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Brief: JPMorgan Chase CEO Jamie Dimon criticized lawmakers for a monthslong deadlock over a second round of coronavirus relief to help unemployed Americans and struggling businesses as the pandemic deepens. “I know now we have this big debate. Is it $2.2 trillion, $1.5 trillion?” Dimon said Wednesday, referring to competing visions for a relief bill from Democrats and Republicans, at The New York Times’ DealBook conference. “You gotta be kidding me,” Dimon told Andrew Ross Sorkin. “I mean just split the baby and move on. This is childish behavior on the part of our politicians.” Congress has so far failed to pass a second relief bill after key parts of the first law, the CARES Act, expired in July. While financial pain for the unemployed and small businesses is set to grow as Covid-19 infections surge to records across the country, top leaders from both parties haven’t met since the Nov. 3 presidential election. Dimon urged lawmakers to agree on fiscal stimulus that would act as a bridge until midyear 2021, when promising vaccines may be widely distributed. “Thank God we have these two vaccines coming, thank God,” Dimon said. “Now is the time to not act like it’s over, let’s double down and get though Covid the best we can.”
Brief: Goldman Sachs Group Inc. is preparing to trim its workforce for the second time in just three months, as a moratorium on firings during the pandemic gives way to a push to improve efficiency. This round isn’t expected to exceed the roughly 400 positions the bank began eliminating in September, according to people with knowledge of the matter. But executives expect to go deeper in the coming year, in what could eventually amount to one of the most significant staff reductions at the bank as it looks to deliver on a promise to rein in costs. Big U.S. banks including Goldman Sachs pledged early this year to refrain from broad firings as the pandemic erupted across the country. But the industry’s resolve has frayed as the virus has persisted, leaving executives to refocus on earlier cost-cutting initiatives. Goldman had laid out a target in January to eliminate more than US$1 billion in expenses, and it has been examining how to meet that goal. A spokeswoman for the bank reiterated its statement from September. “At the outbreak of the pandemic, the firm announced that it would suspend any job reductions,” the company said at the time. “The firm has made a decision to move forward with a modest number of layoffs.”
Brief: The Financial Stability Board is scrutinizing the behavior of hedge funds and other non-bank investors during the market tumult sparked by the coronavirus earlier this year. “Market dysfunction was exacerbated by the substantial sales of U.S. Treasuries by some leveraged non-bank investors and foreign holders,” the FSB, a global group of finance officials, said Tuesday in announcing its report on the market turmoil in March. “Dealers also faced difficulties absorbing large sales of assets, amplifying turmoil in short-term funding markets.” Recent research from Marco Di Maggio, a finance professor at Harvard’s business school and a faculty research fellow at the National Bureau of Economic Research, found that hedge funds did not drive disruption in the Treasury market, as they represented a relatively small trading role. Foreign sellers were “a more significant cause behind illiquidity,” he suggested in a paper on the tumult. But the FSB said in its report that “some leveraged investors” worsened dysfunction in the market by unwinding almost $90 billion in U.S. Treasuries trades in March. That’s the volume of selling reportedly done by relative-value hedge funds that focus on fixed-income markets, according to Di Maggio — a figure he said was dwarfed by the foreign sector’s $260.4 billion of net outflows in Treasuries securities in March.
Brief: Bitcoin, the world's best-known cryptocurrency, has jumped above $17,000 (£12,800) to hit a three-year high. The digital currency has suffered plenty of wild price swings since it was launched in 2009. But investors have been flocking to cryptocurrencies during the pandemic-driven volatility on global stock markets. However, experts have cautioned about viewing them as a "safe haven". On Wednesday, Bitcoin had climbed more than 7% to $17,891, its highest level since December 2017. Some analysts said the Covid-19 pandemic has encouraged investors to reassess the long-term outlook for Bitcoin and other cryptocurrencies. But there are still concerns about the fraudulent trading in cryptocurrencies following a succession of high-profile hacks. During times of volatility, investors tend to move their money out of shares and into what are considered safer havens, like cash and gold. Some feel cryptocurrencies are now being viewed as a shelter from stock market volatility. "Covid-19 has disrupted the traditional safe-haven trade and gold's inability to outperform. Periods of extreme risk aversion have forced many traders to diversify into Bitcoin," said Edward Moya, at trading firm Oanda.
Brief: Howard Marks, the dean of distressed-debt investing who turned bullish within days of the sector’s 2020 low, is back to a cautious stance now that the ensuing rally has whittled attractive targets down to pre-pandemic levels. “When the level of optimism is high, there is usually more room for disappointment,” Marks, the co-founder of Oaktree Capital Group, said in a Tuesday telephone interview. “The main way to achieve high returns in a low-return world is through taking increased risk. And I don’t think this is the climate to take more risk.” Back in early April, after valuations had collapsed and the supply of newly distressed assets was soaring, Marks told investors it was time to play offense. Trying to time the market for the absolute low is “irrational,” he wrote at the time, because the bottom is apparent only in retrospect. The same advice still applies today about forecasting tops as well as bottoms, according to Marks. “Trying to predict market sentiment gets you into trouble,” he said in the interview. Nevertheless, Marks has doubts about the wisdom of buying at current prices. “Maybe we’re in the area of a top,” he said. “The rebound has been substantial.” Investors are viewing future events including the development of a Covid-19 vaccine favorably, with equity and debt markets staging strong rallies. Yields and spreads remain low, and “the pressure to buy is strong,” he said.
Brief: London hedge fund firm CQS, which struggled with management turnover, layoffs, and drastic performance losses earlier this year, has made up some of the lost ground in its funds and has told clients it has a plan for getting the firm back on track In a letter sent to clients on Tuesday and obtained by Institutional Investor, firm founder Michael Hintze called 2020 “arguably the most turbulent year in financial markets for a generation” and acknowledged that government lockdowns in response to the Covid-19 pandemic have posed massive challenges for the global economy “and in turn, for a number of our funds.” The assets CQS specializes in, namely structured credit and more complex credit instrument, were among those hardest hit, Hintze wrote. The firm’s flagship CQS Directional Opportunities Fund, which Hintze manages, lost more than 33 percent in March and was down by more than 50 percent through April, according to a Financial Times report, while the CQS ABS Fund lost 43 percent in March alone. But the funds have posted strong gains since then, according to the letter. The ABS Fund has gained 37.2 percent from its March low through the end of October, while another hard-hit fund, the Credit Multi Asset Fund, gained 16.4 percent over the same period — nearly erasing its drawdown.
Brief: India’s macroeconomic troubles are attracting a new wave of global investors betting they can eke out profits from the rising number of capital-starved businesses struggling to stay afloat. Some global heavyweights like Apollo Global Management Inc. and Oaktree Capital Group have either struck recent India deals or scaled up their teams in the country in a push to invest in distressed assets. New York-based Cerberus hired a former Apollo and Citigroup veteran to establish and lead an India office in 2019, and this year vied with Ares Management Corp.-backed SSG Capital Management for control of a failed shadow lender. Researcher Venture Intelligence calculates that funds have already pumped $1.5 billion in distressed assets in India this year, 55% more than through all of 2019. That data only captures deals that have closed and doesn’t includes others that have been recently announced such as Oaktree’s 22 billion rupee ($294 million) loan to lender Indiabulls Housing Finance Ltd. in July. India in recent months has struggled to control its coronavirus epidemic, reporting the largest number of infections after the U.S. and has suffered the worst economic contraction among major economies worldwide. Yet even before the pandemic, the country had been battling one of the world’s worst bad debt problems in its financial sector, which claimed a string of lenders and left banks reluctant to lend to the most vulnerable businesses.
