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Brief: President Joe Biden unveiled a framework for a $1.75 trillion tax and spending package his administration believes can pass Congress and urged House Democrats to quickly clear a separate public works bill for his signature, despite misgivings by progressives. Biden visited Capitol Hill on Thursday to sell the package of tax increases and climate and social-welfare spending to House Democrats. The legislation would expand federal support for child care, health care and climate programs, funded by a minimum tax on corporations, a tax on stock buybacks and new taxes on incomes above $10 million annually. Total new revenue from the measure is estimated at $2 trillion over a decade, according to a White House fact sheet. The president asked the lawmakers to break a deadlock on a separate, Senate-passed $550 billion infrastructure bill and vote to send it to his desk, according to Representatives Mike Quigley of Illinois and Richard Neal of Massachusetts. House Speaker Nancy Pelosi immediately began pressing lawmakers to vote on Thursday.
Brief: Five percent of unvaccinated adults say they have left a job due to a vaccine mandate, according to a survey released Thursday by the Kaiser Family Foundation. This early read on whether workers will actually quit their jobs over mandates comes as more employers are requiring shots. One-quarter of workers surveyed by KFF in October said their employer has required them to get vaccinated, up from 9% in June and 19% last month. President Joe Biden announced in September a mandate for businesses with 100 or more employees to ensure workers are vaccinated against Covid or tested weekly for the virus. The mandate, which is currently still under review, is estimated to cover roughly two-thirds of the private sector workforce once it’s implemented. The Kaiser survey only asked whether people have quit over a vaccine requirement, not a vaccine requirement with a testing option. More than a third of unvaccinated workers said they would quit rather than comply with a vaccine or testing mandate, the Kaiser survey shows, a share that jumps to 72% if no testing option is offered.
Brief: Australia advised its nationals traveling overseas on Thursday to “exercise a high degree of caution” as it prepares to open its borders for the first time in 19 months. The Department of Foreign Affairs and Trade reinstated its travel advice for 177 countries and territories ahead of fully vaccinated Australians becoming free to travel from Monday. No destination has been given a risk assessment lower than the second-tier warning: “Exercise a high degree of caution.” The vast majority of Australian permanent residents and citizens have been stranded in the island nation since March last year by some of the most draconian pandemic restrictions of any democracy. They had to request exemptions from the ban and demonstrate exceptional circumstances. Most requests were rejected or approved too late for Australians to reach death beds or funerals. Travel to and from Australia for tourism has never been allowed. A few categories of citizen, including public servants on government business, were exempt from the international travel ban. International travel will be initially restricted to Sydney’s airport because New South Wales has the highest vaccination rate of any state. More than 86% of the population of Australia’s most populous state aged 16 and older are fully vaccinated, and over 93% of the target population had received at least a single vaccine shot.
Brief: AEW, the global real estate investment manager, has released its latest research on the European residential sector, publishing its internal forecasts on rental growth, yields and total returns across 24 different European residential markets for the first time. Key findings of the report include: On a risk-adjusted basis, residential stands out as the most attractive property sector. Also known as the private-rented sector or multifamily, residential is the most resilient of all property types. Residential income streams are underpinned by a primary human need and come from a diversified individual tenant base, while supply constraints limit void periods. Residential investments therefore offer bond-like, stable and predictable cash flows. For these reasons, residential total returns have historically been less volatile than for the other property types, while at the same time generating prime total returns close to 8 per cent pa; Continued lack of supply and strong demand from new household formations is driving prime rental growth in most European markets. Despite an increasing number of rental regulations to ensure affordability for tenants, prime residential rental growth is projected at 2.6 per cent pa over the next five years on average in Europe…
Brief: The hedge fund industry continued to attract new assets in August with USD30.5 billion in inflows. August’s inflows represented 0.69 per cent of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions. August marked the sixth consecutive month of hedge fund industry inflows, totalling USD143.8 billion since March. A USD37.8 billion monthly trading profit brought total industry assets to nearly USD4.52 trillion as August ended. “As economies continued to rebound and equity markets surged throughout the summer, investors saw growth and speculative opportunities in hedge fund investments,” says Ben Crawford, Head of Research at BarclayHedge. “Hedge Funds may also be having a moment for less optimistic reasons: They have a history of performing well during inflationary periods. While central bankers contend that the recent spike in the cost of living will be transitory, forecasters in the U.S. and elsewhere are revising their inflation expectations upward for multiple periods to come.” Most hedge fund sub-sectors reported inflows in August. Fixed Income funds set the pace bringing in USD10.4 billion, 1.1 per cent of assets while Multi-Strategy funds added USD7.5 billion, 1.6 per cent of assets, Balanced (Stocks & Bonds) funds saw USD5.1 billion in inflows, 0.8 per cent of assets, Sector Specific funds added USD2.96 billion, 0.8 per cent of assets, and Event Driven funds brought in USD2.28 billion, 0.8 per cent of assets.
