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Brief: BlackRock Inc. Chief Executive Officer Larry Fink said the full extent of the coronavirus pandemic on the U.S. economy’s smaller companies remains unclear, even as cities begin reopening. “We still have not witnessed the full impact on small and medium businesses,” Fink said in an interview Tuesday on Bloomberg Television. The virus’s spread forced a shutdown across the country, upending sectors from energy to consumer. Signs of acute pain for small businesses are already showing: about 14% of companies that received support from the Paycheck Protection Program, a key pillar of the U.S. government’s aid to small businesses, expect they’ll need to reduce their workforce after using the loans, according to a new survey from the National Federation of Independent Business. Last week, 13 U.S. companies sought bankruptcy protection, matching the peak of the global financial crisis, data compiled by Bloomberg show. While larger corporations have stabilized, the fate of other parts of the economy will be determined by how Covid-19 is handled in the coming months, he said. Fink’s remarks come as the world’s largest asset manager navigates a year of turmoil that includes the pandemic and a wave of protests over racial inequality that began in the U.S. He said he expects market uncertainty, which spiked in mid-March, to remain elevated for months to come.
Inflation in the U.S. is likely to come back slowly, keeping the Federal Reserve from raising interest rates for an extended period, according to the chief executive officer of Pacific Investment Management Co. Over the next couple of years, prices are likely to increase to the 2.3% to 2.4% level, Emmanuel “Manny” Roman said Tuesday at the Bloomberg Invest Global virtual event. The central bank has learned its lesson from past interest rate increases and will be determined to avoid another “temper tantrum,” he said. “The days of inflation we remember are gone,” Roman said. “We don’t think the Fed is going to raise rates for a very long time.” Led by the Fed, central banks have been cutting interest rates and buying securities to combat the effects of the coronavirus pandemic, an intervention that helped stabilize global markets. Even as U.S. unemployment soared to its highest level in decades, stock markets have recovered most of their post-pandemic losses and corporate debt investors have poured money into junk bonds. U.S. equities rose to a two-week high Tuesday amid a report that President Donald Trump supports sending another round of checks to Americans and data that showed manufacturing nearing expansion. Pimco, with about $1.8 trillion in mostly fixed-income assets under management, is raising at least $6 billion for distressed credit and other corporate debt opportunities to take advantage of dislocations driven by the coronavirus pandemic.
Brief: The Covid-19 pandemic’s impact on hedge fund redemptions continued in April as the industry experienced USD38.1 billion in outflows. While a sizeable sum, the net redemption total was less than half of March’s USD85.6 billion redemption total. April’s redemptions represented 1.3 per cent of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions. A positive note was a USD101.2 billion monthly trading profit fuelled by an April stock market rally, bringing total hedge fund industry assets to more than USD2.99 trillion as April ended, up from USD2.86 trillion at the end of March. Data from 6,000 funds (excluding CTAs) in the BarclayHedge database showed the greatest volume of April redemptions coming from hedge funds in the US and its offshore islands where investors pulled out USD21.7 billion during the month. Investors redeemed nearly USD13.1 billion from funds in the UK and its offshore islands during the month, while funds in Continental Europe experienced nearly USD2.6 billion in outflows.
Brief: A lively debate is currently taking place amongst allocators as to whether onsite due diligence and face-to-face meetings are still necessary given the current environment. The simple answer must be a resounding: yes, absolutely. Due diligence, both investment and operational, has always been an integral part of a well-structured investment process. Those of us who have been around since pre-2008 can certainly attest to the fact that a lot has changed since, and the days are long gone when it was possible for managers to simply refer to their stellar track records and assume that investments would be forthcoming without any other questions being asked. Investors have learnt that having a detailed understanding of a strategy is just the beginning and that the operational framework in which a strategy is implemented is also of great importance. The question, of course, is how to best ascertain all of this during the current period, whether process adjustments can and should be made and, critically, whether there are additional risks that necessitate closer scrutiny at present.
Brief: Dyal Capital Partners is nearing a $1 billion loan against the fee revenue of private equity firms in which it has acquired stakes and will use the proceeds to return cash to its investors, a person familiar with the matter said on Monday. The loan pertains to investments made out of the firm’s $5.3 billion Dyal Capital Partners III fund, the source said. While private equity firms often borrow against companies they own to fund dividends to their investors, such borrowing at fund level is less common. The loan has an “A-“ credit rating, according to the source, underscoring the confidence of lenders that it will be paid back in the face of economic uncertainty brought about by the COVID-19 pandemic. Dyal, a subsidiary of asset manager Neuberger Berman Holdings, owns stakes in major private equity firms such as Silver Lake and Vista Equity Partners. It had initially looked to raise $500 million, but increased the size of the loan due to strong investor interest, primarily from large insurers, the source said. The loan carries a 4.4% fixed coupon and is expected to close on Tuesday. A spokesman for Neuberger Berman declined to comment.
Brief: Trend-following strategies have earned a reputation for outperforming during periods of crisis. That theory was borne out during the height of the Covid-19 crisis — up to a point. In a new paper entitled “The Coronavirus Crisis: What is the same? What’s different?,” Katy Kaminski, chief research strategist and portfolio manager at quantitative investment firm AlphaSimplex, analyzed nine substantial drawdowns in equity markets since 1998. The paper classified drawdowns into two categories: corrections, for losses of 15 percent over periods of two months or less, and crises, for more sustained, deeper losses. Kaminski and AlphaSimplex junior research scientist Ying Yang concluded that the Covid-19 market crisis was “one of the fastest crisis periods in history.” They found that short-term, pure trend-following strategies proved better than other strategies — including other styles of trend-following strategies — at navigating the turmoil.
Brief: Steve Schwarzman, chief executive officer of Blackstone Group Inc., said the economy is likely to benefit from a V-type recovery in the next few months. The co-founder of the world’s biggest alternative asset management firm weighed in on markets in an interview Monday during the Bloomberg Invest Global virtual event. “You’ll see a big V in terms of the economy going up for the next few months because it’s been closed,” he said. Markets are benefiting from both liquidity and optimism that the coronavirus crisis can eventually be contained, Schwarzman said, but he cautioned on the economy, “It’ll take quite a while before we sync up and get back to 2019 levels.” The spread of the pandemic seized up credit markets and put an end to Wall Street’s longest-ever bull market earlier this year. The damage pushed the Federal Reserve to flood the markets with trillions of dollars in stimulus, which, combined with the easing of lockdown restrictions and hopes for a fast economic recovery, have helped the S&P 500 index rally almost 40% since its March low. Blackstone has been “aggressively” looking to put some of its $150 billion in dry powder to use, Schwarzman said in April.
Brief: A significant proportion of UBS’s (UBSG.S) staff could continue to work from home even after the coronavirus crisis has ended, the bank’s Chief Operating Officer Sabine Keller-Busse said on Monday.A third of the bank’s employees could work away from the office, she said, according to Bloomberg. UBS, Switzerland’s biggest bank, is deciding which tasks could be carried out from home and which would be transferred to the office. “It is conceivable that in the future up to a third of the staff will work remotely on a rotating basis,” a UBS spokeswoman said. The changes will be implemented globally, although the exact number of UBS’s 70,000 staff has not yet been determined. At the peak of the coronavirus crisis, more than 80% of the bank’s staff worked from home. Even before the pandemic, some of the employees did not come to the office, with this figure likely to be increased.
