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Brief: Federal Reserve Governor Lael Brainard said a failure by Congress to reach an agreement on further support for the economy is the biggest risk to the outlook aside from the coronavirus itself. “Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending,” said Brainard, viewed as a possible pick for Treasury secretary if Democratic presidential nominee Joe Biden defeats President Donald Trump next month. “Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize,” she told the Society of Professional Economists in an online speech Wednesday. U.S. central bankers next meet Nov. 4-5, immediately after election day. The U.S. economy is recovering from the severe recession triggered by the coronavirus pandemic, but the pace is showing signs of slowing and recent data has been mixed. Retail sales have picked up and sales of homes and autos also rebounded from the second-quarter lows. Still, the economy has recovered only about half of the 22 million jobs lost and non-farm payroll gains have slowed for three consecutive months.
Brief: Banks that facilitated the U.S. government’s Paycheck Protection Program at first saw the effort as a small revenue booster with a patriotic bonus, shepherding $525 billion in loans to businesses slammed by the fallout of the COVID-19 pandemic. But as taxpayers begin to take on the cost of forgiving those loans, lenders like JPMorgan Chase & Co, Wells Fargo & Co and Bank of America Corp, are girding for what is likely to be years of regulatory scrutiny for their role in doling out the money, according to industry insiders, securities filings and government watchdogs. “The sense of anxiety is high,” said Vivian Merker, a management consultant to financial services firms at Oliver Wyman in New York. “They are gearing up for years of requests from regulators and there’s still reputational risk from PPP fraud even if they did all the right things to follow program rules.” Banks participating in the Paycheck Protection Program (PPP) issued more than 5.2 million loans, to be repaid by the government as long as borrowers demonstrated financial need and used most of the cash to make payroll.
Brief: Sixty-four per cent of organizations failed to report cyber breaches this year, over fears of reputational damage at a time when more customers are seeking service online, a cybersecurity expert explains. According to a recent Canadian Internet Registration Authority (CIRA) survey on cybersecurity measures within companies, only 36 per cent of organizations that experienced a data breach reported it, a decline from the 58 per cent in 2019. Spencer Callaghan, a spokesperson at CIRA, said in an interview that some organizations don’t have to report breaches because of how the rules are framed in the Personal Information Protection and Electronic Documents Act (PIPEDA). “Some rules don’t apply evenly to all organizations, therefore there could be some variance in the data based on certain organizations that aren’t required to report,” he said. Sumit Bhatia, director of communications and knowledge mobilization with Ryerson's Cybersecure Catalyst, said in an interview that these numbers were a “reflection of how COVID-19 is truly impacting organizations.”
Brief: Investor confidence in hedge funds appears to be on the rise, with allocators pouring in some USD13 billion between July and September, the first quarterly net inflow into the industry in two-and-a-half years. New data published by Hedge Fund Research shows the industry on the whole drew positive net inflows for the first time since Q1 2018, with third quarter allocations – dominated by macro and relative value strategies – bringing the total amount of industry capital globally to some USD3.31 trillion. HFR president Kenneth Heinz said the pick-up in inflows was driven both by defensive outperformance by hedge funds through the coronavirus-driven volatility in early 2020, as well as opportunistic gains through the uneven financial market recovery in the second and third quarters. Uncorrelated macro-focused hedge fund strategies led the pack in the three months between July and September as investors, keenly aware of continued macroeconomic uncertainty and growing trends across global markets, pledged some USD7.2 billion across a range of strategy types. That brought total macro assets to USD579.1 billion, with inflows split almost equally between CTA strategies and uncorrelated currency strategies, HFR said. Quantitative, trend-following systematic diversified CTA strategies drew USD3.2 billion of investor money, while currency-focused funds grew by USD3.1 billion.
Brief: China's super wealthy have earned a record $1.5 trillion in 2020, more than the past five years combined, as e-commerce and gaming boomed during pandemic lockdowns, an annual rich list said Tuesday. An extra 257 people also joined the billionaires club in the world's number-two economy by August, following two years of shrinking membership, according to the closely watched Hurun Report. The country now has a total of 878 billionaires. The US had 626 people in the top bracket at the start of the year, according to Hurun in its February global list. The report found that there were around 2,000 individuals with a net worth of more than 2 billion yuan ($300 million) in August, giving them a combined net worth of $4 trillion. Jack Ma, founder of e-commerce titan Alibaba, once again topped the list after his wealth surged a whopping 45 percent to $58.8 billion as online shopping firms saw a surge in business owing to people being shut indoors for months during strict lockdowns to contain the virus.
Brief: The opportunity set for many hedge fund strategies is the best it has been for a number of years. In response to the most challenging market environment since 2008, unprecedented fiscal and monetary responses from governments and central banks have created dislocations and distortions in many asset classes. Volatility has returned to equities, bond yields have fallen dramatically, and inflation fears have stoked demand for precious metals. That said, identifying hedge funds that will be successful is incredibly challenging in an industry with over 4,000 funds managing over $2.92 trillion of assets1. Furthermore, given the unconstrained nature of most hedge funds, dispersion within each broad-based hedge fund strategy is much higher when compared to the long-only world, where different strategies are typically benchmarked to an appropriate index. Manager selection is an increasingly important component when deciding which hedge funds are best placed to capitalise in a post-COVID world.
Brief: Goldman Sachs GS.N has sent some staff home from its London office after two employees tested positive for COVID-19. The U.S. investment bank sent a memo to staff at its Plumtree Court site in central London on Oct. 15 informing them of the positive tests and saying that people who had been in close contact with the staff members had been contacted by the bank’s “Wellness team”. “These two colleagues last worked in the office on Tuesday, 13 October and Wednesday, 14 October, respectively. They will remain in self-isolation as per firm guidelines,” the memo seen by Reuters said. Goldman Sachs is one of several banks that has encouraged groups of employees back into its London offices. London is currently categorised under the “high risk” level in the British government’s coronavirus alert system.
Brief: Bad news for central bankers trying just about everything to stoke inflation: Citigroup Inc. reckons companies’ pricing power is severely damaged. Catherine Mann, the U.S. bank’s global chief economist, fears the pandemic has left so much slack in the economy that firms won’t be in a position to demand higher prices for some time. That, not just rising wages, is ultimately necessary for generating inflation. In the euro area, consumer prices are falling, while a key measure of U.S. inflation rose in September at the slowest pace in four months. “We get back to a trajectory for growth, but we do not return to the trajectory of global GDP that we had in place in January, pre Covid,” Mann said during a panel discussion hosted by the World Economic Forum on Tuesday. Officials across major economies responded to the virus outbreak with record fiscal and monetary stimulus in a bid to prevent corporate insolvencies and ruinous levels of unemployment. The outlook is still bleak, however, and the International Monetary Fund this month warned of a tough recovery path ahead. “The implications of that for workers, and for different age-group demographics, and for convergence of growth rates in emerging markets are all very dire,” Mann said.
Brief: UBS UBSG.S is giving lower-ranking employees an extra week's pay this year in light of the COVID-19 pandemic and adding a financial softener for employees looking to exit finance, the world's largest wealth manager said on Tuesday. “As a sign of appreciation for their contribution throughout this challenging year, and acknowledging that the pandemic may have resulted in unexpected financial impact, the Group Executive Board has decided to award UBS’s employees at less senior ranks with a one-time cash payment equivalent to one week’s salary,” the Swiss bank said in a statement announcing its third-quarter results, adding the measure would add roughly $30 million in expenses in the fourth quarter. The bank also said it had modified its bonus policy so that eligible employees who wanted to make a career change under the strains and uncertainty of COVID-19, would be able to retain more deferred compensation than previously.