Brief: A majority (62 per cent) of private capital fund managers in the UK, Europe, North America and Asia will increase the amount of automation and new technologies used to administer their funds over the next five years.According to a new global study commissioned by Intertrust Group, of these, over two thirds (67 per cent) said they plan to invest in Big Data capabilities while just under two thirds (63 per cent) expect to invest in distributed ledgers such as blockchain.The study, The Future of Fund Technology, found that business size is key in shaping technology investment decisions. Nearly half (47 per cent) of those with AUM of USD3 billion or more stated that it is “very likely” that they will invest in more automation and tech over the next five years. A majority (90 per cent) said they were also more likely to pioneer new technologies and work to utilise new technological advances as soon as they become available.
Brief: Private equity fund managers are accelerating deal timelines in an effort to win bids, and more than half say uncovering risk during due diligence is a main challenge to closing deals, according to BDO’s Fall 2021 Private Capital Pulse Survey. The findings of the survey, which polled 200 US private equity fund managers, underscore the frenzied state of deal making. Forty-two per cent of fund managers say they are directing the most capital to new deals (up from 19 per cent a year ago and 26 per cent in the spring) and deal flow drivers are up across the board. Meanwhile, their pursuit of add-on acquisitions has fallen to 16 per cent from 24 per cent a year ago and 29 per cent in the spring. “To compensate for the slowdown in deal activity at the beginning of the pandemic, fund managers are racing to put committed capital to work and get deals done,” says Scott Hendon, Co-Leader of BDO’s National Private Equity practice. “Everything from private company sales to corporate divestitures is driving more deal flow. Add to that a healthy dose of external influences, such as a potential capital gains tax rate increase and a limited number of attractive targets to absorb all the dry powder on the sidelines, and you have a healthy amount of M&A deal activity—and competition—to contend with.”
Brief: An ASIC surveillance about personal investment switching by directors and senior executives of superannuation trustees has identified concerns with trustees’ management of conflicts of interest. ASIC looked at a sample of 23 trustees (including trustees of industry and retail funds), and focused on conduct during the time of increased market volatility arising from the COVID-19 pandemic. Directors and senior executives of superannuation funds are potentially privy to price-sensitive valuation information. ASIC undertook this surveillance to look into concerns about whether fund executives were using this information for personal gain by switching investment options based on their knowledge of the timing of the revaluation of unlisted assets. The surveillance revealed conduct that fell below ASIC’s expectations. ASIC Commissioner Danielle Press said, ‘We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk.
Brief: The number of working hours lost due to the COVID-19 crisis will be “significantly higher” than projected just a few months ago, according to the International Labor Organization. In what it termed a “dramatic revision,” the Geneva-based group now estimates that global hours worked this year will be 4.3 per cent below their pre-pandemic level, the equivalent of 125 million full-time jobs. Africa, the Americas and Arab States were the regions that experienced the biggest declines. “A two-speed recovery between developed and developing nations threatens the global economy,” said the ILO, which had forecast a loss of 3.5 per cent in June. “This great divergence is largely driven by the major differences in the roll-out of vaccinations and fiscal stimulus packages.” The organization cited estimates showing that a full-time job was added to the global labour market for every 14 people fully vaccinated. “However, the highly uneven roll-out of vaccinations means that the positive effect was largest in high-income countries, negligible in lower-middle-income countries and almost zero in low-income countries,” it said.