Brief: Bill Ackman’s blank check company is seeking to raise as much as $6.45 billion through an initial public offering combined with a commitment from the billionaire’s hedge fund. The company known as Pershing Square Tontine Holdings Ltd. doesn’t specify what sectors it will be targeting, according to a regulatory filing Monday. The special purchase acquisition company, or SPAC, is aiming to initially raise $3 billion from outside investors with an a minimum of $1 billion in additional funds coming from funds associated with Ackman’s hedge fund, Pershing Square Capital Management. The blank check company plans to raise $3 billion from outside investors and between $1 billion and $3 billion from funds associated with Pershing Square. If the IPO over-allotment option -- the so-called greenshoe shares -- is exercised by the banks, it would bring the total to $6.45 billion. SPACs raise money on the public markets to make an acquisition within a set period of time. A target isn’t identified until after the shares start trading. At $3 billion, Pershing Square’s Tontine listing would be the largest SPAC IPO on record globally, according to data compiled by Bloomberg. That would surpass Michael Klein’s Churchill Capital Corp. III, which raised $1.1 billion earlier this year.
Brief: Millennium Management is in talks to raise as much as $3 billion in capital that it can draw on as needed to finance trades. The fundraising by Izzy Englander’s hedge fund will probably continue through the first half of next year, according to a person with knowledge of the matter. Building up such “callable” capital is a strategy often used by private equity funds. Investors would be required to commit at least $25 million to Millennium, and would only be allowed to withdraw 5% of their money per quarter, said the person, who asked not to be identified because the information is private. A representative of New York-based Millennium declined to comment. Millennium, which manages about $44 billion, is among a cohort of large hedge funds raising capital even as the industry endures an investor exodus. Investors have pulled more than $130 billion since the start of last year, according to data compiled by eVestment. This latest capital raising is part of Millennium’s drive to lock up investors’ money for longer to give it greater flexibility and avoid a rush of withdrawals when markets are in turmoil. The hedge fund was one of many that struggled in the first three weeks of March as coronavirus lockdowns shut much of the global economy. It has since recovered and was up 9% this year through June 15, the person said.
Brief: It’s the banking world’s version of the rich getting richer. A record $2 trillion surge in cash hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January, according to FDIC data. The wall of money flowing into banks has no precedent in history: in April alone, deposits grew by $865 billion, more than the previous record for an entire year. The gains were all driven, in one way or another, by the response to the pandemic: The government unleashed hundreds of billions of dollars to bolster small businesses and individuals via stimulus checks and unemployment benefits. The Federal Reserve began abarrage of efforts to support financial markets, including an unlimited bond buying program. And an uncertain future prompted decision makers, from two-person households to global corporations, to horde cash. More than two-thirds of the gains went to the 25 biggest institutions, according to the FDIC. And that was concentrated at the very top of the industry: JPMorgan Chase, Bank of America and Citigroup, the biggest U.S. banks by assets, grew much faster than the rest of the industry in the first quarter, according to company data.
Brief: Asset manager Brookfield, which owns stakes in numerous malls, is demanding retailers pay back rent even as the Toronto-based investment group has missed mortgage payments, the Financial Times reported Sunday (June 21).Merchants who lease kiosks and small stores inside Brookfield malls have been told to pay rent for April and May, a time when they were forced to close, sources familiar with the discussions told the paper. The tenants, who requested anonymity, said they have asked for until next year to come up with the payments. In response, Brookfield has asked them to provide extensive financial information, including personal tax returns for 2019 and 2020, the merchants told the Times.A half dozen tenants wrote a letter to management at one of the Canadian group’s shopping centers seeking help, the report said. “I will not address the merits of your ‘petition,’ ” a Brookfield lawyer responded. The attorney added that confidentiality clauses in leases “could be deemed a default of your agreement with Brookfield. ”In a request for comment, Brookfield said 75 percent of its tenants have requested changes to their leases. The company said it had talked with all of them and they are prioritizing small businesses given their scale and immediate cash flow requirements.
Brief: Historically unique financial conditions brought on by the coronavirus have changed the way the Federal Reserve is conducting its stress tests for banks this year. In addition to the usual rigors that measure how well institutions are prepared for sharp downturns, the Fed is adding three new scenarios this year, Vice Chair for supervision Randal Quarles announced Friday. The scenarios examine different patterns of recovery and look to see how banks will respond. The initial testing focus was for stress in corporate debt and real estate and an unemployment rate higher than the 10% peak that prevailed during the Great Recession from 2007-09. In effect, that situation was less drastic than the current jobless level, at 13.3%, but more so than the conditions in debt markets, which have eased amid aggressive Fed actions. “But the larger issue is the unprecedented uncertainty about the course of the COVID event and the economy,” Quarles said in prepared remarks. “The range of plausible forecasts is high and continues to shift. We don’t know about the pace of reopening, how consumers will behave, or the prospects for a new round of containment. There’s probably never been more uncertainty about the economic outlook.”
Brief: MSD Partners has raised about $1.1 billion for a fund dedicated to bets on structured credit secured by real estate, beating an initial target of $750 million. The MSD Real Estate Credit Opportunity Fund gathered about $300 million from Michael Dell and his family, as well as MSD employees. The vehicle will make and purchase commercial real estate loans and securities, in addition to structured investments.“ Since launching the fund, we have been investing actively, particularly during the recent market dislocation,” portfolio manager Rob Platek said in a statement, adding that the fund is positioned to tackle opportunities that arise in the current market environment. MSD Partners was formed in 2009 by partners of MSD Capital, the family office for Dell, the founder of the namesake computer maker. Starting with $400 million of capital two decades ago, the firms collectively manage about $16 billion. Dell is worth about $29 billion, according to the Bloomberg Billionaires Index. Previous wagers by the MSD Partners real estate credit team include buying transferable development rights attached to New York’s Grand Central Terminal and providing financing to One Thousand Museum, a luxury condominium in downtown Miami.
Brief: Hedge fund firm CQS has slashed at least 50 jobs in an overhaul, as billionaire founder Michael Hintze retrenches to focus on core credit trading strategies. The cuts are mainly concentrated in sales and support areas, but have also affected trading teams focused on asset-backed securities, according to people with knowledge of the matter, who asked not to be identified because the information is private. CQS is seeking to reduce costs following a slump in high-fee earning hedge fund assets, the people said. The firm employed more than 280 people globally at the start of December, according to a letter to investors seen by Bloomberg. A spokesman for the London-based money manager declined to comment. While CQS still manages $17 billion, up from about $15 billion in March, its share of lucrative hedge fund assets has shrunk to about a third of the money managed by the firm, down from around half last year. That’s putting pressure on revenues. The CQS Directional Opportunities strategy, run by Hintze himself, is facing redemptions after losing 33% in March and another 17% in April, according to people familiar with the matter.