Brief: BlackRock Inc. says that the scale of restructuring needs globally could exceed the previous peak that followed the 2008 global financial crisis. “One big reason is the significant growth in sub-investment grade debt,” the company’s research arm, BlackRock Investment Institute, said in a note dated Oct. 19. The amount of outstanding debt with ratings below investment grade, including loans and private credit, has more than doubled to $5.3 trillion since 2007, according to the asset manager. As the overall cost of borrowing fell, companies loaded up on debt. This has left many vulnerable as their revenues came under pressure from Covid-19 related disruptions. BlackRock isn’t the only one warning of the risks of company failures. Despite low rates, U.S. corporate bankruptcies posted their worst third quarter ever. While supportive fiscal and monetary policies have helped companies raise capital and lower borrowing costs, “not all borrowers have benefited equally” and smaller firms have lacked access to the public markets, BlackRock said in the note.
Brief: Biotech investor Dale Chappell was looking to start Humanigen Inc. with a clean slate when his hedge fund assumed control in 2016, but things took longer than expected. The stock has swelled over 500% this year after positive early results from an experimental treatment for a potentially lethal side-effect of Covid-19. The shares have been volatile since July when it reached a more-than four-year high, though results expected this quarter from a late-stage study may be the ticket to keep Humanigen on track after a roller coaster ride. Chappell, who has a medical degree from Dartmouth College and served a fellowship with the National Cancer Institute, saw promise in the pipeline of Humanigen, then known as KaloBios, when he first took a stake in 2016. Investors may remember KaloBios as a company teetering on the edge of bankruptcy before the now disgraced and jailed Martin Shkreli swept in and took it over in 2015. Shkreli’s one-month stint as CEO left the company badly scarred before it fell into insolvency. That’s when Chappell and the fund he founded, Black Horse Capital LP, stepped in to provide financing to get the company back on its feet.
Brief: Investors are rethinking the roles of certain asset classes in their portfolios due to the coronavirus pandemic and its impacts on markets. The pandemic has created the need for resilient investing, with new assumptions and new asset allocations, panellists at the Pensions and Investments WorldPensionSummit said, Monday. For some, that may mean moving away from assets that are traditionally seen as safe havens. As a result of aggressive monetary policy by central banks, the pandemic has led to the need to reframe the relationship that the State of Wisconsin Investment Board, Madison, should have with U.S. Treasury bonds, at the time when rates and yields are low, said Brian Hellmer, managing director, global public market strategies. The board manages $126.3 billion in assets. Bonds had provided hedging qualities and return generation before the pandemic but now only have one of those features. He said bonds are an insurance policy that have a cost without producing an ongoing, real return. “That’s a structural immediate to long-term challenge for us,” he said. Mr. Hellmer said his fund has to consider exposure to the asset class at a time when it may seem counterintuitive to walk away from what some may perceive as being the safest asset class, because pricing has created an expectation of these assets giving no real return.
Brief: Assets under management at the largest global asset managers have piled up to a record USD104.4 trillion, rising almost 15 per cent from the previous year, according to new research from the Thinking Ahead Institute. The money managed by the largest 500 asset managers has risen almost three-fold since 2000, when assets totalled USD35.2 trillion. The market has been consolidating, with the 20 largest asset managers now accounting for 43 per cent of total assets. This has risen from 38 per cent in 2000, and 29 per cent in 1995. The four largest players in the market by amount of assets are US fund managers BlackRock, Vanguard, State Street, and Fidelity, with German insurance fund Allianz coming in fifth. In the last decade, 232 asset manager names have dropped out of the ranking. Meanwhile, there has been news in October of further consolidation to come, with 19th largest fund management firm Morgan Stanley planning to acquire Eaton Vance.
Brief: Brookfield Asset Management will buy an Indian developer’s commercial properties for $2 billion, the biggest real estate deal in the South Asian nation. The Canadian asset manager is acquiring 12.5 million square feet of rent-yielding offices and co-working spaces from RMZ Corp., the privately held developer said in a statement on Monday. The Indian firm said it will have zero debt after the transaction and will use the money to expand its portfolio. Large foreign investors are buying into the Indian office market in recent years. Since 2011, the segment has garnered $15.4 billion of equity investments, according to property research firm Knight Frank. Blackstone last week signed a non-binding agreement to buy some assets, a deal Bloomberg News previously reported could be worth $2 billion. RMZ said it plans to expand its real asset portfolio to 85 million square feet over the next six years from 67 million square feet. Some of the clients in RMZ’s technology and business parks include Accenture, Google and HSBC. It is selling properties in the southern Indian cities of Bengaluru and Chennai. A representative for Brookfield confirmed the contents of RMZ’s statement. The alternative asset manager, which says it owns and operates 22 million square feet of office properties in India, has picked banks for an initial public offering of its India real estate investment trust that could raise at least $500 million, Bloomberg reported in July.
Brief: Private equity firms are writing a new chapter in their playbook to favor business models incorporating data utilization and technology. The have accelerated trends already in motion. In the new normal, every company — no matter the sector — will collect and use data to its advantage. All companies will replace existing business models with technology-enabled models that own few assets, making these companies higher priced and more nimble, industry executives said. The digital transformation is a huge benefit in the COVID-19 world in which private equity and venture capital firms are trying to sell or take public as many portfolio companies as possible before the potential double whammy of a second wave of the virus and increased market volatility around the U.S. presidential election. "There will not be a reversion to a pre-pandemic economy," said Jason Thomas, Washington-based managing director and head of global research at The Carlyle Group LP.
Brief: Institutional investors and outsourced CIOs are adopting conservative, cautious stances in portfolios for the final quarter of what has been a difficult year, partly due to fears that supportive policies may be pulled back too quickly. Before the end of the year, investors will also have to deal with political events — the U.S. presidential election and the end of the Brexit transition period — and the potential resurgence of the coronavirus and associated lockdowns in Western economies. These fears are leading some investors to pare back on risk assets, while others are adding protection into portfolios in order to try to eke out gains from equity exposures while also hedging downsides. "We have adopted a conservative stance as we move into the final quarter of the year," said Mirko Cardinale, head of investment strategy and advice for USS Investment Management Ltd. in London. USS IM is the in-house manager for the Universities Superannuation Scheme, London, which had £67.6 billion ($83.8 billion) in assets as of March 31. "This is because, while the markets rebounded relatively quickly after the initial impact in March, there are many clouds on the horizon."
Brief: The European fund industry notched up net inflows of 297.1 billion euros ($347.6 billion) for the first nine months of 2020, according to a new report from Refinitiv Lipper, despite the coronavirus pandemic creating a “tough” environment for the industry. Money market funds — which usually invest in low-risk, liquid assets like short-term bonds — were the best-sellers over the year to date, with inflows of 211.3 billion euros, according to Refinitiv’s European Fund Industry Review. These types of funds yield some income, but are mainly used to park cash in times of high volatility. Meanwhile, funds focused on global equities were the most popular among long-term investors, with the sector seeing inflows of 62.8 billion euros. However, the data and research provider found that total assets under management across the region’s fund industry slipped from 12.3 trillion euros in Dec. 2019 to 12 trillion euros in Sept. 2020, which it attributed in large part to the performance of underlying markets, which saw a 531 billion euro decline. It comes after a volatile year-to-date for markets. After tanking in March when the full impact of the coronavirus started to be realized around the world, stocks have experienced a broad bullish period over recent months as investors bet on stimulus from governments and central banks, and the prospect of a coronavirus vaccine.