Brief: Hedge funds protected investors in September, even as traditional investments suffered in last month’s declining markets. Almost every global equity market index lost ground in September. But PivotalPath’s composite index, which represents more than 40 hedge fund strategies, was up 0.1 percent for the month. That puts September’s outperformance of 4.7 percent, relative to the S&P 500’s decline of 4.6 percent, in the top 10 percent of all months since January 1998, according to the hedge fund research and data firm. Hedge funds also held their own as the Nasdaq declined 5.3 percent and the health care and technology sectors lost approximately 6 percent. Hedge funds have been on a good run. PivotalPath’s composite index, which includes all of the hedge fund strategies the firm tracks, was up 11.3 percent in 2020, its best year since 2013. Traditional long-only strategies were hit hard by fears of inflation, rising energy prices, and supply chain hiccups. “But as worries about inflation became frenzied, energy, utilities and industrials hedge fund strategies were the second-best performer for the month, exactly as predicted,” Jon Caplis, CEO of PivotalPath, told Institutional Investor. The energy, utilities, and industrials category was up 1.8 percent last month and was the fifth best performer of all 40 strategies covered by the firm.
Brief: Hedge funds are well-placed to outperform other assets classes in a potentially choppy market environment during the fourth quarter, with commodities, event driven and certain credit strategies faced with a rich opportunity set and strong upside potential as markets adjust to a post-Covid world. In its latest ‘Fourth-Quarter Hedge-Fund Strategy Outlook’, K2 Advisors said global equities and bond markets are now locked in a “tug-of-war” between good news and bad news, which is shaping the way investors position their portfolios. “Change creates opportunities for those nimble enough to capture the new tailwinds while hedging out the risks associated with a shifting environment,” K2, the hedge fund investing unit of Franklin Templeton, observed. Specifically, Covid cases are set against tightening central bank policies, stronger employment numbers are balanced against supply chain problems, while solid earnings growth this year face worsening year-over-year comparisons in early 2022.
Brief: Markets, households and students face painful disruption next year if inflation hits 7 per cent as currently implied by inflation-linked bonds, says Mark Benbow, high yield portfolio manager at Aegon Asset Management. With GDP RPI inflation swaps implying a surge in inflation in 2022, Benbow says few will escape the squeeze on prices, with RPI-linked loan holders particularly exposed to much higher borrowing costs. “You don’t need to look far to see inflation – commodity prices are rising rapidly, as are other input costs such as shipping,” he says. “And with the rising cost of living, it’s only a matter of time before employers realise that they will need to increase wages. “That may sound like a good thing, but consider that index-linked bonds are implying that RPI will hit 7 per cent in 2022. If that comes to fruition, it will disrupt markets, households and students, who are painfully charged student loan interest on an RPI +3 per cent basis, meaning they will be paying interest of 10 per cent.”
Brief: Britain’s financial watchdog set out rules for a new type of fund for investing over the longer term to help tackle climate change and economic recovery from COVID-19, while ruling out daily redemptions to avoid suspensions in rocky markets. The new Long-Term Asset Fund (LTAF) regime creates a category of authorised open-ended fund for investing in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure. “We want investment in long-term, illiquid assets, including productive finance, to be a viable option for investors… seeking the potential for higher long-term returns in return for less or no immediate liquidity,” the Financial Conduct Authority said in a statement. It had proposed a notice period for redemptions of between 90 and 180 days in a consultation paper last year. “So we have set a minimum notice period of 90 days and a requirement that LTAF cannot offer redemptions more frequently than monthly,” it said on Monday. Funds that invested in illiquid property and offered daily redemptions had to be suspended last year when markets suffered extreme volatility as economies entered lockdowns to fight the pandemic.
Brief: Britain has experienced a series of shortages these past few months, from a lack of fuel at gas stations to not enough workers picking the fall harvest, but Treasury chief Rishi Sunak is unlikely to dwell on them when he delivers his annual budget statement on Wednesday. The Chancellor of the Exchequer, as he is formally known, will instead likely use one of the most high-profile, choreographed events in the country’s political calendar to paint a relatively rosy picture of the state of the British economy following the devastating shock of the pandemic. With government borrowing less than anticipated a few months ago — following a fairly solid recovery from Britain's deepest recession in around 300 years — Sunak has a bit of wiggle room on the taxes and spending front. However, with the next general election not due until 2024 at the latest, Sunak is not expected to turn into Father Christmas — big tax giveaways in Britain are traditionally timed for the run-up to a general election.