Brief: Two of the hedge fund industry’s quantitative powerhouses are getting tripped up this year as wild markets throw off their investing models. Renaissance Technologies, which manages the world’s biggest quant hedge fund, and Two Sigma Advisers have seen losses across several of their funds in 2020, a sign of how unprecedented market volatility caused by the Covid-19 pandemic hurt even the most sophisticated traders. Stocks sank into the fastest bear market on record in March before staging a rebound not seen in nine decades. The CBOE’s volatility gauge has averaged 33 since the end of February, 14 points higher than the average over the prior 30 years. That upended performance from firms that in recent years have been among the best on Wall Street. “Quants rely on data from time periods that have no reflection of today’s environment,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management. “When you have volatility in markets, it makes it extremely difficult for them to catch anything because they get whipsawed back and forth.” Renaissance saw a decline of about 20% through October in its long-biased fund, according to a person familiar with the matter. The $75 billion firm’s market-neutral fund dropped about 27% and its global-equities fund lost about 25%. The firm, founded by former codebreaker Jim Simons, told investors that its losses are due to being under-hedged during March’s collapse and then over-hedged in the rebound from April through June. That happened because models that had “overcompensated” for the original trouble.
Brief: Investors are weighing the chances the Federal Reserve will increase its purchases of U.S. government debt in coming weeks to counteract the economic fallout of a COVID-19 resurgence, an intervention that could reverse a recent rise in Treasury yields to multi-month highs. News that two coronavirus vaccines proved highly effective in late-stage trials in recent days have stoked investors’ appetite for risk, sending yields, which move inversely to bond prices, to their highest levels since March and U.S. stock markets to record highs. Still, some investors believe that rising coronavirus cases may threaten the fragile U.S. economic recovery at a time when fiscal stimulus is likely to be delayed and widespread access to a vaccine remains months away. The United States recorded more than 1 million new COVID-19 cases last week. That combination of negative factors could push the central bank to increase its support, some investors argue, even though asset purchases already stand at record levels and the Fed has not indicated it intends to raise them at its next two-day policy meeting, Dec. 15-16.
Brief: Global regulators are preparing to tighten restrictions on investment funds and shadow lenders, concluding they threatened the stability of the financial system at the height of this year’s pandemic-fueled market volatility. Key areas of vulnerability during the March mayhem included big investors’ dash for cash, significant redemptions in mutual funds and non-government money market funds, as well as leveraged hedge fund trades in Treasuries, the Financial Stability Board said in a report published Tuesday in Europe. The panel of global regulators indicated it would issue proposals next year to make money market funds more resilient and then address risks posed by the broader non-bank financial sector in 2022. The FSB said this year’s stress would have been much worse if the U.S. Federal Reserve and central bankers around the world had not rushed to the rescue with unprecedented support. “It’s clear we need to take action to address these issues,” Randal Quarles, chair of the FSB and vice chairman of supervision for the Federal Reserve, told reporters during a Monday press briefing. He warned in a letter accompanying the report that the financial system remains vulnerable, because the “structures and mechanisms that gave rise to the turmoil are still in place.”
Brief: The U.S. Securities and Exchange Commission's record-breaking fiscal year for whistleblower awards was driven by more than 6,900 tips, an all-time high that was nearly one-third greater than last year's count, according to the office's annual report published Monday. The report shows the number of whistleblower tips in fiscal year 2020 jumped by nearly 33% to 6,911, from 5,212 in fiscal year 2019. The figure was well over double the 3,001 tips recorded in fiscal year 2012, when record keeping began. The tips spurred a previously announced record-breaking year during which the agency awarded approximately $175 million to 39 individuals. Monday's report notes that the third quarter, between April and June, resulted in a particularly high number of tips. Kyle DeYoung, a Cadwalader Wickersham & Taft LLP partner who previously served as senior counsel to former SEC enforcement director Andrew Ceresney and co-directors Stephanie Avakian and Steve Peiken, attributed the spike to COVID-19. "It isn't surprising that tips were up during COVID," said DeYoung. "Whenever there is huge volatility and a downturn you tend to have an increase in tips because more people have lost money, more people are frustrated, and there's more opportunity for wrongdoing in that sort of a market." DeYoung thinks the backlog of virus-related tips will continue to produce payouts as the commission heads into a new fiscal year that is already on track to shatter records.
Brief: Publicly traded traditional asset managers notched their strongest quarter ever between July and September, even as the coronavirus pandemic continued to shut down big sectors of the economy, according to Casey Quirk, the asset management strategy consultant that is part of Deloitte. Public managers hit new highs for both revenue and assets under management between July and September 2020. That performance is in line with public markets, which recovered much of their losses since the lows in March. Casey Quirk, which analyzed 23 asset managers that were not a part of larger corporations such as banks or insurance companies, found that aggregate revenue increased 1.85 percent and assets increased 2.7 percent compared with the fourth quarter of 2019. Last year’s final quarter was the previous high for the group, which represented firms in the U.S., Canada, and continental Europe. But the difference between the best and the worst in the industry widened and quickened between July and September, according to Amanda Walters, a principal at Casey Quirk.
Brief: Asset manager CEOs and other senior leadership are navigating new workforce concerns caused by the pandemic, including a pause on in-person recruitment of early career professionals. Some executives say they are concerned about how the talent pipeline from colleges and universities will be impacted going forward, while others see an opportunity to broaden their recruitment to a more diverse pool of candidates, sources told Pensions & Investments. Mario J. Gabelli, founder, chairman and CEO of GAMCO Investors Inc. in Rye, N.Y., is concerned that the pipeline from which GAMCO typically recruits will be trimmed by the effects of the coronavirus. He also questions how recruitment will be affected now that firms are not able to visit cam- puses. "I don't know how effective it's going to be on Zoom recruiting," Mr. Gabelli said. GAMCO, which had $29.7 billion in assets as of Sept. 30, typically recruits from undergraduate programs at Babson College, Boston College, Yale University, Fordham University, New York University, Princeton University, Duke University, the University of Miami and Roger Williams University. The firm also recruits from MBA programs at the University of Pennsylvania's Wharton business school, Columbia University and, to a minor degree, Harvard University, Mr. Gabelli said.
Brief: The hedge fund industry is dominated by men, with women and minorities controlling only a small fraction of US-based assets. Some financial observers say fixing this gender imbalance is long overdue. They bolster their argument with data showing hedge funds run by women have performed well in recent years, including during the pandemic, when they out-performed those managed by men. “Embracing a culture of inclusion and diversity in an organisation is not just the right thing to do,” says Allison Nolan (www.athena.ky), founder and managing director of Athena International Management Limited and author of the upcoming book, Madam Chair, about how women are transforming the hedge fund industry and why more women are needed. “The benefits of gender balance within investment management firms are clear and irrefutable. Not only does gender diversity and inclusion within a firm improve decision-making and enhance the business culture, but evidence shows that it is sound business sense, creating value and improving returns.” Studies reveal that part of the reason female investors fare well compared to men is due to behavioural differentiators, such as showing more discipline than men in investing decisions, being less overconfident and trading less, and focusing more on protecting investments from risk.
Brief: RXR Realty is seeking $1 billion for a vehicle dedicated to making bets on real estate with the expectation that valuations may tumble as a result of the Covid-19 pandemic, according to a person with knowledge of the matter. The firm is discussing the RXR Real Estate Market Dislocation & Mega-Trends Fund with potential investors, said the person, who requested anonymity because the talks aren’t public. RXR plans to find “pockets of distress” such as non-performing debt and opportunities for rescue financing. It’ll focus on logistics, telehealth and residential wagers -- areas of the property market that the firm believes will thrive in a post-Covid 19 world, a presentation reviewed by Bloomberg News shows. The pandemic may have permanently altered the way companies and consumers use real estate, according to the presentation. RXR foresees demand for transit-linked suburban downtown areas and conversion of obsolete buildings including hotels and malls into multifamily, industrial or film-studio properties. The firm has forecast underperformance for office properties in 2021 and 2022, before a rebound begins in 2023.