Brief: To quote one analyst, working in equity research has gotten “a lot more intense.” Top research providers in the U.S. and globally have reported a surge in demand for content and corporate access this year, as investors have tried to make sense of the rapid changes brought by the coronavirus pandemic. These changes have impacted not just the markets but the investment research industry itself. This includes changes in how institutional investors view some of their research providers, as the 2020 All-America Research Team will soon reveal. Ahead of that reveal on Tuesday, Institutional Investor asked a number of sell-side analysts to share how they’ve been required to adapt and evolve during the Covid-19 crisis. There are the obvious changes: One airline analyst noted with irony that he traveled a lot less this year. Some pointed to the ability to spend more time with their families. Almost everyone mentioned the increase in virtual communication with clients, corporates, and colleagues. But’s it’s not just the shift to working from home. This year has also seen an evolution in the kinds and quality of research insights demanded by investors, as numerous analysts pointed out.
Brief: Lawmakers must approve another round of fiscal stimulus to keep the U.S. economic recovery on track, executives from Goldman Sachs Group Inc. and Wells Fargo & Co. said Friday. Goldman President John Waldron applauded the federal government’s rapid financial response in the early months of the coronavirus pandemic, but said more needs to be done. The absence of additional stimulus could hamper the comeback, particularly in the U.S., he said during the Institute of International Finance annual membership meeting, held virtually this year. “We are going to see a much tougher road to recovery,” Waldron said. Coming back fully from the crisis will take longer, and “people will be laid on the side of the road, sadly.” House Speaker Nancy Pelosi told Democratic colleagues Thursday evening that “disagreements remain” with President Donald Trump’s administration over a number of components of the stimulus she’s attempting to negotiate, even as an agreement nears on a Covid-19 testing program. The establishment of a national testing strategy had been a roadblock cited by Pelosi and her aides this week during talks with Treasury Secretary Steven Mnuchin. Wells Fargo Chief Executive Officer Charlie Scharf said during a separate IIF panel discussion Friday that additional stimulus is needed with the U.S. “not out of the woods” yet.
Brief: As Wall Street banks reported quarterly results this week, investors wondered about the staying power of the trading bonanza that has floated profits, offsetting problems in traditional lending businesses that have been hurt by the pandemic. Trading revenue was up 4% to 29% at the five U.S. banks with major trading operations. Otherwise, lower interest rates hit lending income and prompted banks to add to loan-loss reserves. Goldman Sachs Group Inc and Morgan Stanley benefited most, because they do not have the lending operations of rivals like JPMorgan Chase & Co, Bank of America Corp or Citigroup Inc. Enthusiasm about trading revenue among bank shareholders has faded since the 2007-2009 financial crisis, when the businesses were shown to be black boxes of risk-taking that could generate huge losses. Later, banks’ trading revenue fell dramatically because of new regulations and clients avoiding profitable products they once peddled. Now, trading businesses tend to move in line with market trends or with a bank’s strengths rather than with taking home-run risks. It remained hard to tell why, exactly, Bank of America might experience a 2.5% gain in bond trading whereas Morgan Stanley saw a 35% increase.
Brief: Late Wednesday, the New York Times reported the story of how officials from the Donald Trump administration had privately expressed fear of a coronavirus outbreak while publicly expressing more positive views — and how that information had been sold onto at least one hedge fund by a “consultant. But who is William Callanan, the “outsourced strategy officer” at the center of the storm? Callanan is best known for his efforts as a portfolio manager, analyst, and investment strategist who worked at some of the most high-profile macro hedge funds in the business: Soros Fund Management, Fortress Investment Group, and Stanley Druckenmiller’s Duquesne Capital, according to published reports. In 2019, Callanan left another well-known hedge fund firm — Key Square Capital, started by former Soros investment chief Scott Bessent — to start London-based Syzygy Investment Advisory. Callanan, an astronomy buff, named the investment advisory firm after an astrological term for the alignment of three celestial bodies, according to a Financial Times report last year. Rather than make its own investments, Syzygy provides long-term investment themes “and aggressive ways of trading them” to hedge funds, pension funds, sovereign wealth funds, and other clients who implement the positions themselves, according to the FT report.
Brief: When it comes to trends in real estate investing, the coronavirus has exacted a toll, according to the annual Emerging Trends in Real Estate report. Densely populated metropolises, once viewed as preferred destinations for millennials, are now being challenged by smaller cities and suburbs. At the same time, co-living and co-working arrangements, for reasons due to human proximity, are being rethought, according to the report, the result of a survey and interviews with industry participants by PricewaterhouseCoopers and the Urban Land Institute. "My one take away is take nothing for granted ... I've seen many cycles but nothing like this," Mitchell Roschelle, managing partner of new strategy advisory firm Macro Trends Advisors, said Wednesday during a panel discussing the latest Emerging Trend's report. Behavior can change very quickly, said Christopher Lee, partner and head of Americas real estate at Kohlberg Kravis Roberts & Co., a speaker on the same panel. For real estate, Mr. Lee said, it means that behaviors of businesses and consumers can change "in ways we've never seen before and it is happening very rapidly."
Brief: A new survey of more than 250 alternative investment professionals finds that a strong majority expect a return to pre-pandemic levels of deal activity by the close of 2021. The survey, conducted during EisnerAmper’s Virtual 5th Annual Alternative Investment Summit, shows that 74% of industry professionals predict a return to pre-COVID-19 deal activity by the end of Q4 2021. Two in five (41%) respondents predicted an even swifter recovery, with a return to pre-pandemic deal activity by the end of Q2 2021. When asked to identify the industries that present the best chance for growth in Q4 2020, respondents pegged technology and health care/life sciences as the sectors with the greatest opportunities. This largely mirrored results from EisnerAmper’s 2019 survey, when technology, cannabis, and health care/life sciences were named as the strongest growth sectors. EisnerAmper’s survey also identified the major trends that will impact how the alternatives sector operates moving forward. Many dealmakers hit the pause button in March 2020 when COVID-19 caused a global economic crisis and dramatically shifted the ways in which deals get done. Despite the investment industry continuing to largely operate in a work-from-home setting, 80% of private equity executives agree that they have been able to satisfactorily conduct deal due diligence during the pandemic.
Brief: Watered-down shareholder participation at AGMs, due to virtual meetings during the pandemic, is sounding alarm bells at APG, the largest pension fund in Europe, where collaboration with other asset owners and organisations is the beating heart of its ESG strategy and a central tenet to its stewardship response to the pandemic. Virtual annual meetings may be the pandemic norm, but Dutch asset manager APG is concerned about the consequences of lost face-to-face engagement and the ability of investors to collaborate to put pressure on companies to change. “In our view, AGMs as they are now can only be an interim solution,” said Claudia Kruse, managing director, global responsible investment and governance, APG, Europe’s biggest pension fund in an interview with Top1000funds.com. The majority of AGMs that APG has attended since the shut down due to the pandemic are one-way webcams, simply speeches that don’t involve two-way dialogue. Nor is the advance voting process as effective according to Kruse. “We’ve participated in 10 webcast AGMs and sometimes put forward questions as part of a collective engagement, but of course the votes are cast in advance,” she said. In other cases, questions are not put forward as part of collective engagement, and interaction between the board and retail investors is also lost. Possible solutions include hybrid models where investors can participate virtually in conjunction with a smaller physical meeting, said Kruse.