Brief: The global boom in mergers and acquisitions has just delivered dealmakers their best-ever year -- on $4.11 trillion and counting. Numerous records have already tumbled in recent months and it was just a matter of time before the previous high set in 2007 was cleared. “M&A bankers are always blamed for being perpetually optimistic but the data is quite compelling,” said Stephan Feldgoise, co-head of global M&A at Goldman Sachs Group Inc. “Whether it be large-cap M&A, sponsor M&A, SPACs, strategic repositioning coming out of Covid, the numbers have been just extraordinary.” Volumes have been rising across sectors and regions, fueled by cheap financing and super-acquisitive private equity buyers. Deals in the $1 billion to $10 billion range -- a sweet spot for buyout firms -- have underpinned the boom, in the notable absence of $50 billion-plus blockbusters. Standout transactions this year have included the leveraged buyout of Medline Industries Inc., Canadian Pacific Railway Ltd.’s hard-fought takeover of Kansas City Southern, and the long-awaited merger of German real-estate firms Deutsche Wohnen SE and Vonovia SE.
Brief: Canada's hot inflation and recovering job market are raising pressure on the Bank of Canada to hike interest rates ahead of schedule, with investors looking to a policy announcement this week for clues that the central bank is turning more hawkish. The BoC, led by Governor Tiff Macklem, is expected on Wednesday to raise its inflation forecast and to largely end stimulus from its pandemic-era bond buying program, starting a countdown of sorts to the first interest rate hike since October 2018. The central bank has pledged to keep rates at a record low 0.25% until economic slack is absorbed, which would happen in the second half of 2022 in its latest forecast, and has long maintained that the factors pushing up inflation are transitory.
Brief: Saudi Arabia is expecting 50 million tourist visits in 2022 as it seeks to rejuvenate a nascent effort to promote domestic and international vacations stymied by the pandemic. “We have already started the recovery journey, and it will continue to 2023, 2024,” Tourism Minister Ahmed Al Khateeb told Bloomberg TV at the Saudi Green Initiative Forum. He also unveiled a new center focused on sustainable tourism as part of efforts, announced by Crown Prince Mohammed bin Salman over the weekend, to bring planet-warming emissions in the world’s biggest exporter of oil to net zero by 2060. The coronavirus crippled worldwide travel just months after Saudi officials outlined plans to attract foreign holidaymakers for the first time. The country is relying on tourism to help drive economic diversification and create jobs for its growing population.
Brief: Asian stock markets were mixed Monday after Wall Street slipped and China tightened travel controls in some areas in response to coronavirus infections. Shanghai, Hong Kong and Sydney advanced while Tokyo declined. Wall Street’s S&P 500 index declined 0.1% on Friday, weighed down by losses for tech companies after a seven-day streak of gains. In China, Gansu province in the northwest closed tourist sites Monday after coronavirus cases were found and the capital, Beijing, banned visitors from areas with infections in the past 14 days. China has reported only a few dozen cases, but Beijing’s response of curbing travel prompted concern that they might weigh on economic activity that already is weakening. “One may expect aggressive measures to control virus spreads, which may put a cap on growth,” said Yeap Jun Rong of IG in a report.
Brief: HSBC’s profits rose 74% in the third quarter as improving economic conditions allowed the bank to release hundreds of millions of pounds originally set aside for a potential jump in loan defaults during the pandemic. The London-headquartered bank said pretax profits rose to $5.4bn (£3.9bn) in the three months to 30 September, up from $3.1bn a year earlier. It easily beat City forecasts for profits of $3.8bn for the quarter. HSBC credited continued economic stability for helping increase its profits, as improving conditions allowed customers to repay their debts on time. It meant HSBC could release about $700m from the pile of cash it built up during the pandemic to help cushion the blow of a potential surge in defaults. It nearly offset the $785m loan loss charge that HSBC logged during the same period last year. Analysts had expected a further $236m charge in the third quarter. The better-than-expected results led HSBC to announce a share buyback programme, which will result in up to $2bn distributed to its investors.