Brief: Business activity across most sectors and regions is expected to return to a stable level within a year and grow to pre-Covid levels by the end of 2021, according to a survey of Fidelity International’s in-house analysts. This month’s survey shows growing optimism over the path of the Covid-19 outbreak, with business disruption estimated to come to an end within 10 months, according to the global average of responses. Fiona O’Neill, director, global research, Fidelity International, said: “Against tough economic data, green shoots are starting to emerge. China is leading the recovery, with our analysts expecting a wait of just under 6 months to reach stability, a sign the country’s economic momentum is gathering pace. “The general upbeat picture is confirmed by a noticeable jump in the proportion of Fidelity analysts seeing positive leading indicators in their sectors.” O’Neill highlighted that the energy sector has seen the greatest improvement in fortunes, led by the stabilising price of oil, with 73% of analysts responding that leading indicators are positive, up from just 8% two months ago.
Brief: BlackRock Inc. Chief Executive Officer Larry Fink said China remains one of the firm’s top regions for growth despite uncertainties brought on by trade tensions with the U.S. and the virus outbreak.“We are here to work with China,” Fink said via video conference at the Lujiazui Forum in Shanghai on Thursday. “We firmly believe China will be one of the biggest opportunities for BlackRock.”The company is expanding in China to tap one of the fastest-growing wealth markets. China’s trillion dollar industry opened further in April, luring investment from companies including BlackRock, Vanguard Group Inc. and JPMorgan Chase & Co. While the further liberalization of the money management sector in China has been overshadowed by the coronavirus crisis, wealth firms are nonetheless laying out plans to tap a market in which retail funds alone could reach $3.4 trillion in three years, says Deloitte LLP.Fink added he was hopeful that the U.S. and China would continue to develop their relationship. “Despite the noise in the markets now, I am optimistic that the U.S.-China relationship can continue to develop for the whole world in a positive manner,” Fink said.He also sees signs that China and the rest of the world are slowly recovering from virus-induced slowdowns.“Encouraging signs are emerging,” Fink said. “As dramatic as this has been, I do believe the global economy will stabilize and recover steadily.”
Brief: The heads of 27 Canadian companies, including the CEOs of two large banks and Brookfield Asset Management Inc., are urging Prime Minister Justin Trudeau and provincial premiers to ease air travel restrictions. Most international flights have been cancelled and the U.S.-Canada border has been shut to most travellers since March 21 — a policy that was extended to July 21. Last week, Air Canada Chief Executive Officer Calin Rovinescu called the restrictions “disproportionate” as the coronavirus outbreak improves in most parts of Canada. Now Rovinescu has the backing of the chief executive officers of nine companies in the S&P/TSX 60, who are among the 27 signatories to a letter published in Canada’s Globe and Mail newspaper on Thursday. “We are now entering a new phase, one in which we must find a responsible way to co-exist with COVID-19 until there is a vaccine. This includes prudently and thoughtfully opening aviation and lifting restrictions to safely resume travel throughout all provinces of Canada, as well as from select countries,” the executives wrote.
Brief: A reversal of the strong growth seen over the years in U.S. corporate profit margins could lead to a “lost decade” for equity investors, Ray Dalio’s Bridgewater Associates warns. The margins, which have provided a big chunk of the excess return of equities over cash, could face a shift that would go beyond the current cyclical downturn in earnings, Bridgewater analysts wrote in a note to clients dated June 16. “Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked,” the analysts said. “Now the U.S.-China conflict and global pandemic are further accelerating moves by multinationals to reshore and duplicate supply chains, with a focus on reliability as opposed to just cost optimization.” The pandemic-induced collapse in demand has already resulted in a huge fall in profit margins in the short term, the analysts added. Intel Corp. and Taiwan Semiconductor Manufacturing Co. are cited as two examples of companies that have announced their intentions to build production facilities in the U.S., despite the higher costs.
Brief: Frauds tend to be revealed amid a crisis — Bernie Madoff’s $64.8bn Ponzi scheme came to light not long after the financial fallout of 2008 as investors tried to retrieve their funds. It remains the largest financial fraud in US history and led to Madoff receiving a 150-year prison sentence. "When the music stops, often one sees the skeletons come dancing out of the closet," Paul Austin, director of business intelligence at City law firm Enyo Law, told FN. Noting the Madoff case,Austin said he expects similarlegal trouble for hedge funds and scrutiny of the industry as a result of the 2020 market shocks. "When things are going well and everyone's making money, it's harder to identify fraud because there's less scrutiny, but now there will be some nervous hedge funds out there." "People will use the crisis as an excuse to try to renege on contracts" Austin added. "As well as the contractual claims, you'll have fraud claims since during the bad times fraud gets uncovered. You might also see a surge in criminal claims as a result of Covid-related fraud." Austin said the recent decline in face-to-face meetings and lack of physical research, driven by workers in lockdown, will be a contributing factor towards what he says will be a surge in litigation. "Social distancing has made due diligence more challenging," he said. "Going to premises, interviewing people in person — that has stopped."
Brief: As the world braces for a second wave of infections from the coronavirus, stocks are priced for a booming global economy, bonds point to a protracted downturn and currency volatility is rising. Investors are increasingly uneasy with these conflicting signals among asset classes, but they are also resigned to them, and have adjusted their playbooks accordingly. Tried-and-tested strategies that directed buyers into stocks in good times and bonds in bad times began to unravel in the face of unconventional monetary policy a decade ago. They are being dropped now as central banks ramp up their response to the virus and governments pledge more than $8 trillion of fiscal stimulus to combat the fallout from the pandemic. “It’s a hard shift in markets and at the heart of all of this -- undoubtedly -- is the Federal Reserve’s efforts to revive the economy,” said Shyam Devani, chief strategist at SAV Markets in Singapore. “There are glimmers of 2008 financial crisis investing, but this time, from equities to bonds to currencies, there is a sense that stakes could be higher.” MSCI Inc.’s broadest measure of international stocks shows member companies trading at more than 19 times next year’s earnings. These kinds of levels haven’t been seen since the dot-com bubble burst in 2002. And what’s worrying is they come as millions of people are cast into unemployment by what the United Nations has called the most challenging crisis since World War II.
Brief: U.S. private equity firm KKR (KKR.N) said on Thursday it had reached an agreement to buy Dutch vacation parks firm Roompot from French private equity firm PAI Partners. KKR and Roompot did not disclose the price of the deal, but a source familiar with the transaction said it valued the Dutch company at around 1 billion euros ($1.12 billion). PAI put Roompot up for sale last October. It is the second-largest operator of vacation parks in Europe, operating its own 33 parks in the Netherlands, Belgium and Germany, and providing services to more than 100 other operators across Europe. With over 2,100 employees catering for approximately 3 million guests per year, the company generates around 400 million euros in annual sales. PAI Partners bought Roompot for 600 million euros in 2016 from Dutch investor Gilde.
Brief: The highest number of managers since 1998 believe that the stock market is “overvalued”, as cash levels are collapsing and growth expectations jump, according to the latest Bank of America Merill Lynch fund manager survey. Although investor sentiment is past “peak pessimism”, optimism in June is both fragile and neurotic, with a second wave of the Covid-19 pandemic posing the biggest tail risk, the bank said in its report. Only 18% of the 212 survey panellists expect a V-shaped recovery, against the 64% who believe we are headed for a U- or even W-shaped recovery. June also saw the largest fall in cash levels since August 2009, from 5.7% to 4.7% (led by institutional investors not retail investors.) Meanwhile, hedge fund net equity exposure soared from 34% to 52% - the highest since September 2018 as they chase the “pain trade” higher. The report also found that fear of prolonged recession was down to net 46% in June from 93% in April. But how the world will look post-Covid was a key issue for global fund managers, with large structural shifts expected.