Brief: Stocks are falling on Wall Street in afternoon trading Thursday, extending the market's pullback this week as optimism that Congress will deliver another round of stimulus for the economy wanes and new data show another weekly surge in the number of Americans seeking unemployment aid. The S&P 500 was down 0.7%. The benchmark index is now on track for its first weekly loss in three weeks. The selling was widespread, with technology, health care and companies that rely on consumer spending driving the decline. The pullback follows a broad sell-off in markets overseas as rising infections in Europe led governments in France and Britain to impose new measures to contain the coronavirus. Treasury yields were lower, while the price for U.S. crude oil also headed lower. The Dow Jones Industrial Average was down 141 points, or 0.5%, to 28,379 as of 12:15 p.m. Eastern time. The Nasdaq composite dropped 1.2%. The Russell 2000 index of small-cap stocks was off 1%. Stocks have been mostly climbing this month, but have pulled back this week as talks between Democrats and Republicans in Washington over another economic stimulus package drag on, dimming investors’ hopes for a deal that can deliver more aid for the U.S. economy in the near term.
Brief: Investment managers should come together to provide high-quality work placements for 16-24-year olds on Universal Credit, Investment20/20 says, following the launch of a new initiative in support of the Government’s GBP2 billion Kickstart scheme. Investment20/20, the Investment Association’s talent solution for the industry, is encouraging investment managers to join its new initiative aimed at facilitating Kickstart’s six-month work experience for 16-24-year-olds on Universal Credit and at risk of long-term unemployment. As part of the scheme, Investment20/20 will act as a conduit for the Department for Work and Pensions (DWP) to pay the National Minimum Wage to each participant for 25 hours a week of work. Investment20/20 is providing an industry solution for investment managers looking to participate in the Kickstart scheme, by providing resources and support to young people with no background knowledge of the industry, and enabling firms to offer work placements to fewer than 30 young people - a requirement to engage with DWP directly.
Brief: Working from home hasn’t slowed down Wall Street’s trading desks. The five biggest U.S. investment banks are on pace for their first $100 billion year for trading revenue in more than a decade. In just three quarters, they’ve already generated almost $84 billion, more than any full year since 2010. Sell-side traders have ridden a wave of activity as markets plunged at the start of pandemic-spurred lockdowns before embarking on dramatic rebounds. Trading gains since the start of the pandemic have helped offset weakness in consumer businesses at the nation’s biggest banks, where loan-loss provisions piled up in the first half of the year. Capital markets units have “really been the bright spot as far as revenues have gone since the pandemic started,” Jeff Harte, a bank analyst at Piper Sandler, said in a Bloomberg Television interview. “It’s been pretty good earnings, at least from the big banks.” JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley all saw trading revenue surge more than 20% for a third straight quarter. The totals weren’t as staggering as the second quarter, which was a record for modern Wall Street’s trading and dealmaking units, but they helped lift Goldman to record per-share earnings and Morgan Stanley to its second-highest profit ever.
Brief: New research from RBC Global Asset Management shows that three out of four (75%) institutional investors now incorporate ESG principles into their investment process, up from 70% last year. An increasing number of institutional investors believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios compared to 2019, going up from 90% to 97.5% in Canada, from 92% to 96% in Europe and from 78% to 93% in Asia. However, while most markets are embracing ESG, investors in the US appear more sceptical. Only 74% of US respondents believe ESG integrated portfolios perform as well or better, down from 78% in 2019, while a quarter believe they perform worse. The coronavirus pandemic has helped boost interest in ESG, with investors becoming more aware of environmental and social factors. More than a quarter of institutional investors (28%) said covid-19 has made them place more importance on ESG considerations. Meanwhile, more than half of institutional investors are looking for companies to disclose more details about worker safety, employee health benefits, workplace culture and other social factors due to the pandemic.
Brief: Quantitative fund manager AJO Partners, which manages $10 billion, said on Wednesday it will shut at the end of the year after “lingering viability concerns” from its clients. Performance data on the fund's website here showed a number of its funds were down sharply for the year to Sept. 30, with its Large Cap Absolute Value strategy, which has more than $5 billion, down 15% and Small Cap Absolute Value down 21%.“Our relative performance has suffered because our investment edge, our “secret sauce,” is at odds with many forces driving the market,” founder Ted Aronson said in a memo provided by a company representative to Reuters. “However, the drought in value — the longest on record — is at the heart of our challenge.” Aronson wrote the length and the severity of the headwinds “have led to lingering viability concerns among clients, consultants, and employees.” Value stocks or shares of economically sensitive companies have been among the laggards in the market’s rally from its lows in March. Related sectors such as retail have struggled as their business models get disrupted in a shift to a more tech-driven world.
Brief: Wells Fargo & Co WFC.N has fired about 100 to 125 employees for unethically availing themselves of coronavirus relief funds, according to a source familiar with the matter. The bank believes some of its staffers made “false representations in applying for coronavirus relief funds for themselves”, defrauding the U.S. Small Business Administration, David Galloreese, head of Human Resources, said in an internal memo seen by Reuters. The abuse was tied to the Economic Injury Disaster Loan program and outside the employees’ roles at the bank, the memo said, adding Wells Fargo will cooperate fully with law enforcement. “These wrongful actions were personal actions, and do not involve our customers.” Bloomberg first reported the news earlier in the day. Last month, JPMorgan Chase & Co JPM.N dismissed several employees who allegedly misused funds that were supposed to help businesses dealing with the COVID-19 pandemic, the Financial Times reported.
Brief: Goldman Sachs Group Inc on Wednesday posted its best quarterly performance in a decade by some measures, as trading moved back into the limelight and its lack of a big consumer business switched from a curse to a blessing. The Wall Street bank posted a quarterly return-on-equity of 17.5%, its highest since 2010. Investors closely track that figure because it shows how well a bank uses shareholder money to produce profits. Goldman also boasted record earnings per share, beating analyst expectations by a wide margin. Its performance was driven in large part by a 29% jump in trading revenue, as clients responded to news about the coronavirus pandemic by shifting their portfolios. While rivals including JPMorgan Chase & Co have also benefited from the markets boom this year, they are far more exposed to vulnerable consumers and businesses suffering from unemployment and pandemic lockdowns. Goldman’s consumer bank is relatively tiny. “Simply stunning results,” Credit Suisse analyst Susan Roth Katzke said in a report.
