Brief: Hedge funds are well-placed to outperform other assets classes in a potentially choppy market environment during the fourth quarter, with commodities, event driven and certain credit strategies faced with a rich opportunity set and strong upside potential as markets adjust to a post-Covid world. In its latest ‘Fourth-Quarter Hedge-Fund Strategy Outlook’, K2 Advisors said global equities and bond markets are now locked in a “tug-of-war” between good news and bad news, which is shaping the way investors position their portfolios. “Change creates opportunities for those nimble enough to capture the new tailwinds while hedging out the risks associated with a shifting environment,” K2, the hedge fund investing unit of Franklin Templeton, observed. Specifically, Covid cases are set against tightening central bank policies, stronger employment numbers are balanced against supply chain problems, while solid earnings growth this year face worsening year-over-year comparisons in early 2022.
Brief: Markets, households and students face painful disruption next year if inflation hits 7 per cent as currently implied by inflation-linked bonds, says Mark Benbow, high yield portfolio manager at Aegon Asset Management. With GDP RPI inflation swaps implying a surge in inflation in 2022, Benbow says few will escape the squeeze on prices, with RPI-linked loan holders particularly exposed to much higher borrowing costs. “You don’t need to look far to see inflation – commodity prices are rising rapidly, as are other input costs such as shipping,” he says. “And with the rising cost of living, it’s only a matter of time before employers realise that they will need to increase wages. “That may sound like a good thing, but consider that index-linked bonds are implying that RPI will hit 7 per cent in 2022. If that comes to fruition, it will disrupt markets, households and students, who are painfully charged student loan interest on an RPI +3 per cent basis, meaning they will be paying interest of 10 per cent.”
Brief: Britain’s financial watchdog set out rules for a new type of fund for investing over the longer term to help tackle climate change and economic recovery from COVID-19, while ruling out daily redemptions to avoid suspensions in rocky markets. The new Long-Term Asset Fund (LTAF) regime creates a category of authorised open-ended fund for investing in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure. “We want investment in long-term, illiquid assets, including productive finance, to be a viable option for investors… seeking the potential for higher long-term returns in return for less or no immediate liquidity,” the Financial Conduct Authority said in a statement. It had proposed a notice period for redemptions of between 90 and 180 days in a consultation paper last year. “So we have set a minimum notice period of 90 days and a requirement that LTAF cannot offer redemptions more frequently than monthly,” it said on Monday. Funds that invested in illiquid property and offered daily redemptions had to be suspended last year when markets suffered extreme volatility as economies entered lockdowns to fight the pandemic.
Brief: Britain has experienced a series of shortages these past few months, from a lack of fuel at gas stations to not enough workers picking the fall harvest, but Treasury chief Rishi Sunak is unlikely to dwell on them when he delivers his annual budget statement on Wednesday. The Chancellor of the Exchequer, as he is formally known, will instead likely use one of the most high-profile, choreographed events in the country’s political calendar to paint a relatively rosy picture of the state of the British economy following the devastating shock of the pandemic. With government borrowing less than anticipated a few months ago — following a fairly solid recovery from Britain's deepest recession in around 300 years — Sunak has a bit of wiggle room on the taxes and spending front. However, with the next general election not due until 2024 at the latest, Sunak is not expected to turn into Father Christmas — big tax giveaways in Britain are traditionally timed for the run-up to a general election.
Brief: The global boom in mergers and acquisitions has just delivered dealmakers their best-ever year -- on $4.11 trillion and counting. Numerous records have already tumbled in recent months and it was just a matter of time before the previous high set in 2007 was cleared. “M&A bankers are always blamed for being perpetually optimistic but the data is quite compelling,” said Stephan Feldgoise, co-head of global M&A at Goldman Sachs Group Inc. “Whether it be large-cap M&A, sponsor M&A, SPACs, strategic repositioning coming out of Covid, the numbers have been just extraordinary.” Volumes have been rising across sectors and regions, fueled by cheap financing and super-acquisitive private equity buyers. Deals in the $1 billion to $10 billion range -- a sweet spot for buyout firms -- have underpinned the boom, in the notable absence of $50 billion-plus blockbusters. Standout transactions this year have included the leveraged buyout of Medline Industries Inc., Canadian Pacific Railway Ltd.’s hard-fought takeover of Kansas City Southern, and the long-awaited merger of German real-estate firms Deutsche Wohnen SE and Vonovia SE.