Brief: French banking major BNP Paribas has decided to shut down its onshore wealth management business having assets under management of $14.5 billion, officials said on Tuesday.The entity said the move is driven by strategic reasons, wherein it wants to focus on businesses like corporate and institutional banking, and cannot be linked to the Covid-19 crisis. “BNP ParibasWealth Managementhas decided to exit its onshorewealth managementbusiness in India in order to focus on areas where its global footprint and diversified business strengths allow it to provide clients with more value-added services,” a spokesperson said. According to officials in the know, there are about 60 people working for the business in India and they have been given the option to either relocate to other businesses like its wholly owned brokerage subsidiary Sharekhan, which has products for the high networth individuals or join its offices in Hong Kong or Singapore.
Brief: Bain Capital Credit has closed a new distressed debt and special situations fund, with more than $3.2 billion in commitments, according to Jeff Robinson, one of the firm’s managing directors. About 50% of that total has been invested and committed, with the majority being deployed in the last three months, Robinson said. “While we do this in all market environments, now is one of the most attractive ones we’ve seen,” Robinson said in an interview. “On the distressed side, in any 10-year period, there are maybe two great years to be a distressed investor, and we’re in the midst of those two great years.” The firm raised capital from existing and new investors for the program called Bain Capital Distressed and Special Situations Fund 2019. It invests globally, including in North America, Europe, Asia and Australia. Bain joins firms like Blackstone Group Inc., Oaktree Capital Group LLC and Carlyle Group Inc. in looking to capitalize on potential opportunities created by the coronavirus pandemic that has hammered businesses. The first wave of deal flow early in the crisis included companies that needed to raise liquidity as they contended with high levels of cash burn and an erosion of enterprise value, according to Robinson.
Brief: HSBC is resuming plans to cut around 35,000 jobs which it put on ice after the coronavirus outbreak, as Europe’s biggest bank grapples with the impact on its already falling profits. It will also maintain a freeze on almost all external hiring, Chief Executive Noel Quinn said in a memo sent to HSBC’s 235,000 staff worldwide on Wednesday and seen by Reuters. “We could not pause the job losses indefinitely - it was always a question of ‘not if, but when’,” Quinn said, adding that the measures first announced in February were “even more necessary today”. An HSBC spokeswoman confirmed the contents of the memo. HSBC (HSBA.L) had postponed the job cuts, part of a wider restructuring to cut $4.5 billion in costs, in March saying the extraordinary circumstances meant it would be wrong to push staff out.However, Quinn said it now had to resume the programme as profits fall and economic forecasts point to a challenging time ahead, adding that he had asked senior executives to look at ways to cut more costs in the second half of 2020.The bulk of the job cuts are likely in the back office at Global Banking and Markets (GBM), which houses HSBC’s investment banking and trading, a senior executive familiar with the plans said.
Brief: Another four years of President Trump may not excite everyone, but it could be way better than having what’s known as a ‘blue wave’ of Democrats taking control over the House and Senate in November — at least from an investor standpoint. “I think the markets will be most concerned of what they call the blue wave, not just the executive branch going Democratic but certainly the Senate swings as well,” said Wells Fargo Investment Institute chief investment officer for wealth and investment managementDarrell Cronk on Yahoo Finance’s The First Trade. “I think why they would be concerned of that, mostly, is because it would put in jeopardy the 2017 Tax Reform Act. There are discussions that certainly the Democrats would like to repeal that legislation and bring the tax rates back up somewhere around 28% to 29%, which would be pre-2017 levels. That would certainly challenge margins and earnings growth in an environment where it’s already challenged.” Of note is that there are 35 seats identified as up for grabs in the Senate in November, according to polling tracker 270toWin. Currently the Senate has 53 Republicans and 47 Democrats. In the House, Ballotpedia estimates 74 of the 435 House races are in play. The Democrats control the House, 233 to 197. But a blue wave must not be ruled out amid dissatisfaction among voters with how Trump has handled the twin crises of the COVID-19 pandemic and racial injustice.
Brief: Covid-19 continues to take its toll on financial markets, presenting major challenges for asset managers, from active funds to passive investments. The implications have been significant and central banks have now injected close to $100 billion to prop up investment funds hit by the market turmoil, raising questions about the systemic risks posed by the sector. With the effects of the crisis likely to be felt for several years ahead, how can asset managers adapt to this ‘new normal’ and begin to prepare for future challenges? Given the scale of Covid-19 and its impact on the global economy, asset managers were always likely to face high levels of volatility and challenging market conditions. However, the immediate reaction to the crisis produced varying results for different investment strategies and approaches. Passive funds tracking equity and bond indexes, which have proved highly popular with investors in recent years, have been exposed to the full extent of market volatility from the very beginning of the crisis. These funds suffered significant losses in value throughout February and March, but they weren’t the only immediate losers. Funds managed with traditional quantitative methods have experienced a similar struggle. These funds typically work on the assumption that patterns can be found in historical data and then used to inform investment choices.
Brief: Most hedge fund industry employees have been working remotely during the coronavirus pandemic, but now firms are split over when staff should return to work and when businesses can resume face-to-face contact with investors and other clients, a new study by the Alternative Investment Management Association has found. The survey data suggests firms with smaller headcounts are more confident on resuming client contact and overseas travel later this year. But firms with larger staff numbers do not expect to return to normal until 2021, suggesting they face bigger practical challenges in ensuring social distancing among employees. AIMA, the trade body for the globally hedge fund industry, recently surveyed 240 members – two-thirds of which were hedge fund management firms, with the remaining third comprising service providers and investors - altogether representing more than 67,000 employees. The survey found that some 92 per cent of hedge fund industry employees have been working either entirely (67 per cent) or mostly (25 per cent) from home throughout the Covid-19 lockdown. As countries begin to ease lockdown measures, AIMA’s study has found that the hedge fund industry is divided over how to proceed back to work.
Brief: Asset managers M&G, Legal & General, Standard Life and Janus Henderson said they were keeping their property funds frozen as valuers continue to struggle to assess real estate assets due to the coronavirus crisis. M&G froze its $3.2 billion UK Property Portfolio in December, as uncertainty over Brexit and weakness in Britain’s retail commercial property sector prompted redemption requests. Most other UK property funds also halted redemptions in March, as valuers said there was “material uncertainty” about property values at the end of the first quarter due to the coronavirus pandemic. As the second quarter draws to a close, M&G said its valuers were still applying a material uncertainty clause due to the lack of property deals. However, it said its clause did not apply to the industrial and logistics property sectors where there had been transactions. Legal & General said there was no change to the lock-up of its 2.9 billion pound ($3.7 billion) fund. Standard Life said two funds totalling about 500 million pounds remained frozen due to valuation difficulties, while Janus Henderson said the material uncertainty clause still applied to its 500 million pound fund. The funds are expected to remain frozen till at least September due to the valuation challenges, and some of those which usually offer daily redemptions may need to change structure to survive, industry sources say.