Brief: Fortress Investment Group delayed the pricing of $3.2 billion of municipal bonds to build a passenger railroad between southern California and Las Vegas, a sign that investors were hesitant to finance such a speculative project at a time of deep economic uncertainty. The company boosted the equity contribution to the project by $500 million, among other changes, according to updated documents released Wednesday. Lead underwriter Morgan Stanley had planned to price the deal Wednesday, according to a pricing wire viewed by Bloomberg. The offering has now been postponed with no new date set, according to people familiar with the matter who asked not to be identified because the discussions are private. The deal is listed as day-to-day. Samantha Kreloff, a spokesperson for Morgan Stanley, and Ben Porritt, a spokesperson for Fortress’s Brightline Holdings, declined to comment. The company has been holding investor calls since at least the last week of September, when offering documents were released. Investors were pitched last week on yields ranging from 7% to 7.5% depending on call date, with final maturity in 2050, for the largest offering of unrated municipal securities. Updated documents Wednesday estimated a 7.25% interest rate.
Brief: Nearly nine out of 10 workers want to be able to choose whether to work from home or the office once COVID-19 workplace restrictions ease, and have greater autonomy over their hours, according to research from Cisco Systems CSCO.O. The pandemic has rapidly shifted attitudes towards home working, the research showed, with two thirds of workers developing a greater appreciation of the benefits and challenges of doing their jobs remotely. Even though only 5% of those surveyed worked from home most of the time before the lockdown, now 87% of workers wanted the ability to choose where, how and when they worked - blending between being office-based and working remotely, Cisco said in a report issued on Wednesday. Cisco Vice President Gordon Thomson said companies would have to reconfigure how they operate to help meet the new demands of workers, who prioritised effective communication and collaboration above everything else. He said technology would also be used to ensure employees were safe and their data was secure in their working environment, whether in the home or the office.
Brief: Aviva Investors, the global asset management arm of Aviva, expects the economic recovery that began in May to continue in the rest of the year and into 2021. Although further waves of Covid-19 virus infections have emerged, they should be successfully countered by limited and targeted restrictions on activity, avoiding the need for the re-imposition of full national lockdowns. As a result, downside risks to activity have diminished since the summer, while the upside case would be further enhanced by the eventual development and distribution of effective vaccines in early 2021, alongside extensive monetary and fiscal policy support. While there is considerable uncertainty about timings, the contours of a post-Covid “new normal” should come into sharper focus in coming quarters. The ongoing economic revival will rely on continuing policy support in the form of loose monetary policy – conventional and otherwise – and generous fiscal support and stimulus for both businesses and workers. If sustained, the combination of loose monetary policy – which is increasingly geared to achieving higher inflation than in the past decade – and expansionary fiscal policy has the potential to bring long-lasting material changes for economies and global financial markets.
Brief: Bridgewater Associates founder Ray Dalio is giving US$50 million to New York-Presbyterian Hospital to fund a center dedicated to health equity and justice, at a time when the COVID pandemic has underlined the stark racial disparities in the U.S. The Dalio Center for Health Justice, a research and advocacy organization, will focus on reducing differences in access to quality health care that overwhelmingly affect communities of color, New York-Presbyterian and Dalio Philanthropies said in a statement. The hospitalization rate from COVID among Black and Hispanic individuals has outnumbered that of Whites and non-Hispanics by a factor of at least 4.6, according to data from the Centers for Disease Control and Prevention. The death rate of Blacks has been more than twice that of Whites. “Access to equal health care and equal education are fundamental requirements of a just society,” Dalio said in a Zoom interview. COVID emphasized the urgent need to address disparities in health outcomes between racial groups that are shaped by everything from differences in treatment protocols to data collection, he said. “There’s so much work to be done.” Julia Iyasere, an internist and Columbia Business School graduate, will head the center. As the child of immigrants with a multiethnic background, Iyasere said she witnessed firsthand various forms of health-care injustice and its consequences.
Brief: Private equity fund investors have been favoring established buyout firms over first-time managers in recent months, as the challenges of carrying out due diligence remotely during the COVID-19 pandemic reduce their appetite for risk. Out of the $127 billion raised by buyout firms between July and September, only $5.8 billion went to managers raising funds for the first time, the lowest level since 2013, according to industry data provider Preqin. Some private equity fund investors said curbs on business travel were limiting their ability to familiarize themselves with new fund managers, and pushed them toward the relative safety of established players. “It is definitely a higher bar in this environment because you can’t have in-person meetings, you can’t have a dinner with the manager, you can’t really get to know the person,” said Kelly Meldrum, head of primary investments at Adams Street Partners, a $41 billion “fund-of-funds” manager that invests in private equity funds on behalf of institutional investors. In the third quarter of the year, Blackstone Group Inc BX.N, the world's largest private equity firm, closed its fourth real estate debt fund after collecting $8 billion from investors. KKR & Co Inc KKR.N also raised $950 million for its second real estate credit fund. Few first-time managers achieved the same. Among them were Andros Capital Partners, which closed a $250 million fund focused on the energy sector, and Benford Capital Partners, which raised $130 million to buy small lower middle market businesses.
Brief: BlackRock, the owner of the wildly popular iShares family of exchange-traded funds and the world's largest asset manager, has gotten even bigger during the Covid-19 pandemic. BlackRock said Tuesday that it now has $7.8 trillion in assets under management, a 12% increase from last year. The continued allure of passively managed index funds is a big reason why BlackRock is thriving during these volatile times for the market. BlackRock said that iShares had a total of $2.3 trillion in assets during the third quarter — and nearly 70% of that total was for stock funds. BlackRock disclosed the numbers in its latest earnings report Tuesday. Revenue and profit easily surpassed Wall Street's forecasts. "As investors around the world navigate current uncertainty, including the pandemic and uneven economic recovery, BlackRock is serving clients' needs with global insights, strategic advice and whole-portfolio solutions," said BlackRock CEO Larry Fink in a press release. Shares of BlackRock (BLK) rose 3% on the news. BlackRock's stock has now surged more than 25% in 2020 thanks to its strong results. BlackRock, like most major Wall Street firms, has had to adapt during the coronavirus outbreak.
Brief: JPMorgan Chase & Co is forging ahead with plans to build a mammoth new headquarters in New York, Chief Executive Jamie Dimon said on Tuesday, despite the coronavirus pandemic casting serious doubt on the future of office buildings. “We’re building that headquarters for 50 years! It is not a short-term decision,” Dimon said during a call with reporters after posting quarterly results. Slated to open in 2024, for a price tag of as much as $3 billion, the building at 270 Park Avenue is to house about 14,000 employees. At 1,425 feet, it would be the second-tallest office building in Manhattan behind One World Trade Center, nearly 200 feet higher than the Empire State Building and more than 400 feet above the nearby Bank of America Tower, according to the Council on Tall Buildings and Urban Habitat. An illustration by Lewis Garrison, a 3-D architectural illustrator who likes to make video flyovers of skylines, here envisions JPMorgan's new headquarters towering over Midtown Manhattan, a T-Rex in what might seem like a field of dinosaurs. But since pandemic lockdowns happened in March, far fewer workers have been going into offices, making it unclear why such a big skyscraper is necessary.