Brief: U.S. corporate pension plan buyout volume is picking up again after a drop in activity in the second quarter as plan sponsors shifted their attention to addressing the economic effects of the pandemic, industry experts said. Still, even with a spate of recent activity, overall volume for 2020 should total about $25 billion, down from $28 billion in 2019, according to experts. Much of that expected drop is the result of a slow second quarter. Buyout sales totaled $2.3 billion in the quarter ended June 30, down from $4.2 billion in the second quarter of 2019, according to the LIMRA Secure Retirement Institute's most recent survey of the 17 insurers that make up the U.S. pension risk transfer market. For the first half of 2020, deal volume totaled $7 billion compared with $9 billion in the first half of 2019."The effect of COVID-19 on the economy has clearly had a negative impact on pension risk transfer sales, both in terms of volume and dollars," said Mark Paracer, assistant research director, LIMRA Secure Retirement Institute, in a Sept. 2 news release. "Fluctuating funding levels and the uncertain timing of the recovery have given employers reason to pause. While we believe social distancing and work-from-home transitions have also contributed to the sales decline, we expect increasing PBGC premiums and other administration costs will drive employers to seek PRT deals in the future."
Brief: Mountside Ventures and ALLOCATE, today released their inaugural annual report entitled, "Capital Behind Venture 2020." The report provides insights on Venture Capital (VC) firms looking to raise funds from Limited Partners (LPs) such as pension funds, university endowments, government agencies, fund-of-funds, and high net worth (HNW) individuals or family offices who actively invest in Europe's growing VC ecosystem. "There is very little information in the public domain on best practices, preferred terms and practical advice on raising a VC Fund in Europe, even less so for emerging fund managers," says Jonathan Hollis, Managing Partner at Mountside Ventures. "Our goal in writing this report was to reduce barriers for VC fund managers, but also show LPs how their peers are exploring investing in this space." Mountside Ventures and ALLOCATE surveyed over 60 LPs that invest in European Venture Capital funds. No one size fits all when it comes to what LPs are looking for in their next VC fund manager, however, some trends rose to the top of the survey's findings.
Brief: Morgan Stanley strategists said an expected “V-shaped” economic recovery, greater clarity on Covid-19 vaccines and continued policy support offer a favorable environment for stocks and credit next year. In an outlook for 2021, a team including Andrew Sheets recommended investors overweight equities and corporate bonds against cash and government debt, and sell the U.S. dollar. Volatility is set to decline, and investors should be “patient” in commodity markets, the strategists said. “This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” they wrote. “Keep the faith, trust the recovery.” A gauge of global stocks headed toward a record Monday amid optimism that the expected roll-out of vaccines and additional U.S. fiscal stimulus will bolster the world economy. Still, skeptics argue the short-term outlook is challenging as nations resort to lockdowns to fight a resurgence in virus cases and lawmakers bicker over the size of U.S. relief spending. Morgan Stanley joins JPMorgan Chase & Co. and Goldman Sachs Group Inc. in painting a positive outlook for equities. JPMorgan strategist Marko Kolanovic said U.S. election results create a bull case for markets, while David Kostin at Goldman Sachs expects society to normalize gradually next year.
Brief: The shift to remote working as a result of the coronavirus pandemic proved to be the ultimate stress test for hedge funds’ cybersecurity and business continuity processes – but speakers at this year’s Hedgeweek LIVE Europe digital summit believe the industry has coped well with the unprecedented disruption. Opening day two of this year’s summit, the cybersecurity and business resilience panel fleshed out the many practical challenges thrown up by the remote working environment. These include data access, monitoring and protection, dealing with increased call volumes in a home environment, video conferencing, the potential software and hardware headaches, as well as staff wellbeing. Patrick Trew, chief risk and compliance officer at Maniyar Capital, described how his firm, which spun out of Tudor Investment Corporation, was in the unique position of launching right in the middle of lockdown. “We spent plenty of time preparing for the launch which, pre-March, would have been a fairly routine launch,” Trew said. “But the dynamic changed quite dramatically as events unfolded.”
Brief: British money managers ran afoul of liquidity regulations 13 times at the height of this year’s market volatility, exposing their investors to the kinds of risks that can trap billions of pounds for months. Nine funds, whose names were kept confidential, breached the 10% limit on holdings of unquoted securities between March and May, according to Financial Conduct Authority data obtained by Bloomberg through a public records request. Most of the breaches occurred in March, when Covid-19 spread to Western economies and the value of investors’ more easily tradeable securities plunged. While the breaches subsided by June, the revelation may increase pressure on investment managers to reduce their stakes in upstart companies and thinly-traded shares, which became more popular in an ultra-low-interest-rate environment. More attention has been paid to the issue after illiquid investments tripped up money managers Neil Woodford and H2O Asset Management. “Should funds that offer daily liquidity have 10% in unquoted stocks in the first place? My answer is no,” said Ben Yearsley, investment director at Shore Financial Planning. “It comes back to a failure of regulation. It’s been 18 months since Woodford blew up and still nothing has happened.”
Brief: Goldman Sachs sees a prosperous 2021 but is cautious about the bumpy road the U.S. economy will ride before it gets there. In a forecast that is well above Wall Street consensus, the bank’s economists see gross domestic product accelerating at a 5.3% pace next year, considerably stronger than the 4% median forecast from the Federal Reserve. However, the firm sees several obstacles along the way, particularly the damage that quickly accelerating coronavirus cases will have on the recovery. “The pace of recovery is likely to get worse before it gets better,” Goldman economist David Mericle wrote in a report. “Fiscal support has largely dried up for now, leaving disposable income lower in the final months of the year. But the largest risk is that the third wave of the coronavirus is likely to worsen with colder temperatures.” Indeed, the pandemic’s toll has swelled in recent weeks, with new daily cases eclipsing the 150,000 mark on Thursday and poised to continue rising as winter weather sets in. Few states have reimposed major restrictions yet, but are more likely to do so as the virus spreads.
Brief: Onex Corp. says its private equity investments increased in value this year, despite the economic volatility caused by the COVID-19 pandemic. The company, which manages a fund that bought WestJet Airlines Ltd. in a $5-billion deal last December, didn't announce details about the Calgary-based airline. Overall, the Toronto-based investment firm says it earned US$501 million, or US$5.29 per fully diluted share, in the three months ended Sept. 30. In the same period last year, the company reported earnings of US$100 million, or 99 cents US per diluted share. The company, which makes money in several ways including buying and selling companies, lending and fees for managing assets for clients, declared a dividend of 10 cents per share for the fourth quarter — unchanged since mid-2019. Despite recent hardships for airlines, including WestJet, Onex says its private equity investments yielded gross returns of 14 per cent during the third quarter, while shareholder capital rose by about 10 per cent. Chief executive Gerry Schwartz says Onex has been improving its portfolio, making investments in benefit insurer OneDigital, trade-show company Emerald Holdings and a clinical services group.
