several dozen were involved. Those cut worked in the research, client-services and recruiting, according to the newspaper.
Brief: As businesses seek to address both the immediate and long-term effects of COVID-19 on their operations, the reinsurance industry is at the forefront of conversations to create a forward-looking solution for pandemic risk in conjunction with policyholders, insurance markets and key policymakers. Countries across the developed and emerging world are trying to manage the severe economic short-term impacts of the COVID-19 crisis. Given the immense uncertainty, it will take much longer to even begin to assess the permanent implications for the world’s populations, companies and economies. The ultimate effects will, in large part, be dependent on the duration of the crisis, the length and depth of which is currently generating speculations and requires substantial analysis, according to William T. Charlton, Jr., PhD., CFA, Global Head of Private Markets Data Analytics and Research at Mercer. Mercer is an affiliate of Guy Carpenter. Due to the inherent lag in private market reporting, even the initial impact on private markets will take considerable time to fully evaluate. However, the behavior of private markets during the Global Financial Crisis (GFC) may provide some insight into the potential short-term and long-term expectations of private markets in the current crisis.
Brief: Hazeltree, a leading provider of cloud-based treasury management and portfolio finance solutions, and Northern Trust Alternative Fund Services (NTAFS) today published a report, “Weathering the 2020 Storm: Market Volatility, Location Disruption and Record Volumes.” The analysis examines the market impact of COVID-19, highlighting new operational challenges facing investment managers that require immediate attention. The analysis observes trends across both NTAFS and Hazeltree clients and: compares liquidity metrics experienced in March/April 2020 versus prior periods as tracked by NTAFS and Hazeltree. Highlights the emphasis placed upon cash and liquidity management practices during these uncertain times. Details a new range of concerns from investors, introducing questions managers can expect during investor operational due diligence reviews. Stresses the importance of robust processes and technology to effectively manage cash, liquidity and collateral during this new “work from home” operating model.“Asset managers faced pressure beginning in March, not only from market volatility, but also from needing to execute on critical operational functions in a work-from-home environment,” said Peter Sanchez, Head of Alternative Fund and Omnium Business Services, Northern Trust. “The challenges highlight the importance for alternative fund managers to have the scalability, security and systems to operationally manage such a crisis – whether in-house or through a partnership with a Fund Administrator or another provider.”
Brief: A major Koch Industries Inc. subsidiary has created an online toolkit for businesses wanted to reopen safely after pandemic-related closures. The platform is called Hygiene Ready and was developed by GP PRO, the commercial division of Georgia-Pacific. It pulls from resources made available by the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA) and the World Health Organization. The GP PRO team began putting Hygiene Ready together in March and its Wichita-based parent company, Koch, highlighted those efforts in a recent article on its website. The company says that the toolkit is geared toward any business looking to safely reopen, including restaurants, retail stores, event venues and industrial facilities. It also includes training materials and updated links to Covid-19 news and guidance.
Brief: Wells Fargo & Co. is slashing costs, cutting staff and tightening up on lending to ride out the coronavirus recession. Its rivals might not be too far behind. The fourth-largest U.S. lender entered the pandemic in worse shape than its peers. The bank is still clawing its way back from a 2016 fake-account scandal that put it on the wrong side of customers and regulators. Revenue has fallen for two years in a row, and the bank recently reported its first quarterly loss since 2008. "We have not done what is necessary to run an efficient company," Chief Executive Charles Scharf said in a memo to employees this month. Wells's mix of challenges is forcing it to cut costs first, but it might not be the last. The bank's approach to belt- tightening could offer some clues about what is to come for the rest of the industry. Other big banks cut billions of dollars in costs and laid off thousands of employees after the last financial crisis, putting them in a better position to withstand this one. Some have pledged not to lay off employees in 2020. Whether they are forced to make cuts later on will depend on the length and severity of the recession.
Brief: Investment managers with poorer performance through the Covid-19 crisis are set to see a high number of mandate losses, research suggests. Investors in hedge funds and smart beta were among the most dissatisfied with recent performance. In a survey of 368 institutional investors and family offices, 48% said they were disappointed with hedge fund returns and 64% said the same for ‘alternative risk premia’, which is usually known as smart beta. Emerging market debt also disappointed 53% of investors, the Bfinance research showed. As much as 54% of the asset owners are terminating or likely to terminate managers based primarily on their 2020 performance, including more than 80% of family offices. Apart from hedge funds, smart beta and emerging market bonds, active strategies received positive feedback, Bfinance said, and the vast majority of investors – or 82% - said they were satisfied with how their portfolios had performed.
Brief: Hedge-fund fees had already been shrinking before the pandemic ripped through global markets. Now, they’re in terminal decline. One of London’s fastest-growing hedge funds is enticing new investors by agreeing to forgo performance fees until returns hit a key threshold. In Hong Kong, a fund boss is offering to cover all losses, a concession that’s almost unheard of in this rarefied world. And famed investor Kyle Bass has told clients he’ll charge his usual 20% cut of profits only if he earns triple-digit returns in a new fund he has started. Long notorious for charging high fees, the $3 trillion industry runs portfolios that are generally open only to institutions and affluent individuals. It’s going to extraordinary lengths to attract new money as the coronavirus pandemic triggers losses and accelerates an investor exodus that has plagued the industry for years. Many of the world’s most prominent managers have come to the stark realization that they need to upend the “two and-twenty” fee model that’s been a fixture for decades if they want to expand. For some smaller firms, the goal isn’t growth. It’s survival.
Brief: The coronavirus pandemic is hitting alternative lenders hard, with business down substantially, a handful of mortgage investment corporations stopping investors from redeeming their funds and others trying to offload their portfolios of home loans. In Ontario, mortgage registrations by private lenders fell 26 per cent in June over the same month last year, according to Teranet, which operates the province’s electronic land registry system. That followed a 45-per-cent decline in May and a 29-per-cent drop in April, when real estate sales plunged, and private lenders halted loans to assess the economic rout. Industry experts say the downturn will reveal where the weaknesses are in the sector. “The tide is going out right now. We’ll see very quickly who was naked this whole time in the private mortgage world,” said Dustin Van Der Hout, investment adviser with Richardson GMP Ltd.
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