Brief: Merger arbitrage and event driven hedge fund strategies can capitalise on the recent pick-up in M&A activity globally, and help cushion investors’ portfolios amid potential risk aversion as a result of the US election, Brexit and a fresh Covid-19 surge in Q4, industry strategists say. The volume of M&A deals plummeted to USD96 billion in April this year – the lowest level since August 2009 during the height of the global financial crisis – as a result of heightened concerns over the coronavirus pandemic, said Man Group in a market commentary on Tuesday. In recent weeks, though, activity has surged across a wide range of sectors globally as deals that had been put on ice because of Covid-19 began flowing back into the market. More than USD1 trillion of deals across the world reportedly came to market during the third quarter, and in a market commentary on Tuesday, London-listed global hedge fund giant Man said volumes bounced back “both in terms of volumes, but also as a proportion of market cap.” Against that backdrop, Lyxor Asset Management believes that merger arbitrage-focused hedge fund strategies will offer “diversification and protection” for investor portfolios during the fourth quarter of 2020…
Brief: History doesn't repeat itself, but it does tend to rhyme. Each crisis period in financial markets is unique with some aspects in common. In 2020, equity markets endured a devastating fall in the wake of concerns about the novel coronavirus followed by a miraculous recovery. To date, many investors are still asking: Was this recent period of turbulence a crisis that may continue or was this crisis a simple V-shaped correction, albeit rather painful? In a recent paper, we take a look at this spectacular market fall from the perspective of a trend-following strategy to determine what is similar and what is different from the crisis periods that came before. Trend-following strategies take long and short positions following prevailing market trends across a wide range of asset classes, e.g., equity indexes, bond index futures, rates, currencies and commodities. These strategies have often been some of the few known to sometimes capture ever-coveted "crisis alpha." A correction is a short-term loss that recovers relatively quickly. A crisis, on the other hand, is a prolonged period of market stress with sustained losses, which can occasionally come in waves. Using peak-to-trough losses in equity markets, we examined the speed (measured as total drawdown divided by time in a drawdown) for crisis periods since 1992. During this period, the tech crisis and (depending on how you look at it) the global financial crisis consist of several waves of drawdowns.
Brief: The coronavirus pandemic isn’t keeping investors from pouring billions into venture capital. As of September 30, U.S. venture capital funds closed this year had raised $56.6 billion, according to a report from PitchBook and the National Venture Capital Association that’s expected to be released Tuesday. This is more than $54.9 raised in all of 2019, and less than $12 billion shy of 2018’s record fundraising total of $68.1 billion. According to PitchBook, investors have continued to make “robust” commitments to venture capital funds this year despite the fundraising challenges and market uncertainty brought by the pandemic. This is in contrast to the slowdown seen in the larger private equity industry, with Preqin reporting last week that global fundraising had dropped to its lowest quarterly total since at least 2015. “Despite continued uncertainty throughout the year, the rebound in public markets has given investors confidence,” John Gabbert, founder and chief executive officer of PitchBook, said in a statement on the VC report. “As investors seek growth opportunities in a low-rate environment, the growth potential of the venture strategy continues to entice both traditional LPs and nontraditional investors.” Most of the fundraising has been driven by large funds, with the average fund size increasing to $257.2 million — nearly double the average last year.
Brief: The asset management industry has reached a critical period for nurturing gender diversity, industry experts have advised, as investment firms choose how they will adapt to new challenges caused by the coronavirus pandemic. Baroness Helena Morrissey says the investment industry has always been “slow to shift gears” in the face of problems, including gender diversity and transparency over fees. Baroness Morrissey founded the campaign group the 30% Club in 2010, which targeted a minimum 30 per cent female board members, in addition to being the former chief executive of Newton Investment Management and chair of the Investment Association. She now chairs the Diversity Project, which works to improve diversity in all dimensions in the investment and savings industry and serves as a peer in the House of Lords. Recent progress has been “very tentative”, with the share of women in fund management roles reaching 11 per cent in 2020. In 2016, women accounted for 10.3 per cent of fund managers. Citywire estimates that at the current rate of promoting women to senior roles, it will take two centuries before female fund managers achieve parity with their male colleagues. Baroness Morrissey believes that even the slow progress the industry has made to hire and promote more women could slide backwards, if firms fail to make positive efforts now. “It's too soon for it to withstand a body blow in the form of people just taking their eye off the ball at this point,” she says.
Brief: EQT AB, the European private equity firm, is considering a takeover of Dutch phone company Royal KPN NV in what would be its largest-ever acquisition, people with knowledge of the matter said. The buyout firm is in the early stages of discussing the feasibility of a deal with potential advisers, the people said, asking not to be identified because the information is private. Shares of KPN have fallen 15% in Amsterdam trading this year, giving the company a market value of about 9.4 billion euros ($11.1 billion). No final decisions have been made, and there’s no certainty that EQT’s deliberations will lead to an offer, the people said. Any suitor would want to win the backing of KPN management and the Dutch government after the former telecom monopoly previously fought off an unwanted takeover. Representatives for EQT and KPN declined to comment. KPN, which is valued at about 16 billion euros including debt, has reported declining revenue for more than a decade. Its shares are trading near an all-time low amid fierce competition from regional giants like Vodafone Group Plc. The company appointed Joost Farwerck as chief executive officer a year ago. He took over a business that was cost cutting and in search of new revenue streams to ease competitive pressures in its home market, where rivals have been merging.
Brief: Wall Street banks are on track for a record year of revenue from trading U.S. government-backed mortgage debt, industry sources told Reuters, amid a surge in demand - from the Federal Reserve in its battle against the pandemic, and from investors hunting yield. Revenue from trading bundles of home loans at the biggest global banks - including JPMorgan, Citi and Goldman Sachs among others - is expected to top $3 billion in 2020, one source with direct knowledge of the banks’ trading revenue said, besting last year’s peak of $2.5 billion. The source declined to be identified because the data isn’t publicly available. “Buying mortgages in March was one of the best trading opportunities in mortgages since the last financial crisis,” said Daniel Hyman, head of agency MBS portfolio management at Pacific Investment Management Company (PIMCO). The surge in demand and activity has also allowed new names to enter the space. Bank of Montreal, which acquired mortgage security broker-dealer KGS-Alpha Capital Markets in 2018, is now actively trading residential mortgage-backed securities or RMBS, according to the source.
Brief: The alternative investment data provider shows that a total of 237 private equity funds closed in the third quarter, which is the lowest quarterly total since at least 2015. Meanwhile, there are 3,968 in the market seeking capital, a record number of funds since 2015. The coronavirus pandemic has changed private equity fundraising dynamics significantly: Most meetings are now conducted virtually, and the public market correction may have stalled fresh capital commitments, according to Preqin. During the first three quarters of 2020, just 39 percent of funds closed in 12 months, according to the data. This is at least six percentage points lower than each of the previous five full-year periods. What’s more, 45 percent of funds took more than 18 months to close — the largest amount since 2015, per Preqin. There are, of course, anomalies. On October 1, for example, European private equity firm Nordic Capital announced that it had closed its tenth fund, which it raised fully remotely, with €6.1 billion (US$7.17 billion) to deploy. Likewise, on September 29, private equity firm Advent International closed a $2 billion fundraise for its seventh Latin American fund. These fund closes are indicative of another trend Preqin pointed out: Despite the pandemic, fundraise sizes grew slightly quarter-over-quarter, to $536 million.