Brief: After eight months of virtual meetings and Zoom conferences, institutional investors are looking to ease back to in-person events next year, according to an Institutional Investor survey of nearly 300 allocators and consultants. The majority — 53 percent — said they would feel either somewhat or entirely comfortable attending outdoor regional events in the spring, even as most said they would still not want to travel for more traditional indoor conferences. Respondents from consulting firms, endowments, and foundations were among those who were most willing to attend regional events, while health care investors expressed the least amenability. II conducted the survey over the last four weeks, as coronavirus infections rose once again in the U.S. Most of the responses came in before this weekend, when Pfizer and BioNTech reported promising preliminary results on their Covid-19 vaccine. Participants in the survey were asked to describe their level of comfort about attending three types of events: regional, “resort-style,” and traditional. Regional events were defined as local, outdoor gatherings with no air travel, while resort-style events would take place outside at destinations like Miami or Aspen. Traditional events described indoor gatherings in major cities.
Brief: Experts see a small pay cut coming for executives at traditional asset managers, hedge funds, and private equity shops, particularly at smaller firms, given disruption in the underlying economy because of the coronavirus. The predicted five-to-10 percent compensation drop would make for two down years in a row, according to Johnson Associates’ third-quarter report on year-end incentives. But that average belies striking differences between the haves and have-nots in asset management. The consultant expects compensation changes to range widely, from 20 percent cuts to 7.5 percent hikes. Costs have continued to grow as investors want more hand-holding, data, and analytics, while compliance burdens expand, according to Johnson Associates. At the same time, investors continue to pressure managers for fee deals. Some asset managers are still cutting staff given shrinking asset bases or only modest inflows as the industry consolidates. Last month, for example, Morgan Stanley announced plans to buy asset manager Eaton Vance.
Brief: A high-performing equity fund manager isn’t buying into Covid-19 thematics like the so-called stay-at-home or reopening trades that are sensitive to virus developments. Instead, Castle Point Funds Management Ltd.’s Richard Stubbs said he’s targeting companies with strong fundamentals that he expects can withstand such short-term market gyrations. Focusing on near-term earnings, election outcomes and other uncontrollable factors can often prove unproductive in times of volatility, said the Auckland-based fund manager, who invests in Australian and New Zealand shares. News about a possible vaccine breakthrough earlier this week prompted a global shift among equity investors from fast-growing companies into parts of the market that have struggled with lockdowns and economic pain. That transition has since tempered on the realization that a return to normalcy is still a ways off. “Trying to predict what sectors are going to do better than others in this period of extreme uncertainty is unlikely to be successful,” said Stubbs. His Castle Point Ranger Fund has returned about 22% this year, beating 92% of peers, according to data compiled by Bloomberg.
Brief: Three of the world’s top central bankers warned Thursday that the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic. “We do see the economy continuing on a solid path of recovery, but the main risk we see to that is clearly the further spread of the disease here in the United States,” Federal Reserve Chair Jerome Powell said during a panel discussion at a virtual conference hosted by the European Central Bank. “With the virus now spreading, the next few months could be challenging.” Powell was joined on the panel by Bank of England Governor Andrew Bailey and ECB President Christine Lagarde. Both echoed his caution, and added to recent warnings from other central bankers against complacency. Bailey called recent vaccine news “encouraging” and said he hoped it would reduce uncertainty but added “we’re not there yet.” Lagarde said while it’s now becoming possible to see past the pandemic, “I don’t want to be exuberant.” The words of warning come as much of the U.S. and Europe is enveloped in a new wave of coronavirus outbreaks. In the U.S., hospitalizations are at record highs. In Europe and the U.K., governments have moved to reimpose lockdowns to limit the spread of the virus. Worldwide, cases top 52.3 million and deaths exceed 1.28 million.
Brief: Shares in Legal & General LGEN.L fell more than 3% on Thursday as the British life insurer kept its final dividend payment for 2020 flat due to the coronavirus pandemic and cut its dividend growth target for the next five years. L&G has not suffered a major impact from the pandemic but executives told reporters that housing sales dropped in Britain following the country’s first lockdown in March, while U.S. life insurance claims increased due to the virus. L&G is a direct investor in housing and commercial real estate. L&G is also a major player in the market for annuities, which pay pensioners a fixed income for life. It also invests in infrastructure and is one of the largest investors in the UK stock market. On the 2020 dividend, Chief Financial Officer Jeff Davies said: “We felt that a pause year was a good balance between rewarding shareholders - where many aren’t rewarding at all - versus holding back for potential uncertainty.” L&G paid its final dividend for 2019, unlike other British insurers such as Aviva AV.L and RSA RSA.L.
Brief: America’s mid-sized companies are faring better than industry watchers feared at the start of the pandemic, as private equity owners step in to help tide them over. Sponsors have provided more cash to portfolio companies compared to the 2008 crisis, with a view that keeping businesses afloat will be more advantageous than potential restructurings or lender takeovers, according to Lincoln International, a middle-market advisory firm. Private equity owners have also been very proactive in coming up with new ways to generate revenue and cut costs to keep companies going, according to Ron Kahn, co-head of Lincoln’s valuations and opinions group. “Sponsors and lenders have worked very well together to make sure these companies have staying power,” Kahn said in an interview. Some analysts had predicted that credit quality for business development companies, a roughly $100 billion industry that mainly lends to mid-sized borrowers, would get worse before it gets better. But those dire forecasts are now being dialed back in certain cases amid a slowdown in soured loans. Businesses that initially positioned their budgets conservatively are now revising projections upward, according to Lincoln. Mid-sized companies have updated earnings projections to show an expected 13.1% Covid-related decline, down from forecasts for a 23.4% drop just three months ago.
Brief: Alternative investment firm Värde Partners has held a final close of The Värde Dislocation Fund with more than USD1.6 billion of commitments. Raised entirely with no in-person meetings, 55 per cent of commitments to the fund come from new investors. “The strong demand for this strategy from a diverse, global investor base underscores expectations for a deep credit cycle,” said president Jon Fox. “We took innovative steps to engage investors through virtual platforms and were able to exceed our target in just five months.” The fund will invest in opportunities presented by the market dislocations and economic disruption following the pandemic. It has a global mandate to pursue a broad universe of mispriced, stressed, and distressed credit, according to the firm. “We believe the profound impact of Covid-19 has marked the start of a major, connected cycle,” said George Hicks, co-founder and co-chief executive officer. “Having established a deep expertise in credit over the past 27 years, we bring to bear our experience investing through many credit cycles to guide us as the crisis unfolds,” added Hicks.
Brief: Marathon Asset Management is setting up an office in Miami as the Covid-19 pandemic upends New York City as a financial hub, according to co-founder and Chief Executive Officer Bruce Richards. “Marathon South will be an option for our employees,” Richards said in an interview on Bloomberg Television Wednesday. The Miami office will mainly be for non-investment professionals and the investing team will remain in New York, he said. “I’m certainly committed to New York City,” Richards said. “I love New York City.” But he sees cities like Atlanta, Nashville and Charlotte benefiting from travel and business in the next few years, with New York not as attractive as it once was. Lower taxes and less crime outside of New York will also lure companies elsewhere, Richards said. The distressed-debt specialist looked at Charlotte, Atlanta and Miami as possible locations for another office, ultimately choosing the Florida city, he said. Marathon has had a presence in New York, London and Tokyo, according to its website. Marathon follows peers like Balyasny Asset Management and Bluecrest Capital Management in establishing an office outside of New York City as the pandemic pushes office dwellers to work from home for the foreseeable future. Currently 20% of Marathon’s workers are in the office Monday through Thursday, with 10% on site on Friday, he said. “New York is not what it once was,” he said. “Vacancy rates are going to go up, and it’s going to be ugly for property owners.”