Brief: Investors are sinking their cash in droves into a stock market that looks the most overvalued in decades as one of the most unloved rallies in history rattles the pros on Wall Street. That’s the conclusion drawn from the latest seven-day Bank of America Corp. survey that ended on June 11 -- just as the S&P 500 had its worst drop since the March turmoil. The poll indicated that fund managers slashed their cash positions by the most since August 2009, to 4.7%, in order to use their dry powder to chase the rally. With global equity benchmarks up more than 30% from this year’s lows, hedge funds increased their exposure to stocks to 52%, the highest level since 2018, the survey showed. A whopping 78% of polled investors, the largest number since the survey started in 1998, believe the stock market is overvalued, with 53% calling it a bear market rally. As lockdowns ended in some major economies, investors raised their global growth bets but said they don’t expect global manufacturing to show expansion before October. At the same time, only 18% of “moody bulls” expect a V-shaped, or sharp economic recovery compared with 64% who think it’ll be U- or W-shaped, or more gradual, according to BofA.
Brief: U.S. bank profits fell by 69.6% to $18.5 billion in the first quarter of 2020 from the year prior as banks felt the economic impact of the novel coronavirus pandemic, according to data from a banking regulator.The Federal Deposit Insurance Corporation reported that “deteriorating economic activity” caused lenders to write off delinquent debt and set aside billions of dollars to guard against future losses. Over half of all banks reported a profit decline, and 7.3% of lenders were unprofitable.The new report, the first government survey of the industry since the pandemic shut down large parts of the economy, shows banks set aside $38.8 billion to cover potential loan losses in the future, up nearly 280% from the year prior. The amount of loans banks charged off as delinquent was up nearly 15%, driven by an 87% increase in charge-offs for commercial and industrial loans. The amount of non-current loans rose 7.3% from the previous quarter, the biggest increase since 2010.Despite the setbacks, FDIC Chairman Jelena McWilliams said banks had been able to effectively serve clients in the downturn, and were a “source of strength for the economy.”
Brief: Some hedge funds that bet against a series of Greek and Italian companies are nursing losses after the European Union’s breakthrough plan for a 750 billion euro (£673 billion) recovery fund sent stock markets surging across southern Europe. The funds, which include Citadel, Marshall Wace and AKO Capital, still hold short positions on companies such as Italy’s Banco BPM and Greece’s Piraeus Bank ahead of a June 18-19 EU summit to debate the recovery fund, aimed at helping European economies recover from the impact of the coronavirus pandemic.Essentially a bet that the price will fall, shorting involves borrowing shares then selling them in expectation of being able to buy them back cheaper and pocket the difference.Early last month, shorting Italian and Greek shares may have seemed like a no-brainer; heavily dependent on tourism, their economies are expected to contract 9-13% this year. Italy has also witnessed 34,000 coronavirus deaths.But the May 18 Franco-German proposal for the recovery fund upended those bets, lifting stock markets across southern Europe. The moves accelerated after the European Central Bank upped the size of its emergency stimulus programme on June 4.
Brief: The global coronavirus pandemic has ground economies around the world to a halt — and the slowdown is having a major impact on private equity exits, according to a new report from global consulting firm McKinsey & Co. “With a couple of exceptions — such as structured transactions and deals signed before the crisis — traditional PE exits have slowed significantly since mid-March of this year,” wrote McKinsey partners Alastair Green, Ari Oxman, and Laurens Seghers in the report. “Announced PE exits dropped almost 70 percent globally in May 2020 versus May 2019.” Several factors have contributed to the slowdown, according to the authors, who interviewed more than 40 sponsors, investment bankers, and CEOs from March to May, mostly based in Europe and the United States. Valuations have suddenly shifted, with businesses facing tanking demand as a result of the crisis — which has also laid bare new weaknesses in many portfolio companies. The crisis has also thrown up major barriers to deal execution, preventing face-to-face due diligence meetings and increasing financing costs.
Brief: Hedge funds are in a Darwinian struggle, as the cost of succeeding has increased in terms of technology and human capital, says this week's guest on Masters in Business, Luke Ellis, chief executive officer of Man Group Plc. The industry has become a winner-take-all competition, with a small number of stars and an army of also-rans. Man Group is the world’s largest exchange-listed hedge fund, focusing on actively managed investment, with $104.2 billion in assets under management. Luke previously built and ran the equities-derivative business at JPMorgan and after that the fund of fund business at Financial Risk Management, where he was managing director from 1998 to 2008. Ellis says his childhood love of horse racing and poker led him to alter the way he thinks about risk; the statistical patterns in gambling and investing are remarkably similar. His interests led him to earn degrees in mathematics and economics from Bristol University. Our conversation was recorded on Tuesday, June 9, before markets took an 11% hit. You can hear Ellis explain why he thought the market run up had gone too far too fast before that mini-crash. Ellis credits the firm’s disciplined, quantitative approach for helping the company navigate the big slump in March. The firm’s investments are about 60% hedged and 40% long-only. The hedged portions did especially well. For the first quarter, Man’s total returns were down only 11%, about a third as much as the broader market. His favorite books are here; a transcript of our conversation is here.
Brief: Between trade tensions with the U.S. and protests in Hong Kong, last year was tumultuous for Asia. But all of that paled in comparison to the coronavirus that would sweep through the continent — and go on to infect the rest of the world. “For those of us that are Hong Kong-based, the protests led pretty much straight into the pandemic,” said Martin Yule, head of research for Asia Pacific at UBS. “At times, Hong Kong felt like the eye of the storm. Rising geopolitical tensions were definitely the defining macro force at the end of 2019, but Covid pushed these concerns into the background pretty quickly.” Six months since Covid-19 was first discovered in China, countries in the region are now loosening lockdown restrictions. And many Asian equity markets are rebounding, partly on the back of the large stimulus packages in the United States and Europe. “The biggest surprise of 2020 thus far has been the speed of the market recovery,” said Yule, who succeeded UBS’s long-time Asia Pacific research head Damien Horth in February. But the region is by no means out of the woods yet, Yule said. “The speed of the economic recovery is far from certain, and it would appear that epidemiologists seem to agree on one thing: a second wave is likely,” he continued. “That will test equity markets over the back half of 2020.”
Brief: Before there is any form of “second wave” of COVID-19 globally, the stock market may first experience asecond wave of sellingas it once again prices in worse-case scenarios for economies and companies. “We think you’re more likely to see a second wave down from markets as opposed to a second wave up in COVID-19 — we have concerns here,” said FBB Capital Partners director of research onYahoo Finance’s The First Trade. Bailey pulls no punches on how bad a second wave down in markets could be — the benchmark being the 35% downdraft from the late February highs to the March 23 lows for the S&P 500. Continued Bailey, “I don’t know if it will be as bad as the first wave [of selling]. It could be half that bad. You take a look at valuations for the S&P 500 now and we’re back to dot com bust levels. I think we have a reasonable downside over the next weeks or months here.” To be sure, the market has started the week equally concerned about a second wave of COVID-19 and still overheated valuations.
Brief: BlackRock Inc. is planning to start an exchange-traded fund tracking companies that specialize in remote-working, learning and entertainment. The world’s largest asset manager is seeking to launch the iShares Virtual Work and Life Multisector ETF, according to a filing with the Securities and Exchange Commission. The list of holdings isn’t yet available. In April, Direxion announced plans to start a new “work-from-home” fund tracking industries such as cloud technologies, remote communications and cyber security. While Americans are moving around and interacting more than they did before the reopenings, concern over a second wave of the coronavirus threatens recent efforts to relax restrictions. That means companies that specialize in virtual living could keep growing in popularity, according to Jason Kotik, investment director at Aberdeen Standard Investments. “It’s kind of the next hot thing,” said Kotik. “People want to jump on this. While I agree there is definitely a change going on secularly, not everything is going to win.” One of the biggest challenges for those niche funds is that they have struggled in a crowded ETF marketplace. Another hurdle is that the coronavirus shutdowns have so rapidly differentiated winners from losers.