Brief: Hedge funds have suffered their first monthly loss since March, as fears over the growing spread of coronavirus in Europe and the US – combined with the imminent presidential election and uncertainty over the US economy – weighed down on managers of all hues in a decidedly patchy September. New data published by Hedge Fund Research shows that only event driven strategies emerged from September in positive territory, as losses swept through the equity, macro and relative value sub-sectors. The flagship HFRI Fund Weighted Composite Index – an across-the-board snapshot of all strategies - dumped 1.2 per cent last month, its first monthly decline since March, when markets were sent spiralling by the Covid-19 outbreak. The index’s Q2 surge of 9.14 per cent was essentially halved during the following quarter, with the index gaining some 4.06 per cent between July and September. The end of its five-month positive run last month has left the index flat for the year, at 0.5 per cent. The HFRI Equity Hedge (Total) Index – which measures the performance of a broad range of equity-focused managers – gave back 1.53 per cent in September. Only healthcare-focused equity hedge funds were up last month, rising 1.94 per cent, with fundamental equity, multi-strategy, quantitative and energy/materials strategies all registering losses. Overall, HFR’s equity benchmark remains up 2.24 per cent since the start of 2020.
Brief: Two-and-a-half years ago Joseph Payne was ousted from Arcturus Therapeutics Holdings Inc., the biotech company he helped found, by what he calls a “dysfunctional board.” Four months later he was back at the helm and the now $1.2 billion firm is racing to push out a Covid-19 vaccine alongside the world’s leading contenders. The contentious transfer of power came after the previously private Arcturus gained access to the public markets in a reverse merger with Alcobra, a struggling biotech. Today, Arcturus’s goal is to develop a potent low-dose one-shot messenger RNA Covid-19 inoculation. Like other vaccine and drug developers chasing Covid medicines, Payne’s company has picked up steam since mid-March when U.S. states started shutting down. The shares have surged more than fivefold since then and climbed as much as 6.3% in Thursday trading. Hedge funds have taken notice, with actively managed firms making up 20% of the company’s holder base as of Oct. 4. Pure play health fund HealthCor Management LP has a 6.5% stake after adding almost 1.5 million shares in the third quarter, according to data compiled by Bloomberg. Arcturus kicked off a dose-finding study in Singapore in August and has clinched supply deals with the governments of Israel and Singapore. It wasn’t among the few companies singled out for the Trump administration’s Operation Warp Speed and it hasn’t signed any large-scale government contracts. But Payne, the company’s president and chief executive officer, sees this as an advantage.
Brief: The asset management industry has reached a critical period for nurturing gender diversity, industry experts have advised, as investment firms choose how they will adapt to new challenges caused by the coronavirus pandemic. Baroness Helena Morrissey says the investment industry has always been “slow to shift gears” in the face of problems, including gender diversity and transparency over fees. Baroness Morrissey founded the campaign group the 30% Club in 2010, which targeted a minimum 30 per cent female board members, in addition to being the former chief executive of Newton Investment Management and chair of the Investment Association. She now chairs the Diversity Project, which works to improve diversity in all dimensions in the investment and savings industry and serves as a peer in the House of Lords. Recent progress has been “very tentative”, with the share of women in fund management roles reaching 11 per cent in 2020. In 2016, women accounted for 10.3 per cent of fund managers. Citywire estimates that at the current rate of promoting women to senior roles, it will take two centuries before female fund managers achieve parity with their male colleagues. Baroness Morrissey believes that even the slow progress the industry has made to hire and promote more women could slide backwards, if firms fail to make positive efforts now. “It's too soon for it to withstand a body blow in the form of people just taking their eye off the ball at this point,” she says.
Brief: More than a decade into his tenure, James Gorman is busier than ever remaking his firm. The Morgan Stanley chief has carried out a dealmaking blitz that’s transformed the white-shoe firm, from a Wall Street specialist to a big player in the world of money management. If stealing away a wealth manager from Citigroup Inc. propelled the Melbourne-born banker to the top perch in 2010, his recent shopping spree guarantees that the 62-year-old executive’s mark will be left on Morgan Stanley long after he’s gone. Gorman’s two latest mega-deals -- the takeover of E*Trade Financial Corp., to go after millennials and other individual investors, and now the $7 billion purchase of asset manager Eaton Vance Corp., announced Thursday -- are the largest carried out by any of the big banks in Wall Street’s post-crisis reincarnation. And both were done in the span of just 10 months. The acquisitions guarantee Morgan Stanley’s wealth and asset-management group a standing that overshadows the bank’s core Wall Street operations, despite their dominance. And Gorman, who rose up through Morgan Stanley’s wealth business and has been bolstered by a stock price that’s outperformed major Wall Street rivals this year, said the 38% premium he’s paying to gain Eaton Vance’s roughly $500 billion in assets is worth it.
Brief: The head of the U.S. Securities and Exchange Commission (SEC) said on Thursday that the agency has brought 700 enforcement actions in the 2020 fiscal year, a ‘significant’ amount after March 15. In a virtual address kicking off “SEC Speaks 2020,” an annual SEC enforcement conference put on in conjunction with the Practicing Law Institute, Jay Clayton said the agency had also obtained financial remedies of more than $4 billion, up from a year prior. The SEC has also reviewed disclosures of more than 10,700 funds--including more than 1,200 new funds--in 2020, an increase of 7% over last year, Clayton added. “While the pandemic significantly impacted how we do our work, it did not negatively impact the work itself,” Clayton said. "At the same time, we added to our work load," the top market's watchdog added in reference to the agency's extended telework period that began here on March 10 after an employee at its Washington, D.C., headquarters was treated for coronavirus symptoms.
Brief: Mizuho Financial Group Inc. plans to introduce a system that would allow employees to work a three- or four-day week, according to informed sources. It aims to launch the system in December after holding talks with its labor union. Mizuho Financial will be the first among the nation's megabanks to implement a permanent system allowing employees to take three or more days off every week. The group is adopting diverse work styles in response to the pandemic. The new work system will cover some 45,000 employees of the holding company and such operating units as Mizuho Bank, Mizuho Trust & Banking Co. and Mizuho Securities Co., the sources said. Each employee will be allowed to choose to work three or four days. Basic salary will be reduced to 80 percent of the current level for employees who work four days a week and to 60 percent for those working three days, according to the sources. Mizuho Financial seeks to prevent talented workers from leaving the group by creating an environment in which employees, many of whom need to take care of older family members or raise their children, find it easy to work according to their own circumstances. The new system is also intended to help employees take time to brush up their skills in their respective areas of work, according to the sources.
Brief: ACA Compliance Group (ACA) has identified a global spike in financial services firms turning to RegTech, outsourcing, and operational resilience solutions for risk and compliance management in the age of Covid-19. The firm has seen a 25 per cent rise in demand for outsourced managed services when compared with pre-pandemic levels, with cybersecurity and regtech solutions also seeing an increase in demand. A key driver is that risk and compliance leaders are being asked to do more with less and reduce costs while enhancing operational resilience. The Covid-19 pandemic has forced financial services firms to abruptly change the way they work now – and in the future. As the global pandemic mutated into an economic crisis, it caused massive unemployment and social unrest. Fires and floods added additional environmental crises to the mix. All of these risks interacted and mutated to present firms with key risks and challenges, including business disruption, remote work, cyber threats, and ultimately risk and compliance monitoring challenges. At the same time, firms are seizing the chance to invest in new opportunities created by the disruption and to modernise their infrastructure to be more resilient, both of which will serve them well in the future. This is a phenomenon that ACA has termed RiskMutation.