Brief: For years, hedge funds have blamed placid markets for their uninspiring returns. That excuse won’t fly this year. Volatile markets in which stocks move less in lockstep should be a recipe for making money. But much of the industry is struggling, and clients are losing patience. “This year separates the adults from the children,” said Tim Ng, chief investment officer of Clearbrook Global Advisors, which invests in hedge funds. “If you are a fundamentally driven, bottoms-up securities manager across any asset class, this should have been the year when you did well. Everything you’ve wanted for years exists.” The $3.3 trillion industry gained 0.4% through October, according to the Bloomberg Hedge Fund Indices, trailing both stocks and bonds. Hedge Fund Research Inc.’s index looks worse, showing a drop of more than 4%. Big winners include Brevan Howard Asset Management and Coatue Management, and in the losing column are firms such as Bridgewater Associates, whose flagship fell 19% through Nov. 5. Some investors in struggling funds are asking: If they couldn’t make money before and still can’t now, why keep them? “It’s getting harder to have conviction in hedge funds,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management, another allocator. “Many have not protected enough on the downside and others haven’t provided enough upside.” Taback said he isn’t cutting funds from client portfolios, though the bar for getting recommended is higher. He believes more fund shutdowns are coming.
Brief: The coronavirus crisis, Brexit, climate change and the end of the Donald Trump-era will disrupt markets and challenge investors and policy makers heading into 2021. To help sort through the issues, Bloomberg is hosting the Future of Finance conference, a virtual event with leading figures from banking, insurance, regulatory agencies and central banks. On Tuesday, Robert Kaplan, head of the Federal Reserve in Dallas, told the event that the resurgence of Covid-19 jeopardizes the next two quarters for the U.S. economy, which is poised to bounce back. On Thursday, speakers include Felix Hufeld, head of Germany’s financial regulator BaFin, Austrian Finance Minister Gernot Bluemel and Erste Group CEO Bernd Spalt. Key Developments on Wednesday: Deutsche Bank’s Americas chief Christiana Riley said a wave of trading has been unleashed in recent days by vaccine news and clarity in the U.S. election Allianz CEO Oliver Baete said the risks are increasing for a “massive shock” to the global economy as businesses and consumers become less willing to invest in the future.
Brief: Despite extreme levels of market volatility, increased trading volumes and disruptions to society due to Covid-19, alternative fund managers have persevered, and even exceeded, performance expectations from investors. Nonetheless, managers continue to face challenges in addressing important areas of focus, including environmental, social and governance (ESG) products, and diversity and inclusion (D&I), according to the 2020 EY Global Alternative Fund Survey. In times of change, does accelerated adaptation present obstacles or opportunities? – the 14th annual survey (formerly the EY Global Hedge Fund Survey) – reveals that total allocations to alternative investments remain relatively unchanged; however, the competition between asset classes continues to intensify. Following a multiyear trend, allocations to hedge funds shrunk again to just 23 per cent in 2020, compared to 33 per cent in 2019 and 40 per cent in 2018. Investments in private equity and venture capital remained stable at 26 per cent, while investments in private credit increased from 5 per cent to 11 per cent as many market participants anticipate Covid-19 initiating a credit cycle that will create opportunities for these managers. A shift in alternative products is not the only change this year. Hedge funds have been expanding their offerings, or tapping into new markets, such as private asset classes in particular, via a variety of unique structures. More than 40 per cent of hedge fund managers are currently offering co-investment vehicles or best-idea portfolios, and, additionally, almost 20 per cent of managers are creating side pockets, which allow investors an election to participate in illiquid investments within a broader portfolio.
Brief: Pfizer CEO Albert Bourla sold almost $5.6 million worth of stock on Monday, the same day the drugmaker announced positive early data on its experimental coronavirus vaccine that sent shares soaring. Shares of Pfizer jumped by almost 15% on Monday after the company and its partner BioNTech said its vaccine was more than 90% effective in preventing Covid-19 among those in the trial without evidence of prior infection. Bourla sold 132,508 shares at an average price of $41.94 per share, or nearly $5.6 million, according to securities filing. The sale was part of a pre-scheduled 10b5-1 trading plan, which was adopted on Aug. 19, the filing shows, as the company was enrolling participants in its late-stage trial. The sale accounted for 61.8% of the shares owned both directly and indirectly by Bourla. He still owns 81,812 both directly or indirectly, the filings show. Pfizer confirmed the sale in a statement and added that Bourla has a larger holding in the company through the company’s “qualified and nonqualified savings plans,” which likely means stock options. “After being with the company for more than 25 years, Albert owns a substantial amount of Pfizer stock under our qualified and nonqualified savings plans,” a Pfizer spokesperson said in a statement. “He now holds approximately nine times his salary in Pfizer stock after the sale this week.”
Brief: Pandemic payment breaks on European loans totalling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them. Some of the millions of borrowers who were given repayment holidays by banks and governments across Europe shortly after the outbreak of the pandemic still need relief as a second wave of lockdowns squeezes the economy and puts people out of work. But the longer their loan repayments are kept on ice, the bigger the potential problem for banks as debts stack up, making them more difficult to tackle. The European Central Bank’s chief supervisor Andrea Enria has warned of a “huge wave” of unpaid loans that could top 1.4 trillion euros and has cautioned against postponing writing them off, warning that waiting for loan moratoria to expire could see many borrowers “unravel at once”. Although the volume of loans on pause fell sharply over the summer, a Reuters survey and analysis of the latest data available shows that loans totalling about 320 billion euros ($380 billion) were still on a payment holiday at 10 of Europe’s biggest banks. In Ireland, banks started to phase out payment holidays in September, a move Michelle O’Hara, a manager at a charity advising those in debt difficulty, said prompted a call surge.
Brief: With certain aspects of the EU’s ongoing MiFID II review affected by the coronavirus pandemic, Hedgeweek explores how a fresh overhaul of the framework may further impact hedge fund operations, and why the Covid-19 crisis may provide an easing of the regulatory burden. Introduced in January 2018, the European Union’s Markets in Financial Instruments Directive (MiFID) II brought sweeping changes to transparency rules and transaction reporting requirements across the financial markets spectrum. Among the major reforms impacting hedge funds was a package of measures covering third party research. These included extra scrutiny over the ways that asset managers pay for sell-side analysis, and the unbundling of research from brokerage fees, a move aimed at curbing inducements to trade. Almost three years on, industry consensus indicates MiFID II has led to a reduction in hedge fund research spend. But anecdotal evidence also suggests portfolio managers have sought to capitalise on the reduced amount of stock analysis with targeted research budgets to help them gain an edge. The European Commission kicked off an industry-wide consultation on its planned MiFID II review in February this year. But certain parts of the review have been delayed as a result of the Covid-19 pandemic, with ESMA expected to report back on these in early 2021.
Brief: The U.S. economy is likely to have a strong recovery from the pandemic-induced slump in the second half of the 2021 though the resurgence of Covid-19 jeopardizes the next two quarters, Federal Reserve Bank of Dallas President Robert Kaplan said. “We have a couple of very difficult quarters in front of us,” Kaplan said Tuesday in a virtual interview with Michael McKee at Bloomberg’s Future of Finance 2020 event. Citing business contacts, Kaplan said, “Over the horizon, the future looks bright and we’ll have a strong year next year but we have got to get through the next couple of quarters.” Kaplan, echoing comments from Fed Chair Jerome Powell, said additional fiscal policy support would be helpful, especially for unemployed workers and small businesses that need support to survive the next few months. The Federal Open Market Committee last week kept interest rates near zero and discussed potential changes in its asset purchase program, Powell told reporters after the meeting. “If we don’t renew it, we will see a drop-off at some point in household income and consumer spending,” Kaplan said, referring to fiscal aid for the unemployed and small businesses. “It will hurt the entire economy because it will weaken consumer spending.”