Brief: Schroders chief executive Peter Harrison has responded to controversy over his £2.5m pay increase announced in the midst of the coronavirus lockdown while the asset manager was urging companies to keep executive pay under control. In April, Schroders announced it would pay Harrison up to £9m for the current financial year, a 39% increase on the £6.48m he took home in 2019. Until April, he had also been chair of the Investment Association, which was also urging companies to exercise restraint on executive pay. In aninterview withThe Times, Harrison said: “In hindsight, I wish it had been different, because the point is a really important one,” he told the newspaper from his second home in Cornwall. “I’ve taken the very public view that we will not make any staff redundant, we won’t furlough anybody, we won’t accept [government] aid.” The Investment Association had linkedits comments about executive payto those companies that had slashed dividends. He has since paid £631,000 to the coronavirus relief effort.
Brief: Investors may pull as much as $100 billion from the hedge fund industry this year, as a result of the economic fallout from the coronavirus crisis. The outflows -- which may range from $50 billion to $100 billion -- would mark the largest drawdown since the global financial crisis, when the industry saw $154 billion in withdrawals in 2008, according to a Barclays Capital Solutions report. “We’re already $30 billion in -- in terms of redemptions,” Kate Holleran, managing director of capital solutions at Barclays, said in a telephone interview. “We were optimistic coming into this year, given the strength of 2019, that we might actually see inflows. That is clearly not going to be the case.” The year fell into chaos as Covid-19 became a global pandemic, seizing up credit markets and putting an end to Wall Street’s longest-ever bull market. The damage pushed the Federal Reserve to intervene, flooding the markets with trillions of dollars in stimulus. That effort, combined with the easing of lockdown restrictions across the U.S. and rising hopes of a quick economic recovery, helped the S&P 500 index soar from its March low. With markets defying the initial gloomy expectations, Holleran believes redemptions will likely come in at the lower end of the range.
Brief: It may be time to scrap the oft-used phrase ‘the new normal.’ So says Marc Seidner of Pacific Investment Management Co. “Pimco often gets credit for coining the phrase ‘the new normal’ coming out of the financial crisis,” Seidner, the firm’s chief investment officer for non-traditional strategies, said in a webcast Friday organized by Boston College’s Carroll School of Management. “I’m actually getting pretty sick of the phrase.” Instead, Seidner said, he may try to convince his Pimco colleagues that “maybe we’re heading into what is an old, old normal.” The way Seidner sees it, investors were “lulled into complacency” over the last decade. The 2010s saw Wall Street’s longest-ever bull market, historically low interest rates and an economy that grew every year. “Perhaps we’re going back to some sense of old, old normal where we all have to manage through periods of radical uncertainty, where the distribution of possible outcomes isn’t this beautiful bell shaped curve where you can assign succinct probabilities to tail events,” he said. A Pimco spokesman declined to comment on his remarks.
Brief: Renaissance Technologies, the quantitative hedge fund firm founded by Jim Simons, lost almost 21% this year through the first week of June in its market-neutral vehicle. Part of the decline for the Renaissance Institutional Diversified Alpha fund came this month amid volatility brought on by the coronavirus crisis, according to a person briefed on the matter. The fund lost almost 9% in the first week of June, said the person, who asked not to be identified because the information isn’t public. A spokesman for the firm declined to comment on the returns, which were reported earlier by the Financial Times. The firm’s quantitative equity hedge fund rose 2.3% in May, Bloomberg reported last week. The Renaissance Institutional Equities Fund, which only trades U.S.-listed stocks that its computer models expect to rise, was down 11% this year through May. Renaissance, which oversaw about $75 billion as of earlier this year, has long been one of the $3 trillion hedge fund industry’s most profitable firms. The East Setauket, New York-based firm is best known for its Medallion fund, which is only open to executives and employees and has had annualized gains of roughly 40% over the past three decades.
Brief: The warning was stark. It was late January, and there were just six known cases of Covid-19 in the US. A leading infectious disease specialist who previously had battled Ebola and SARS had an alarming message for a group of money managers: It was about to get a lot worse. “In the 20 or 30 years I’ve been involved in emerging infections,” Jeremy Farrar told the managers on the January 31 call, “I’ve never seen anything that has been as fast or as rapidly moving and dynamic as this has been.” The director of the Wellcome Trust, a UK health foundation, followed that up with an estimate on a February call that deaths in the US related to the spread of the new coronavirus could reach between 500,000 to 1 million within a year assuming there were no lockdowns or other restrictions. The calls held for managers of Wellcome’s $33bn endowment served as one of the earliest known warnings to investors about the coming impact of a disease for which humanity had no immunity. The information spread like a kind of samizdat among certain quarters of Wall Street, and beyond. Those who took heed of the predictions from Dr Farrar, an adviser to the UK and German governments on the virus, spread the word to friends and family and took steps to try to protect their investments from the virus’ fallout.
Brief: Apple Leisure Group has hired advisers as it contemplates raising new capital after being battered by the Covid-19 pandemic, according to people with knowledge of the matter. The travel and hospitality company, as well as owners KKR & Co. and KSL Capital Partners LLC, have hired financial and legal advisers, said some of the people, who requested anonymity because the matter is private. The company is not currently weighing restructuring or bankruptcy as an option, some of the people said. Apple Leisure has a $950 million first-lien loan due in 2024 that last traded at about 67 cents on the dollar, according to data compiled by Bloomberg. It fully drew down its $175 million revolving credit facility earlier this year, a person with knowledge of the matter said. Representatives for Apple Leisure and KKR declined to comment and a spokeswoman for KSL didn’t immediately have a comment. Apple Leisure Group focuses on trips to regions including Mexico and the Caribbean. It specializes in all-inclusive resorts, which sell lodging, food and other services for a single price. The model, once viewed primarily as a budget way to travel, was having a moment before the coronavirus, with Marriott International Inc. and Hilton Worldwide Holdings Inc. embracing the concept.
Brief: Billionaires are getting a clear message from nonprofits, lawmakers and even other billionaires: Many of you already got tax breaks for giving away your money. Now, amid the pandemic and recession, it’s time to ensure cash actually gets to charities quickly. For the past several years, wealthy Americans have poured billions of dollars into donor-advised funds, or DAFs, vehicles that have grown popular because they’re so flexible. Givers get an immediate tax break, which can equal 57 cents or more of every donated dollar, but they have unlimited time to decide where the money should go. Many nonprofits worry the surge of money into DAFs has cost them in recent years as total giving by individuals has stagnated. Some lawmakers seem to agree. Congress barred DAFs from taking advantage of new incentives for charitable giving included in the $2.2 trillion CARES Act approved in March. In California, state legislators proposed pushing major DAF providers to be more transparent. Now, the pandemic is prompting more money to flow out of DAFs and into charities where it can do some good. Fidelity Charitable, the nonprofit arm of Fidelity Investments, said in late May that giving from its DAFs was 30% higher so far this year. Vanguard Charitable and Schwab Charitable both said giving increased about 50% over similar time frames from February to mid-May.
