Brief : Investors looking to make a buck on corporate distress can only hope the post-pandemic world is more accommodating. Rock-bottom interest rates, a reopening economy and yield-starved investors mean all but the most-troubled businesses have managed to borrow their way out of trouble. Credit markets may not be so friendly if the projections underlying that borrowing prove too rosy once post-Covid results come out, according to Phil Brendel of Bloomberg Intelligence. “The market will shift from pricing on projections and start looking more at actuals,” Brendel said in an interview. “We’re at credit bubble levels of distressed debt. So credit markets are vulnerable to a significant correction.” The pile of distressed debt outstanding, which totaled almost $1 trillion at the height of the pandemic, has sunk to about $60 billion, data compiled by Bloomberg show. By one measure, the proportion of high-yield bonds outstanding that is trading at distressed levels is the lowest since the run-up to the 2008 financial crisis, Brendel said.
Brief: Fund management firms in a sample study were not implementing rules that should demonstrate how much value they provide to clients. The Financial Conduct Authority (FCA) said most of the 18 firms it reviewed had not implemented Assessment of Value (Avon) arrangements that met FCA standards. Avon rules were brought into force in 2019 and require firms to justify their fund fees by demonstrating value based on certain criteria such as performance, costs and savings from economies of scale. The findings will be a disappointment to the FCA which has increased scrutiny of asset managers in recent years and whose Avon regime is expected to set the standard elsewhere in Europe. However, the firms have escaped any tough regulatory action, such as fines. Reporting on its review, which happened between July 2020 and May 2021, the FCA said “too many” of the fund managers often made assumptions that could not be justified when challenged by the regulator, and that this undermined the credibility of their assessments. Many firms did not consider what the fund’s performance should deliver when set against the investment policy, investment strategy and fees.
Brief: The UK IPO market has continued its resurgence throughout H1 2021 with the number of new listings on the London Stock Exchange already exceeding the number that listed in the whole of 2020, according to research from law firm Pinsent Masons. As of 28 June 2021, 45 companies have listed on AIM and the Main Market and six more say they intend to list this year. That compares to 31 companies that listed in the whole of 2020. There was more IPOs in Q1 2021 (20) on the London Stock Exchange than in any previous first quarter of the year since 2007. Companies have been eager to exploit the renewed investor optimism so far this year. Healthcare companies (6), tech companies (11) and online retailers (7) make up 53 per cent of the businesses to have listed so far in in 2021. Companies from those sectors see now as an ideal time to float as, in many cases, Covid has provided a strong tailwind to help their sales growth. Julian Stanier, head of Corporate Finance at Pinsent Masons says, “This has been the busiest period for London Stock Exchange IPOs for about 15 years.
Brief : The annual Schroders Institutional Investor Study, which polls 750 industry professionals in 26 locations across the globe, showed an average expectation return of 6.4%, up from 5.6% a year earlier. Almost half of respondents estimate that their average annual total return will be above 6% over the next five years, with 13% expecting returns of more than 9%. These expectations are higher than last year, when only 35% of global investors thought they could return over 6% and 5% believed they could top 9%. Keith Wade, Chief Economist, said: “Clearly, confidence is rising. This is due to a combination of vaccine success, increasing consumer demand across the globe, and indications that the global economic recovery from Covid-19 could be relatively swift. “However, expectations are even higher than before the pandemic hit, indicating a more sustained shift in confidence. It could be that even professional investors are being swayed by the strong real returns achieved by both equity and bonds in the past decade. Understandably, they’re feeling more optimistic. The reality is that, to achieve decent returns, investors will need to navigate a number of challenges, from low rates to demographic shifts to technological disruption.
Brief: The European private equity industry rebounded strongly in the 12 months to 30 June 2021 following the initial shock of Covid-induced lockdowns, according to the first provisional half-yearly data announcement from CMBOR, the Centre for Private Equity and MBO Research, since its re-establishment within Nottingham University Business School last month with support from Equistone Partners Europe. CMBOR’s latest report has found that the volume of private-equity-backed acquisitions in Europe fell to its joint-lowest level since mid-2009 during the first wave of the pandemic. But after just 102 transactions were completed in Q2 2020, the industry quickly recovered to pre-Covid activity levels. The 791 buyouts that took place in the past 12 months, with a cumulative value of EUR116.6 billion, exceed the corresponding figures for 2019 (716 deals with an aggregate value of EUR112.4 billion) and approach the post-2008 high-water mark set in 2018 (811 deals valued at EUR124.7 billion). The resurgence in deal-making since Q3 2020 was also in evidence in exit activity, as private equity investors made 354 realisations totalling EUR98.9 billion in value, compared to 360 exits with a value of EUR73.7 billion in 2019. This too followed a decade-low exit volume of just 46 sales in Q2 2020.
Brief: Asset management firms are accelerating their digital transformation, with almost half planning to boost their digital spend in the coming year. The push to digitalise been driven by the rise of low-cost passive investing and digital-first challenger banks, which have squeezed the margins of traditional asset managers. Alpha FMC recently surveyed 36 asset managers with a collective USD25 trillion in assets under management, and found that almost all, 97 per cent, regard going digital as a top priority. Most managers, 69 per cent, are already undergoing or recently completed a significant digital transformation. However, most believe they are not yet fully meeting their clients’ and customers’ ever-shifting digital expectations. Nearly half of asset managers, 45 per cent, plan to increase spending by between 5 and 20 per cent over the next year. This is on top of budget rises over the last year, as the coronavirus pandemic forced all areas of business to be conducted online, remotely. “Across the board we have seen managers progress well in shifting to digital and remote ways of delivering services to clients, to respond to the global pandemic,” says Kevin O’Shaughnessy, head of Digital and Agile Transformation at Alpha FMC. O’Shaughnessy says that asset managers are now thinking about digital as a “core and critical function within the firm”.