Brief: News of a breakthrough in the race to find a COVID-19 vaccine sparked one of the heaviest trading days since the height of the pandemic crisis, according to early data analysed by Reuters, with nearly $2 trillion changing hands on Monday. Traders stampeded to the riskier plays in equities, foreign exchange and bond markets after Pfizer Inc PFE.N released positive data on its vaccine trial, while rotating out of safe havens such as technology stocks, Japanese yen JPY= and top-rated bonds. “Volumes (are) also surging as programmes and baskets go to work to either correct portfolio balances or address margin calls,” said Mark Taylor, sales trader at Mirabaud Securities, highlighting a jump in volumes in the airlines and banking sectors. In the United States, nearly $500 billion worth of trades went through stock markets on Monday, one of the busiest days since March, when coronavirus lockdown fears rattled financial markets. Europe saw $120 billion traded, according to Refinitiv data. Value stocks, typically companies that are more sensitive to economic cycles, notched their best one-day performance against their growth-focused peers ever in the United States after Monday’s news of an effective vaccine against the coronavirus.
Brief: Investor allocations to hedge funds have fallen for the third consecutive year – but the industry’s ability to weather economic turbulence and market volatility through active management will continue to attract investor attention, according to two new industry studies. EY’s 14th annual ‘Global Alternative Fund Survey’ quizzed alternative investment managers and investors on a range of topics, including portfolio performance, allocation plans, and the impact of the coronavirus pandemic, as well as ESG and other investment trends. It found that although hedge fund strategies have shrunk as a proportion of investor portfolios, their impressive outperformance during 2020’s Covid-19 crisis has not gone unnoticed. Preqin’s ‘Future of Alternatives 2025’ study meanwhile suggests that despite outflows, hedge fund AUM will surge over the next few years, driven by actively-managed strategies overcoming higher volatility environments. EY’s annual study shows allocations to hedge funds now make up just under a quarter (23 per cent) of portfolios’ total allocations in 2020, a 10 per cent tumble from 2019, and sharp slide from the 40 per cent recorded in 2018. Investor capital has been drawing away from hedge funds and towards other alternatives – such as private equity/venture capital, real estate and credit, which have seen positive inflows – while hedge fund flows have been net flat.
Brief: BlueOrchard, an impact investment manager connected to Schroders, has launched a fund designed to provide financial support to medium and small businesses (MSME) in emerging markets hit by Covid-19. The BlueOrchard Covid-19 Emerging and Frontier Markets MSME Support Fund has so far gathered $140 million along with the backing of Schroders and development finance bodies in the UK, US and Japan. BlueOrchard said other backer including the German Federal Ministry of Economic Cooperation and Development (BMZ) are expected to join after due diligence. The fund, which qualifies under the ‘2x Challenge’ criteria devised by the development agencies of the G7, is targeting total investment of $350 million. with which it intends to finance 20 institutions and three million micro-entrepreneurs while saving 60 million jobs per $100 million in capital. According to the fund, while government support has been apparent in developed economies via various stimulus packages and employment furlough schemes, there has been an absence of support in emerging and frontier markets.
Brief: Hedge funds were not the primary villains of the turmoil in the Treasury market as the grip of the coronavirus intensified in March, according to a Federal Reserve report released Monday. While hedge funds selling of Treasury’s did play a role in the dysfunction of the market, “so far, the evidence that large-scale deleveraging of hedge fund Treasury positions was the primary driver of the turmoil remains weak,” the Fed said. The conclusion was contained in the Fed’s twice-per-year report on financial market stability. “Conversations about the crisis always mention hedge funds. Everyone acknowledges they were key contributors,” said Jeremy Kress, a former Fed staffer and now a professor at the University of Michigan’s Ross School of Business. Banks have been under tighter control in the wake of the Dodd-Frank reforms put in place after the financial crisis. The Fed report suggests hedge funds won’t be singled out and other firms like mortgage REITs, and electronic trading firms may all come under scrutiny as market extremes are reviewed.
Brief: The coronavirus pandemic has been a catalyst for social media activity across the European asset management industry in 2020 and the focus on this form of marketing is set to intensify, according to the latest issue of The Cerulli Edge―Global Edition. “The importance of a strong online presence has been underlined by the COVID-19 lockdown measures,” says Fabrizio Zumbo, associate director of European asset and wealth management research at Cerulli. Around 12% of the asset managers Cerulli surveyed in Europe last year did not have a dedicated digital and social media marketing team, but this figure dropped to only 2% in the 2020 survey. The firm’s research shows that managers plan to bolster their digital presence in the coming 12 to 24 months. In addition, some 44% of the managers surveyed expect their social and digital media activities to consume a greater proportion of their marketing budgets over the next two years. Despite the progress managers have made this year in terms of increasing their social media activities, fewer than half of the managers surveyed are satisfied with their level of activity. However, more respondents to this year’s survey believe they have a satisfactory social media presence across Europe. Cerulli’s research shows that, overall, business-focused LinkedIn is still the social media channel most frequently used by asset managers in Europe, ahead of Twitter and Facebook. However, with appetite for engaging video content increasing, managers are likely to use YouTube more. Some 73% of managers expect to create and share more video content via social media channels over the next 12 to 24 months.
Brief: Hedge funds have notched up positive returns in recent weeks, positioning around the investment uncertainty surrounding the US presidential election and fresh Covid-19 lockdowns with gains inversely correlated to the sharp stock market declines seen at the end of October. New data from Hedge Fund Research shows the industry as a whole was up 0.4 per cent last month, which took the HFRI Fund Weighted Composite Index’s year-to-date performance to 1.2 per cent. As governments reimposed lockdowns in a bid to contain a renewed increase in coronavirus cases in many countries, HFR president Kenneth Heinz described October’s performance as “impressive”. Equity-based hedge fund managers added 0.90 per cent during October, which took the HFRI Equity Hedge Total Index’s year-to-date returns to 3.45 per cent.
Brief: Investors cashed out of companies that benefited from virus-induced lockdowns after promising results for a Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE reawakened hopes that a return to normal is on the horizon. Zoom Video Communications Inc. plunged as much as 20%, the most on record, while Peloton Interactive Inc. dropped 25%, a record of its own, and Netflix Inc. dropped 9.2% as investors piled into risk assets and dumped shares of firms that have been winners during global lockdowns. The Nasdaq 100 edged higher but markedly underperformed other key gauges like the S&P 500. High-flying payment stocks PayPal Holdings Inc. and Square Inc. also sank. “The rotation that the market is doing is beyond any imagination with Nasdaq in negative territory and Russell 2000 in limit up,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “We will continue to see some rotation out of “winners” into the laggards.” The preliminary results, which Pfizer’s chief executive called the most significant medical advance in the last century, dealt a blow to some of the lockdowns’ biggest winners as a push to reopen would mean less time on video chats and working out from home. Those expectations in turn lead to a roaring boom for companies that operate things like cruises, concerts, and hotels.
Brief: Global investment firm KKR continues to see the Philippines as an attractive market amid the global pandemic, citing the fundamental strength of the country’s economy as well as its young and dynamic population. KKR believes the Philippines’ stable currency and strong level of foreign reserves, its focus on keeping inflation low, and the introduction of reform programs aimed at improving the investment climate are additional characteristics that drive the country’s attractiveness in the global arena. Since 2018, US-based KKR has invested over USD1 billion into the Philippines across four investments, starting with Voyager Innovations whose flagship product is digital payment platform PayMaya. KKR then invested into Metro Pacific Hospitals in December 2019 and First Gen in June 2020. This month, it invested into Pinnacle Towers, which aims to strengthen and expand the Philippines’ telecom infrastructure. Ashish Shastry, co-head of Private Equity for KKR Asia Pacific & head of Southeast Asia, says: “We see significant opportunity in the Philippines and will continue to invest where we believe we can add value to companies and the economy.” While the Covid-19 pandemic has been challenging for investors across the globe with economies posting sharp declines in growth due to varying stages of shutdowns, Shastry said KKR is “a strong believer in the underlying Philippines’ growth story and not deterred by the short-term impact of Covid-19.”