Brief: New positioning data shows how frustrating a straight-up rally in companies with shaky finances has been for professional speculators. While they are getting a measure of recompense today, hedge funds have struggled after shunning airlines, hotels and restaurants, with exposure sitting near multiyear lows, data compiled by Morgan Stanley’s prime brokerage unit show. The aversion toward companies hit hardest during the pandemic contrasts with retail investors, who piled into stocks like American Airlines, putting all their chips on an economic reopening. It’s the latest example of the widening division between Wall Street and Main Street. Professional money managers have been reluctant to embrace the most speculative stocks amid concern that the worst is not over with the coronavirus. Hedge fund clients at Morgan Stanley have stuck to the safety of the stay-at-home trade, with holdings in technology and health-care hovering near a decade high. “I would venture to guess that hedge funds are looking at the fundamentals of investing. The typical recovery doesn’t happen this quickly,” said Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute. “Maybe retail investors saw what happened in ‘07, ‘08 and are using that as their model and realizing that had you invested when that market was down, you would have had a significant return over the past decade.” While hedge funds’ cautious stance helped them avoid deeper losses during the March selloff, it’s now pressuring returns with tech shares lately trailing cyclicals such as airlines.
Brief: Abu Dhabi state fund Mubadala said on Thursday its strong liquidity position and a diverse portfolio will help the fund tackle the challenges posed by the coronavirus outbreak and weak oil prices, as it posted a four-fold jump in its 2019 income."All of this positions us very well to handle this very extraordinary situation in the best way possible," group chief executive Khaldoon Khalifa Al Mubarak said referring to the fund's strong balance sheet and $232 billion portfolio in a video message.Mubadala Investment Co's total comprehensive income grew to 53 billion dirhams ($14.43 billion) in 2019 from 12.5 billion dirhams in 2018, helped largely by gains in its public equity portfolio and funds.Assets under management also rose 1.5% to 853 billion dirhams or $232 billion at year-end, it said in a statement.The results are also the first to consolidate the full-year results from the Abu Dhabi Investment Council, an investment arm of the Abu Dhabi government, which joinedMubadalain 2018."Not only did we deliver strong financial results, but also continued to grow our presence across multiple asset classes in key sectors and markets," Mubarak said.The Abu Dhabi sovereign investment company said it realized 63 billion dirhams in 2019 from the "monetization of mature assets and distributions from investments locally and abroad."
Brief: Emerging markets (EM) stock markets are enjoying their strongest crisis bounceback ever, as coronavirus (COVID-19) infections stabilise and governments remove two-month-long lockdowns.Economies around the world have been hit by the shock of the pandemic and many have also suffered from a concurrent oil price shock sparked when Russia walked out of the OPEC+ production cut deal on March 6. However, as economies open up again and oil prices have broken above $40 after almost halving in price in the last two months, investors have turned “risk on” again and are snapping up cheap shares ahead of their inevitable rebound. “At this point in the rebound, this EM rally is now the strongest of any of the big-5 EM sell-off rebounds (1998, 2001, 2008, 2016, 2020) and with US, DM and safer (particularly Asian) EM equity markets having less than 10% to go before reaching pre-coronavirus (Jan-Feb) 2020 peaks, investors are being forced up the risk curve in search of potential returns,” Daniel Salter, head of equity strategy at Renaissance Capital (Rencap), said in a note on June 10. Russia is in the vanguard as one of the “safe haven” markets thanks to its low debt and large reserves, and the economy is already showing signs of a rebound. Rencap saw it coming and marked the whole Russian market up to Buy in the first week of May, in what is now starting to look like a classic call, as bne IntelliNews reported at the time.
Brief: On Thursday morning, stocks slid following the Federal Reserve’s monetary policy decision and a press conference from Chairman Jerome Powell highlighting ongoing economic challenges. The Federal Reserve says itexpects real GDP to contract by 6.5% in 2020, with the unemployment rate reaching 9.3% by the end of the year. Top White House advisor Peter Navarro, it’s safe to say, is not a fan of those projections or of Fed Chairman Jerome Powell’s approach. During a Yahoo Finance interview with Andy Serwer, Navarro commented that Powell has “probably the worst bedside manner of any Fed chairman in history.” If he was going to market sushi, Navarro added, we “would market it as cold dead fish.” Navarro added… Larry Kudlow, director of the White House’s National Economic Council,added to the pile-onin a Fox Business interview Thursday. "I do think Mr. Powell could lighten up a little when he has these press offerings" he added a joking aside that "we'll have some media training at some point. Like Trump, Navarro, who serves as the director of the White House Office of Trade and Manufacturing Policy, has long been critical of the Fed. In 2019, Navarrotold Yahoo Finance thatthe Fed “is playing checkers in a chess world.” However, Navarro’s and Trump’s comments today come off the heels of recent praise for Powell from Trump about the Fed’s response to the economic fallout of the coronavirus pandemic.
Brief: Billionaire Dan Loeb’s Third Point is seeking to raise more than $500 million for a new hedge fund to wager on structured credit markets which imploded during the coronavirus market turmoil. The Third Point Structured Credit Opportunities Fund started fund raising on June 1 and has collected about $380 million, according to an investor update seen by Bloomberg. A spokesman for the New York-based investment firm declined to comment. The structured-credit market went into a tailspin in March, with some hedge funds invested in the market losing as much as 50%. Firms including Medalist Partners, EJF Capital and Prophet Capital Asset Management froze redemptions from their funds to avoid fire sales of assets. At the same time, many firms have started funds to take advantage of the dislocation. “In under three weeks, we saw a price decline in structured credit that took over nine months to achieve during the global financial crisis,” Third Point told investors in April while disclosing the plan to start the fund. The new fund will mainly invest in residential mortgages, consumer credit, consumer real estate and collateralized loan obligations. Investors’ cash is locked in for one year and the fund is aiming to return as much as 20% annually.
Brief: The coronavirus pandemic will not be the end of office buildings, Brookfield Asset Management Chief Executive Bruce Flatt said on Wednesday in an interview with Reuters Breakingviews. Office workers globally have shifted to working from home during the pandemic, with Gallup reporting that 62% of employed Americans in April had worked from home during the crisis, double the number in March.While this trend has raised questions about the future of office space, Flatt said he believes that company culture and productivity are dependent on sharing a common space and “it is ludicrous to think that companies will not return to offices. Anyone who says they’re not going to be in offices is naive about how company culture is built.”Toronto-based Brookfield manages over $515 billion in assets and is the parent company of Brookfield Property Partners, a real estate company that holds one of the largest commercial portfolios in the world. Commercial real estate has been hit hard by the pandemic, as retailers and restaurants have missed payments or shuttered entirely. Brookfield Property’s share price has fallen 33.8% in the year to date.
