Brief: Private-equity firms notched a major win in Washington with the Trump administration paving the way for the industry to tap a massive pot of money that has long been off limits: the trillions of dollars held in Americans’ retirement accounts. The Labor Department issued guidance Wednesday effectively allowing 401(k) plans to invest in buyout firms. The agency said the move will bolster investment options for consumers and let them access an asset class that can provide better returns than stocks and bonds. In a statement, Labor Secretary Eugene Scalia said the action “will help Americans saving for retirement gain access to alternative investments that often provide strong returns.” The announcement is a significant de-regulatory decision that private-equity lobbyists have sought for years. It is sure to face harsh criticism from consumer groups and progressive Democratic lawmakers, who argue that high-fee private equity firms are inappropriate for unsophisticated investors because the industry locks-up clients’ money for years and invests in businesses seen as far more risky than a plain-vanilla bond fund.
Brief: The outsiders that Michael Hintze brought in to his secretive hedge fund firm didn't last long. Nor did their growth plans. The billionaire's firm, known as CQS, a bastion of money-making whose flagship fund has returned more than three times the average of hedge fund peers since it opened in 2005, is now headed in reverse. The Hintze-managed fund plunged as much as 45% in March and April — its worst-ever loss — missing the rebound that followed the initial shock from the coronavirus pandemic even as peers recovered to post gains in April. More than $3 billion of assets were erased, leaving the firm with $16 billion. And that doesn't include potential withdrawals from the fund's clients, who are required to give six months' notice. "It's going to be very difficult for them to attract new assets," said Don Steinbrugge, head of Agecroft Partners, a Richmond, Va.-based consultant that helps hedge funds gather assets. "If I was an existing investor, I would be concerned about significant redemptions from the fund over time, which could potentially cause the quality of the fund to erode."
Brief: A Hong Kong hedge fund is offering to cover 100% of any losses in a bid to attract investors that have been avoiding the sector amid the Covid-19 pandemic. Infini Capital Management Ltd. is gauging investor interest for full loss insurance on a new class of shares in a fund it launched last year. In exchange, the firm would charge a performance fee as high as 50%, more than double the industry standard. Although Infini says the offer isn’t linked to growing tension in Hong Kong sparked by China’s new security law, it shows the extent to which hedge funds are willing to boost enticements to attract fresh money. Investors yanked $31 billion in the first four months from the global hedge fund industry as the spread of the Covid-19 virus triggered market selloffs in March and led to the worst monthly performance since the 2008 global financial crisis, according to eVestment. Capital raising has been especially challenging for younger funds. “This offering is to hopefully get some investors over the edge who might still have some concerns about being an early investor in Infini,” Chief Operating Officer Michael Friedlander said in an interview.
Brief: Once considered damaging for fund manager reputations, liquidity management tools - such as redemptions on restrictions - have gained further acceptance amid the Covid-19 crisis. And what’s more, these tools have slowed the spread of market contagion, says Xavier Parain, CEO of FundRock Management Company. The Covid-19 crisis has changed so much about daily and commercial life - and the fund management industry is no exception. Business continuity plans and procedures - tested more frequently than ever implemented in the past - have been deployed universally. Portfolio managers, risk officers, due diligence professionals and others immediately and seamlessly transitioned to working from home, crucially, without any major impact for investors. This crisis has caused a rethink on redemption restrictions and other liquidity management tools. As the global financial crisis (GFC) of 2007-2008 reminded us, a “run” on a financial institution takes different forms and frequently occurs hidden from public sight.
Brief: Quebec’s largest independent asset manager is ready to bet one or more COVID-19 treatments will be found in the next 12 months, pushing global stock markets higher. Fiera Capital chief executive officer Jean-Guy Desjardins says there’s an almost two-thirds probability that a vaccine will be found by June 2021. In the meantime, odds are that an existing drug can lessen COVID-19’s effects and reduce mortality rates, said Desjardins, a veteran money manager who founded Montreal-based Fiera in 2003 and counts four decades of experience in the investment industry. After plunging in March amid the pandemic’s global spread, stock markets in North America and elsewhere have rebounded on optimism over a second-half economic recovery. Canada’s benchmark S&P/TSX Composite Index has gained more than 30 per cent since hitting a multiyear low in late March, though it’s still down about 10 per cent for the year.
Brief: Around the world, businesses are beginning to reopen from the coronavirus pandemic. But asset owners and investment managers won’t be returning to normal anytime soon, according to the latest II Fear Index. Institutional investors participating in the weekly poll broadly indicated they would continue to stay home for at least the next month, with just 15 percent planning to return to the office in June. However, a majority believed they would be back at their workplace by fall: Thirty percent said day-to-day office work would resume in July or August, while another 30 percent predicted it would happen in September or October. There was less consensus on the subject of in-person meetings. While the highest proportion — 31 percent — indicated they would begin meeting with clients or asset managers in September or October, another 28 percent anticipated that they would not have any face-to-face meetings until 2021. Respondents were least optimistic on the prospects of business travel, with the plurality — 38 percent — predicting they would not resume traveling for work until next year.