Brief: The continuing economic fallout stemming from Covid-19 restrictions has prompted financial services leaders to lower their revenue expectations for 2020 and prepare to cut operating budgets ahead of a challenging 2021, according to a new snap poll organised by Luxembourg for Finance. Following on a survey conducted in May 2020, Luxembourg’s development agency for the financial services industry, in October, asked nearly 400 senior or c-suite executives working at international financial services firms – including major banks, asset managers, insurers, and private equity firms – for their views on the macro economic situation. With one quarter of respondents seeing the operating environment becoming more volatile and major disruptions ahead, the results revealed that 60 per cent are now forecasting lower than expected revenues for the end of 2020, while 75 per cent of respondents expect to see no international investment growth in 2021, with 31 per cent even expecting a decrease. In one bright spot in their outlook, 55 per cent of respondents said they were “rather confident” about revenue growth next year, with a further 9 per cent purporting to be “absolutely confident”. This could however be linked to the fact that over half (56 per cent) plan to reduce their operating budgets for 2021.
Brief: Many offices now sit empty as many shops hang by a thread. Casinos, hotels, and amusement parks are fading into memory as consumers turn toward socially distant activities. So what does the future of real estate—and cities—look like? That’s the question Fortune posed to Blackstone Global Co-Head of Real Estate Kathleen McCarthy. Even before the pandemic, American malls were on the decline as e-commerce soared, and office spaces were being rejiggering to fit quirky amenities (ahem, beer taps and meditation rooms) common among top companies. The coronavirus, says McCarthy, may well mean that some malls and department stores turn into e-commerce centers, while office spaces undergo more renovation to include, say, better air filtration. Blackstone, known for its sprawling corporate real estate portfolio, has been remarkably resilient in the pandemic, a phenomenon it attributes to betting early on the rise of the technology and life sciences industries. Blackstone’s biggest real estate bets in recent years have featured warehouses rather than retail spaces: Last year, it acquired assets of Singaporean-based giant GLP for $18.7 billion and U.S.-based Colony Industrial for $5.9 billion. Those all sit within a group of assets it calls logistics, which now make up 36% of its real estate portfolio and is valued at about $90 billion including debt.
Brief: As countries worldwide rally financially to offset the economic effects of the Covid-19 crisis, CAMRADATA’s latest whitepaper on Emerging Markets focuses on the developing markets and considers opportunities in both the equity and fixed income arena of this dynamic region. The whitepaper includes insight from guests who attended a virtual roundtable hosted by CAMRADATA in September including representatives from Amundi Asset Management, Mackenzie Investments, Muzinich & Co, Aon, Blue Sky Pension Fund, Riscura and Willis Towers Watson. The report highlights that whilst the growth outlook may be uncertain in many emerging markets at present given the pandemic and the differing government and policy responses, there is a general consensus in the investment community that Asian countries have contained the virus better than many Western countries, with swifter implementation of lockdown measures, resulting in earlier recovery. Sean Thompson, Managing Director, CAMRADATA, says: “It is vital that, rather than lumping all emerging markets into a single monolithic group, investors recognise the varying responses in handling the coronavirus as this will translate into market performance. “Investors will also need to keep an eye on the US presidential election given the spill-over effects on emerging markets and limited capacity for further fiscal or monetary stimulus. But there are opportunities for investors in emerging markets.
Brief: Ray Dalio’s Bridgewater Associates spent weeks earlier this year tweaking its investment models to account for unprecedented government stimulus and the worsening pandemic. That hasn’t helped performance. The flagship Pure Alpha II fund has lost 18.6% through Thursday, according to a person familiar with the matter. That’s little changed from the decline it reported through the end of August. This year’s loss in Dalio’s main fund is shaping up to be its worst ever, putting him far behind other macro managers who have posted strong gains in 2020. The fund has gained little ground since the end of March, despite a strong market rebound. It was down about 23% in the first quarter as the spread of Covid-19 brought much of the global economy to a standstill. After central banks flooded markets with liquidity, Bridgewater investment managers spent more than a month turning off strategies they deemed to be ill-suited for the new environment, and adjusted others they believed would work. By August, a person close to the firm said risk levels, which had been cut earlier in the year, were back to historic norms.
Brief: U.S. Senate Majority Leader Mitch McConnell said on Friday that economic statistics, including a 1 percentage point drop in the unemployment rate, showed that Congress should enact a smaller coronavirus stimulus package that is highly targeted at the pandemic’s effects. The Republican senator told a news conference in Kentucky that the fall to a 6.9% jobless rate, combined with recent evidence of overall economic growth, showed the U.S. economy is experiencing a dramatic recovery. “I think it reinforces the argument that I’ve been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate,” McConnell told reporters. But his call for a narrow package was quickly rejected by House of Representatives Speaker Nancy Pelosi, a Democrat, who has been working to broker a COVID-19 stimulus deal near the $2 trillion mark with Treasury Secretary Steven Mnuchin. “It doesn’t appeal to me at all, because they still have not agreed to crush the virus. If you don’t crush the virus, we’re still going to have to be dealing with the consequences of the virus,” Pelosi told a news conference on Capitol Hill.
Brief: Allianz SE canceled a share buyback program that it had suspended earlier in the year as the hit from the Covid-19 pandemic continued to mount in the third quarter. Virus-related hits rose to 1.3 billion euros ($1.5 billion) by the end of September, up from about 1.2 billion euros in the first six months of the year. Allianz said it won’t repurchase some 750 million euros of shares that were still left in a buyback program for 2020, “in light of the ongoing economic uncertainties.” While the insurer doesn’t keep a ranking of loss events, the pandemic has already cost it more than the 470 million euros it reported for hurricane Katrina in 2005, the most expensive single loss event for the industry so far. Virus expenses are now approaching those of the 9/11 terror attacks that cost the company about 1.5 billion euros in 2001. The pandemic is posing a major challenge for insurers, which have to contend with simultaneous claims across multiple industries and business lines. A single unit of Allianz, which says it’s the largest insurer of Hollywood studios, reserved hundreds of millions of dollars this year for coronavirus-related claims after movie and television studios were forced to curtail production during lockdown. More losses might be on the way as the second wave of the pandemic is hitting Europe, though the experience of the first lockdowns will help insurers limit losses. Chief Financial Officer Giulio Terzariol said in an interview on Friday that claims from new lockdowns will be contained after Allianz stopped covering pandemic-related losses in most new property-casualty insurance contracts.
Brief: Portfolio managers face conflict every day as their ideas and levels of conviction are constantly tested. But as we all continue to adapt to remote working, finding a level of detachment from the office environment seems to be helping PMs re-affirm their edge and listen with greater clarity to their intuition. Could the home office now become a semi-permanent arrangement in pursuit of improved portfolio performance? The hustle and bustle of a trading floor and free flow of ideas inside hedge funds can be energising but for even the best portfolio managers, it can also stoke the flames of sub-conscious doubts and fears. It is all too easy to become swayed by an analyst’s counter-argument, or lose conviction on a trade because the chief economist throws a curveball. Such is life in the high-pressure world of fund management, where maintaining one’s conviction – or one’s investment edge – comes under constant bombardment. And while we human beings will never shed our cognitive biases, changing one’s environment can make a difference. In the strangest of years, remote working in 2020 is helping portfolio managers maintain their edge, away from the day-to-day distractions of the office.