Brief: The finance industry is ratcheting up pressure on Hong Kong to ease its strict quarantine rules and abandon its zero-Covid policy after a survey found almost half of major international banks and asset managers are contemplating to move staff or functions out of the city. In a letter sent over the weekend to Financial Secretary Paul Chan that was seen by Bloomberg News, the Asia Securities Industry & Financial Markets Association, the top lobby group for financial firms in the city, said the hard-line approach has put Hong Kong’s status as financial center, its broader economic recovery and competitiveness at risk. The lobbying body’s growing alarm comes as other financial centers, including Singapore, London and New York, are starting to get back to normal, easing travel rules while seeking to co-exist with the virus. Hong Kong has some of the world’s strictest quarantine policies, placing incoming travelers in quarantine for as long as three weeks, a strategy that has been largely successful in keeping local infections at close to zero.
Brief: HSBC Asset Management has shared a raft of advice with clients looking to navigate the current “wall of worry” facing global markets. With concerns about global growth and inflation causing jitters of late, along with the prospect of premature central bank policy adjustments and the resurgence of Covid-19 in certain parts of the world, investors have plenty on their plate when deciding where to allocate money. In a message to clients earlier this week, HSBC Asset Management Global Chief Global Strategist Joe Little recommended a number of strategies, including looking at Asian fixed income, “reasonably priced inflation hedges,” and value and cyclical stocks. Consensus forecasts for U.S. 2021 GDP [gross domestic product] have been cut by 0.7 percentage points to 5.9%, according to HSBC’s aggregate, while supply chain disruption has pushed up U.S. 2021 inflation expectations by a full percentage point to 4.3%.
Brief: The COVID-19 pandemic has not slowed profits on Wall Street as pre-tax earnings this year have beaten last year's outsized growth, a report Thursday found. The financial sector is critical to New York's economy, and the first half of 2021 was extraordinary strong for Wall Street, Comptroller Thomas DiNapoli said in a report. For the first six months of the year, pre-tax earnings hit $31 billion, up from $27.6 billion from the same period last year, and the most since 2009.“Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time," DiNapoli said in a statement. "The securities industry’s strong profits have helped shore up tax revenues and securities industry workers have been among the first to return to the office.”Wall Street is vital to the state's finances, making up about 18% of all state revenue each year.
Brief: Total hedge fund industry assets have swelled to almost USD4 trillion globally, a rise of nearly USD370 billion since the start of this year, according to new capital flows data. Hedge fund managers attracted USD5.6 billion of new investor money throughout the third quarter, supplemented by marginal performance-based gains, putting total industry capital at USD3.97 trillion overall, Hedge Fund Research stats show. Global hedge fund assets have rebounded sharply over the course of the Covid-19 pandemic, according to HFR’s latest Global Hedge Fund Industry Report – with total industry capital soaring by more than USD1 trillion in the previous six quarters, after falling below USD3 trillion in Q1 2020 when the coronavirus outbreak began. With the USD5.6 billion of inflows for Q3 this year, net inflows since Q3 2020 total some USD40 billion, HFR said.
Brief: An aggravating global supply squeeze caused the steepest decline in French manufacturing output since stringent coronavirus lockdowns were in place last year and severely damped growth momentum in Germany, purchasing managers report. Gauges for factory orders in both countries deteriorated in October, with some goods producers mentioning that “severe delays” on inputs were responsible for contracts being canceled or postponed. Inflation pressures grew amid the bottlenecks, according to IHS Markit surveys. “While until recently, the effects of inputs shortages have been most apparent on prices, we’re now seeing them have a noticeable impact on production levels and order book,” said Joe Hayes, a senior economist at the London-based firm.
Brief: The Cboe Volatility Index, known as Wall Street’s fear gauge, closed Thursday at its lowest level since before the pandemic hit as strong earnings pushed stocks to record highs.The VIX closed down 3.1% at 15.01, its lowest close since Feb. 19, 2020. The VIX has averaged 19.71 in 2021. The VIX is measure of market expectations of 30-day volatility and can serve as a way to gauge fear among market participants. The S&P 500 notched its seventh consecutive increase on Thursday, closing at a record; the VIX is down from 19.85 to 15.01 during the same time period.In a note published on Thursday, Susquehanna International Group equity derivative strategist Chris Murphy wrote that while the VIX has “cratered,” volatility is still high in other parts of the market.