Brief: The Alternative Investment Management Association (AIMA), the hedge fund industry trade body, has paired up with ITN Productions to produce a news-style programme which aims to push the case for hedge funds’ role in the economic recovery following the coronavirus crisis.Due to launch in summer 2021, ‘Holding Strong: Alternative Investments in a Volatile Market’ will explore the role played by alternative assets and hedge fund managers in the global economy and their value to investors and markets, and how they offer allocators a differentiated risk/return profile and provide alternative funding avenues for borrowers. The programme will also examine how the alternatives sector is utilising technology, ESG and socially responsible investing in its investment strategies, and the steps firms are taking to strengthen diversity and inclusion at firms. ITN Productions, a commercial communications unit of ITN, produces creative content for broadcasters, businesses, brands, rights holders and digital channels. Its Industry News arm offers bespoke material for industry associations and trade bodies produced in a broadcast news-style programme format.
Brief: U.S. Senator Elizabeth Warren is asking large U.S. banks to disclose how they performed under a recent Federal Reserve exam of their finances during the coronavirus pandemic. In a letter sent to 14 large firms Wednesday, Warren asked each to provide its results from a confidential Fed test, arguing the central bank’s “limited transparency” on whether banks could weather a severe economic downturn is insufficient. “The safety and soundness of the banking sector cannot be taken for granted, and the American people deserve full transparency regarding the health of the financial system,” the Democratic senator wrote in a letter seen by Reuters. Warren added that the recent collapse of negotiations for further economic stimulus makes the matter more pressing, as the Fed previously noted that some banks’ capital forecasts were “strongly dependent” on additional economic support. In June, the Fed announced that large banks could suffer as much as $700 billion in losses under a severe pandemic-driven recession. But the central bank only released those results in aggregate, citing the fact that the recent onset of the pandemic prevented it from conducting a full-blown stress test of each bank.
Brief: In spite of the rally in risk markets this year, Pacific Investment Management Company (PIMCO) expects low returns across asset classes in the coming three to five years as the global economy recovers from the coronavirus pandemic. Published on Wednesday, the investment giant’s outlook argues that given the current high valuations in credit and equity markets, and the likelihood that interest rates will be kept near zero, investors should expect a stagnation or decline in profit as a percentage of gross domestic product. Credit and equity markets have been bolstered this year by investors’ hunt for yield. With interest rates near zero, share prices have risen and borrowing costs have fallen for riskier companies. But the pandemic’s economic realities still mean that revenue - especially in sectors like travel, entertainment and hospitality - won’t quickly recover, and central banks are unlikely to intervene to prevent defaults from rising.
Brief: Activist investor Dan Loeb is urging Walt Disney Co. to permanently suspend its dividend and redirect those funds to its streaming service, saying the entertainment giant needs to lean in to a massive industry shift. Loeb sent a letter to Disney Chief Executive Officer Bob Chapek Wednesday saying he believes $3 billion in annual dividends would be better spent on its direct-to-consumer streaming service, Disney+. He said doing so could more than double Disney+’s budget for original content, bring in additional subscribers, lower churn and boost pricing power. Disney’s shares rose as much as 2% Wednesday after Bloomberg reported on the letter. The company, which has a market value of $222 billion, had seen its stock decline 16% this year through Tuesday’s close. Disney has been the dominant studio at movie-theater box offices in recent years. But with brick-and-mortar cinemas suffering during the pandemic, the company needs to focus on streaming with new urgency, Loeb said. He cited the decision by Regal to temporarily close its U.S. theaters as a sign that cinemas are going away. “While we all share a certain sadness and nostalgia for this eventuality, I am sure that people felt similar emotions about horse-drawn carriages when the automobile was first introduced,” Loeb said in the letter, a copy of which was obtained by Bloomberg.
Brief: Wells Fargo & Co WFC.N has started to cut jobs at its commercial banking unit as part of larger reductions that will impact nearly all of its functions and business lines, a company spokeswoman said on Wednesday. The bank resumed job cuts in early August after it paused layoffs in March because of the COVID-19 pandemic. Wells Fargo said in July it would launch a broad cost-cutting initiative this year as the bank braces for massive loan losses caused by the pandemic and continues to work through expensive regulatory and operational problems tied to a long-running sales scandal. “We are at the beginning of a multiyear effort to build a stronger, more efficient company for our customers, employees, communities, and shareholders,” a spokeswoman said via email on Wednesday. “The work will consist of a broad range of actions, including workforce reductions, to bring our expenses more in line with our peers,” she added, without specifying the number of job cuts. Wells Fargo has cut 700 jobs as part of workforce reductions that could ultimately impact “tens of thousands” of staff, Bloomberg News reported on Wednesday citing people with knowledge of the matter.
Brief: A famous Wall Street bear-turned-bull is urging clients to double down on V-shaped economic bets, even as talks on fresh stimulus collapse. Spurred by conviction on reflation, Andrew Sheets is bullish on small-cap stocks and recommends selling defensive trades from technology firms to long-dated Treasuries. With investors already hedged for election-related volatility, Morgan Stanley’s chief of cross-asset strategy says the market rally has legs and more policy stimulus is coming soon enough. “The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election,” Sheets said in an interview. “This V-shaped recovery is still intact.” His conviction that growth will continue unabated is in contrast with other strategists who say the U.S. is facing a multitude of risks. Lawmakers have been deadlocked for weeks on the details of a stimulus package and President Donald Trump surprised allies with a unilateral call on Tuesday to halt talks on a deal. Sheets’s recommendations are mirrored in hedge funds positioned ever more aggressively for a steeper U.S. yield curve, often seen as a bet on reflation. The latest data shows speculative net short positions in long bond futures have hit a record, while net long positions on 10-year Treasuries have climbed to their highest since October 2017.
Brief: The Commons Project Foundation and the World Economic Forum today announced international trials starting this week for CommonPass, a digital health pass for travellers to securely document their certified COVID-19 test status while keeping their health data private. CommonPass is built on the CommonPass Framework that establishes standard methods for lab results and vaccination records to be certified and enables governments to set and verify their own health criteria for travellers. The purpose of CommonPass and the CommonPass Framework is to enable safer airline and cross border travel by giving both travellers and governments confidence in each traveller's verified COVID-19 status. At present, COVID-19 test results for travel are frequently shared on printed paper — or photos of the paper – from unknown labs, often written in languages foreign to those inspecting them. There is no standard format or certification system. “Travel and tourism has been down across the board due to the COVID pandemic,” said Diane Sabatino, Deputy Executive Director, Office of Field Operations, U.S. Customs and Border Protection (CBP). “CBP wants to be part of the solution to build confidence in air travel, and we are glad to help the aviation industry and our federal partners stand up a pilot like CommonPass.”
Brief: Public markets have largely recovered since their lows in March and April, but private equity funds wiped out six years of gains in the first half of the year, according to the most recent data available from eFront, the private markets software and research firm owned by BlackRock. One of the best measures of performance — the ratio of the current value of investments in the funds (plus any distributions already made to investors) relative to what allocators have invested in the fund — declined to 2014 levels, according to eFront. “Performance of active funds globally, measured by total value to paid-in (TVPI), slumped from a near-record of 1.45x in late 2019 to 1.36x in Q1,” according to eFront’s quarterly performance report on the first half of 2020. Private equity fund performance also declined in the second quarter. Buyout funds held on to companies slightly longer in the first and second quarters, as they focused on getting their businesses through the crisis, whether through layoffs and restructuring or by investing more cash. Although it has since recovered, the dealmaking environment cooled in the first half of the year as people worked remotely and financing proved scarce.
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