Brief: While some analysts have said that a V-shaped recovery is underway, Oaktree Capital Management high yield portfolio managers Madelaine Jones and David Rosenberg are more skeptical. In an "Oaktree Insights" letter published Thursday, Jones said the economy hasn't fully recovered from the depths of the coronavirus crash. "Until fundamentals really do improve, conflicting economic data and political shocks could spark more market ructions," they said, adding that the economic recovery largely depends on when the pandemic can be resolved. "The fundamentals tell us we're not out of the woods yet," the portfolio manager said, citing the historically high unemployment level in the US, and a GDP that rebounded strongly but is still well below pre-pandemic levels. Spiking levels of the coronavirus will undermine the economic recovery for the rest of the year, said Jones. "Now is a time to be cautious," said Jones. "There are limits to what central banks can do to prop up markets if underlying economy conditions don't heal. Given the speed of this broad market rally, we have no interest in going out too far on the risk curve in the search for that last bit of yield."
Brief: The inability to meet with asset managers in person has not kept public pension funds from investing in private equity, according to eVestment. The investment data firm said in a private markets report that pension funds committed $20 billion to private equity in the third quarter, more than the $17.8 billion invested in the same period last year. The second quarter had been even busier, with commitments totaling nearly $25 billion. In total, eVestment said 455 private equity commitments were made by public pensions from April through September, following the transition to all-remote work in March. This compares to 413 private equity commitments recorded in the same six months a year earlier. “Despite the remote nature of fundraising today, public plans are continuing to execute on their commitment plans and deploy capital,” eVestment said in the report. The California Public Employees’ Retirement System, New York State Teachers’ Retirement System, Washington State Investment Board, and State of Wisconsin Investment Board were the most active investors during the third quarter, according to eVestment.
Brief: The future market for Covid-19 vaccines could be worth more than $10bn (£7.6bn) in annual revenues for pharmaceutical companies, according to industry experts, even though some drugmakers have pledged to provide their vaccines on a not-for-profit basis during this pandemic. The calculations by analysts at Morgan Stanley and Credit Suisse assume people will need to be vaccinated every year, similar to the traditional flu jab, with an average price of $20 for a Covid-19 vaccine dose. Prices range from $3 a dose to $37. Matthew Harrison, an analyst at Morgan Stanley, estimates that even if only those who receive an annual flu jab take a Covid-19 shot, this would generate $10bn a year in revenues for the pharmaceutical industry in the US, Europe and other developed countries. He put the cost of producing a vaccine at $5-$10 a dose. The size of the market depends on whether people need to take the vaccine every year, or less frequently, as well as vaccination rates, and could be worth up to $25bn a year globally, he said. Evan Seigerman, an analyst at Credit Suisse, said the US market alone could be worth $10bn, based on Pfizer’s vaccine pricing of $19.50 a dose, and assuming that 330 million citizens receive two doses each.
Brief: Standard Chartered will make permanent the flexible working arrangements for most employees that were put in place during the coronavirus pandemic, it said on Thursday. The Asia, Africa and Middle East-focused bank said it aims for around 50% of its markets, comprising around 70% or 60,000 of its employees, to be able to adopt hybrid working patterns by the end of 2021. That would mean those staff can choose to work entirely at home, entirely in offices or a mix of both. The bank said it aims for 90% of its staff to be offered flexible working by 2023, albeit some will have to work full-time in offices given the nature of their roles. The move by StanChart to formalise flexible working habits is one of the most concrete signs yet from a major bank of how lenders are moving swiftly to adopt new ways of working forced on them by the pandemic.
Brief: Prime Minister Narendra Modi invited global funds and businesses to invest in India, pitching the nation as a safe and stable destination. Demand with democracy and stability with sustainability are things that India offers, Modi said Thursday in a virtual address to global investors including British Columbia Investment Management Corp., GIC Pte, and Korea Investment Corp. It is also a place that provides growth with a green approach, he said. “A strong and vibrant India can contribute to stabilization of the world economic order,” Modi said, pledging to “do whatever it takes to make India the engine of global growth resurgence. There is an exciting period of progress ahead. I invite you to be a part of it.” Modi’s meeting with the world’s largest pension and sovereign wealth funds, which have about $6 trillion of assets under management, follows his government’s measures in the recent past to make India more investor-friendly. That includes offering incentives to some manufacturers, amending labor laws and lowering tax on companies to among the lowest in Asia. Still, India has had marginal success in attracting investments with businesses preferring Vietnam and other South East Asian nations in their quest to reduce reliance on China, and matters have been made worse by rising coronavirus infections.
Brief: Lone Star Funds is exploring options for its building-materials retailer Stark Group A/S, which could fetch about 2.5 billion euros ($3 billion), according to people familiar with the matter. The U.S. private equity firm is working with Lazard Ltd. to consider a potential sale or initial public offering of Stark, the people said, asking not to be identified discussing confidential information. Deliberations are ongoing and no final decisions have been made, the people said. Representatives for Lone Star and Stark declined to comment. A representative for Lazard didn’t immediately respond to request for comment… Lone Star bought Stark three years ago for 1 billion euros from U.K.-listed plumbing and heating group Ferguson Plc. A sale would add to $2.6 billion of transactions targeting building-materials companies in Europe this year, according to data compiled by Bloomberg. While the coronavirus lockdowns of 2020 have hit construction companies by halting projects, the sector is expected to play an important role in post-pandemic recoveries.
Brief: The Bank of England (BoE) has extended its quantitative easing measures at a much higher level than anticipated, highlighting concerns about the welfare of the UK’s economy as the country enters a second lockdown. On Thursday morning, the Bank announced it would extend its gilt asset purchases by £150 billion (€165.9 billion), bringing the total to £875 billion. Extending the stimulus package came as a surprise to analysts, with many forecasting that further measures would be around £100 billion. As the economic fallout of Covid-19 lockdowns continues to make itself known, BoE’s announcement is a cause for concern. The Bank reported a “softening” of consumer conditions and warned that growth in the fourth quarter would likely contract, possibly by 2.5%. Derrick Dunne, chief executive of UK-based Beaufort Investment, said: “Desperate times might call for desperate measures, but the Bank doesn’t think we’re ready for negative rates quite yet.” He called the stimulus - £50 billion more than was forecast - a “bold move” that shows the Bank’s concern over the financial state of the country.
Brief: While much of the United States is zeroed in on the outcome of the 2020 election, institutional investors are more focused on other issues — at least when it comes to investment decision-making. According to industry insiders, the coronavirus pandemic and central banks’ actions are seen as outweighing the significance of the contentious election for institutional portfolios. “The truth is for markets, it’s not just terribly important,” Michael Rosen, founder of Angeles Investment Advisors, said of the election. “It's important for a lot of reasons. For our country, society, our children, their children. But not the markets.” Although the markets popped on Wednesday as votes were being tallied, Rosen and his peers in the industry do not believe the effects are long-lasting. “We think that there may be noise in the short term,” said Scott Freemon, head of strategy and risk at Secor Asset Management. He added that the attractiveness of one asset class over another will not change based on the election’s results. “The primary issue for the market remains recovering from Covid-19 and the speed of that recovery,” he said. Institutional consulting firm North Pier Search Consulting echoed this sentiment in a report published ahead of the election. “At the end of the day, it will likely come down to the trajectory of the virus,” the search firm said.
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