Brief: Goldman Sachs Group Inc said on Wednesday it plans to start the return of an initial group of its employees to its offices in New York, Jersey City, Dallas and Salt Lake City from June 22. The Wall Street bank also announced the return of more employees to its London office from June 15 and added that it was expecting to review the process of employees returning to its Bengaluru office towards the end of June. Working from home was made mandatory across many Wall Street firms in March as financial firms reported their first confirmed cases of coronavirus and the outbreak triggered a state of emergency in New York City. In March, Goldman Sachs told its employees that most staff across North America and Europe would start working from home or at one of the bank’s business continuity centers on a rotating schedule. Chief Executive David Solomon told employees last month about the bank’s strategy to gradually return staff to work in offices worldwide. Morgan Stanley, another Wall street bank, last month announced plans to start getting some traders to return to its New York headquarters in mid-to late-June.
Brief: HSBC Global Asset Management anticipates a “swoosh-shaped recovery” for the global economy as it emerges from the coronavirus crisis, with China and industrialized Asia the best positioned economies. In a mid-year outlook report seen by CNBC, Global Chief Strategist Joseph Little said this manner of recovery entails a sharp rebound once lockdowns are lifted, followed by a gradual pickup to pre-crisis levels of activity. “Working backwards, it means the recovery has begun already in this quarter. By the end of next year, the global economy should be fully established on a new, lower trajectory, but a roughly similar trend growth rate,” Little said. China and industrialized Asia, including South Korea, Singapore and Taiwan, are best placed to capitalize on the recovery, while other emerging markets, smaller oil exporters, frontier nations and the euro zone are less resilient, according to HSBC GAM. Downside risks to this scenario, Little outlined, include policy flexibility in certain economies, the risk of a second wave of Covid-19 infections and the potential for permanent economic damage. However, he suggested that policy mistakes pose the greatest risk to recovery.
Brief: In the first four months of the year, active managers got the opportunity they wanted to show investors that they can beat their benchmarks in periods of market volatility. So how did they do?Not well, according to new research. “Early 2020 results rebut the view that active funds navigate market turmoil better than index-based funds,” wrote Berlinda Liu, director of global research and design at S&P Dow Jones Indices, in a blog post published Wednesday. “Even where results are relatively favorable, the data show the difficulty of market timing. Mixed results in the short term did not change active funds’ tendency to underperform indices over the long term.” S&P Dow Jones Indices publishes two scorecards each year, reporting how active managers performed compared with their benchmarks. Given the record volatility in markets since the coronavirus shut down economies around the globe, S&P published a shortened version of its semiannual scorecard to see how active managers fared during the worst of the market carnage in March and during the recovery that began in April. Liu noted in the blog post that active managers “sometimes seek to soften the conclusions” of the index provider’s regular semiannual scorecards by arguing that “while index funds may have the advantage in rising markets, it’s in volatile downturns that active management can prove its worth.”
Brief: The global economy will suffer the biggest peace-time downturn in a century before it emerges next year from a coronavirus-inflicted recession, the OECD said on Wednesday. Updating its outlook, the Organisation for Economic Cooperation and Development (OECD) forecast the global economy would contract 6.0% this year before bouncing back with 5.2% growth in 2021 - providing the outbreak is kept under control. However, the Paris-based policy forum said an equally possible scenario of a second wave of contagion this year could see the global economy contract 7.6% before growing only 2.8% next year. “By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments,” OECD chief economist Laurence Boone wrote in an introduction to the refreshed outlook. With crisis responses set to shape economic and social prospects for the coming decade, she urged governments not to shy away from debt-financed spending to support low-paid workers and investment.
Brief: AllianceBernstein Holding LP Chief Executive Officer Seth Bernstein said the opening of the company’s Nashville headquarters has been pushed back to the first or second quarter of 2021 after the coronavirus crisis delayed construction plans. The firm had planned to be moved in by the end of the year until the pandemic hit, Bernstein said Wednesday during a virtual conference. AllianceBernstein had $596 billion in assets under management at the end of May.
Brief: Goldman Sachs Group Inc (GS.N) commodities unit generated more than $1 billion in revenue this year through May as traders positioned their bets for the collapse in oil prices, a source familiar with the group’s finances said on Wednesday.The gains were largely driven by oil trading, the source said, though other commodities, including natural gas, power and precious metals contributed, the source said. Oil prices plunged to their lowest in years in a dramatic selloff at the start of March. U.S. crude futures at one point fell deep into negative territory as panicked traders bailed out of positions after realizing many would be forced to take physical delivery of oil without a place to put the barrels.Most of Goldman’s boost came from oil trading overseen by Singapore-based partner Qin Xiao and Anthony Dewell in London, amid the collapse in oil prices, according to Bloomberg News, which first reported the $1 billion figure, citing people with knowledge of the matter.
Brief: Billionaire bond investor Jeffrey Gundlach, the CEO of $135 billion DoubleLine Capital, sees the potential for a "wave of more higher-end unemployment' hitting white-collar workers making more than $100,000 per year as employers increasingly question the value these employees bring. In 11 weeks, more than 42 million Americans filed for unemployment insurance as the COVID-19 pandemic wrecked the economy. The bulk of these job losses hit lower-income households the hardest. "A lot of times it's not the earthquake, it's the fire," Gundlach said on a webcast for the DoubleLine Total Return Bond Fund (DBLTX), later adding that he could "easily see layoffs in various industries" affecting higher earners. Gundlach, who runs the Los Angeles-based bond investment firm, explained that one of the outcomes of remote work is it reveals who produces and who doesn't. "What people may have learned for white-collar services jobs, in particular, during the work-from-home lockdown situation, at least in my perspective — I've talked to a lot of my peers on this — I kind of learned who was really doing the work and who was not really doing as much work as it looked like on paper that they might have been doing," Gundlach said. He's witnessed this at DoubleLine, where people running "certain groups" haven't been as responsive, while the more junior members on their team have stepped up.
Brief: As lockdown eases in some countries but not in others, and as the death toll continues to rise, there may be a light at the end of this long, dark tunnel of uncertainty – as long as the world does not backtrack, back to business as usual, nor falter on the promised path toward a sustainable future. For Jamie Jenkins, co-head of the responsible global equities team at BMO Global Asset Management, it’s going to be very difficult to return to how things were before the pandemic rattled markets worldwide. “The particular nature of this current crisis, or recessionary period we’re about to go into, is different. Every time you get a drawdown in markets, every time you get some kind of shock, it tends to be different,” he says. “And what’s different about this one, from the financial crisis in ‘08/09, is that first and foremost it’s a public health crisis that is leading into a consumer crisis because of this unparalleled period of government-mandated lockdown. And so it’s a health crisis, it’s a consumption crisis, and by extension, it becomes a financial concern because of the stress on consumer income.”
Brief: Activist shareholdershave increasingly focused on ousting top bosses since the coronavirus pandemic took hold of the global economy, according to a new report from investment bank Lazard. In the second quarter, so far, 50% of all campaigns by shareholder activists have involved attacks against boards or management teams, compared to a consistent 33% in the first quarter of 2020 and the whole of 2019. The removal or replacement of top executives at European companies has become a more prominent demand since the onset of the coronavirus pandemic, according to the report. Lazard Head of European Shareholder Advisory, Rich Thomas, told CNBC’s “Squawk Box Europe” on Tuesday that leadership is “never more important” for activist investors than in times of crisis. “That is why we are seeing leadership of companies firmly in the crosshairs of many activists and activist campaigns,” Thomas explained, adding that the coronavirus crisis has taken away some of the traditional tools available to shareholder activists.
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