Brief : The Federal Reserve’s tapering of its asset purchases, which he hopes will start “soon,” will run smoother this time around because investors already know that a move is being discussed, said Federal Reserve Bank of Dallas President Robert Kaplan. “I want it to get out into the market, and I think this debate we’re having at the FOMC, some of it publicly, is good,” Kaplan said Wednesday in an interview with Michael McKee on Bloomberg Television, referring to the Federal Open Market Committee. “People are on notice that these adjustments are coming, the only question is when.” Kaplan said the Fed learned a number of lessons in 2013, when it first announced a slowing its purchases of Treasuries and mortgage-backed securities following the global financial crisis. The news caused a violent spasm in financial markets as investors sold riskier assets for the safety of bonds in an episode dubbed the “taper tantrum.” The central bank has been purchasing $80 billion of Treasuries and $40 billion of MBS monthly since last year to support the U.S. economy during the pandemic. Chair Jerome Powell said earlier this month that the taper debate was getting into gear and would continue at coming FOMC meetings.
Brief: Event driven hedge funds are making hay amid soaring levels of corporate activity, with new stats showing these managers raked in their best first-quarter returns in almost 30 years, as a number of newly-launched strategies look to get a piece of the M&A action. Event driven managers – which seek to capitalise on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events using activist, merger arbitrage and special situations strategies – posted a first quarter composite return of 7.3 per cent, according to new research by bfinance, their strongest Q1 showing since 1993. M&A activity has rapidly picked up momentum since the third quarter of 2020, and since the start of 2021 volumes have risen to more than USD2.4 trillion globally, as economies look to recover from Covid-19 and deals put on hold during the pandemic are kickstarted. Against that backdrop, event driven strategies advanced 11.7 per cent in the first five months of 2021, according to data published by Hedge Fund Research, outflanking HFR’s industry-wide Fund Weighted Composite Index, which was up 9.92 per cent over the same period.
Brief: Billionaire Warren Buffett says the one constant throughout the coronavirus pandemic has been that it has been difficult to predict how it would affect the economy, but clearly it has devastated many small businesses and individuals while most big companies have fared OK. “The economic impact has been this extremely uneven thing where I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly have done fine, unless they happen to be in cruise lines or, you know, or hotels or something,” Buffett said in an interview that aired on CNBC Tuesday night. Buffett and Berkshire Hathaway Vice Chairman Charlie Munger touched on a variety of topics during the interview. Munger said China had the right approach to the pandemic by essentially shutting down the country for six weeks. “That turned out to be exactly the right thing to do,” Munger said. “And they didn’t allow any contact. You picked up your groceries in a box in the apartment and that’s all the contact you had with anybody for six weeks. And, when it was all over, they kind of went back to work. It happened they did it exactly right.”
Brief : Almost one in two investment trusts from the Association of Investment Companies (AIC) has undergone corporate activity in the past five years, new data has revealed. While a degree of corporate action is regular in the investment company space, since the onset of the pandemic more substantial changes have become the norm as boards are under increasing pressure to prove shareholder value. The figures showed 47% of investment companies have undergone a manager change, merger, fee change, policy change or liquidation since the beginning of 2016, with some undergoing multiple changes. In the last 18 months alone, 11 companies have changed their manager, with two more currently undergoing strategic review, compared to 18 in the previous four years. Additionally, 11 companies have been liquidated, 12 have seen policy change and there have been three mergers. "Since the onset of the pandemic, investment company boards have been particularly proactive in addressing performance and other issues such as liquidity," said Annabel Brodie-Smith, communications director at the AIC.
Brief: The pandemic-related collapse in international tourism could cost the global economy as much as $4 trillion for the years 2020 and 2021, according to a new United Nations report. The estimated losses have been caused by Covid-19's direct impact on tourism as well as its ripple effects on other sectors closely linked to it. The steep drop in international arrivals led to a $2.4 trillion loss in 2020 and the UN's report warns that a similar loss could occur this year with the recovery largely dependent on the uptake of global Covid-19 vaccines. The report states that while tourism losses are falling in most developed countries, the situation is deteriorating across much of the developing world due to vaccine inequality. While the industry is expected to rebound faster in countries with high vaccination rates such as the France, Germany, Switzerland, the United Kingdom and the United States, experts don’t expect a return to pre-Covid-19 international tourist arrival levels until 2023 or later. The report bases its loss estimates for 2021 on three scenarios involving different drops in tourism arrivals as well as varying vaccination rates. The most severe scenario involves a 75% reduction in tourism arrivals which would lead to a $2.4 trillion loss this year.
Brief: Lazard Ltd. said any employee working in its U.S. offices must be fully vaccinated against the coronavirus by July 6, and North American financial-advisory bankers will have the option of working from home two days a week. The investment bank encouraged more employees to return to offices, calling the experience “vital” for younger workers, according to a memo to staff obtained by Bloomberg and confirmed by Lazard. Individuals can work remotely, subject to client needs, on Monday and Friday if they choose.