Brief: A senior executive at SAP SE, owner of one of the world’s largest travel expense management platforms, expects it to take until at least 2023 before revenues from its Concur unit return to pre-pandemic levels. After losses for Concur during the pandemic, the service is seeing an uptick for bookings and transactional revenue, Chief Financial Officer Luka Mucic said in an interview. Mucic said that transaction volume -- which includes fees for extra usage of Concur -- was on the rise. He expects Concur to return to pre-pandemic growth rates next year, although it will take until 2023 at the earliest to revert to those levels in absolute sales terms.
Brief: After 19 months spent attempting to ward off Covid-19 while safeguarding jobs and businesses, the U.K. is heading into winter with a growing problem: The coronavirus is spreading rapidly, just as the economy starts going in the opposite direction. U.K. cases are accelerating faster than in other western European nations, while deaths have jumped to their highest since March. Government ministers are having to deny they are planning for a new lockdown. At the same time, economic growth is slowing, inflation is running high, the Bank of England is expected to hike rates soon and households are facing a cost-of-living crisis. It’s a contrast to successive waves of infection earlier in the pandemic, when tighter Covid curbs hurt the economy and looser measures helped it rebound.
Brief: New York City’s securities industry reaped another windfall in the first half of the year as it benefited from the pandemic-induced boom in markets -- and that’s projected to boost Wall Street bonuses. The industry’s pretax profits surged about 13% from a year earlier to $31 billion, helped by strong trading, underwriting and advisory activities, state Comptroller Thomas DiNapoli said Thursday in a report. While it was the industry’s second-most profitable first half on record, DiNapoli cautioned that profits will subside as interest rates rise and monetary stimulus fades. “Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time,” he said in a statement. “As we prepare for an eventual slowdown in Wall Street’s record activity, we need to ensure New York’s Main Street, and its other vital sectors, are also recovering.”
Brief: The leaders of Europe’s top banks agree they have a lot riding on the recent surge in consumer prices. But when it comes to deciding whether inflation is here to stay, they’re as divided as policy makers and business executives. On the one side, Deutsche Bank AG Chief Executive Officer Christian Sewing and his counterpart at Nordea Bank Abp are preparing for longer-lasting inflation. Sewing argues it’s time for central bankers start thinking about how to unwind years of negative interest rates that have weighed on lenders’ profitability. On the other side, Banco Santander SA Chairman Ana Botin and the chief of Swedbank AB are calling it a temporary spike from the pandemic and other factors, although they acknowledge the dangers of price pressures persisting.
Brief: New weekly jobless claims held below 300,000 for a back-to-back week as labor market conditions trudged back toward pre-pandemic levels. The Labor Department released its jobless claims report Thursday morning. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg: Last week's initial unemployment claims fell by a greater-than-expected margin, bringing the number of new filings back to the lowest level since March 2020. The four-week moving average for new jobless claims also dropped by 15,250 to reach 319,750 as of last week, also marking the least since March of last year.
Brief: If you think financial markets have been strange the past 18 months, just wait. What lies ahead is an unfamiliar macroeconomic environment that’s undergoing dramatic changes, says Pacific Investment Management Co. The firm released a report Wednesday warning that over the next five years the global economy will see “a more uncertain and uneven growth and inflation environment with plenty of pitfalls for policymakers.” Higher macroeconomic and market volatility will likely mean lower returns across fixed-income and equity markets, according to the manager, which oversees around $2.2 trillion in assets. But while overall capital market returns will likely be lower, increased volatility should spell opportunity for active fund managers, wrote Pimco. Markets are already bracing for the prospect that major central banks will soon begin withdrawing the emergency support provided during the Covid pandemic, with the Federal Reserve widely expected to start dialing back asset-buying next month, while inflation risks remain a major source of disquiet.
Brief: The chief executive of the world’s largest asset manager has called on governments globally to treat climate change with the same urgency as COVID-19 by supporting private capital investment in new technologies, but warned capitalism alone could not solve this crisis. BlackRock chief executive Larry Fink, who oversees around $10 trillion globally, said the pandemic had shown technologies can be developed quickly once the world recognises there is an “existential crisis”.However, Mr Fink said capitalism had fallen short in its pandemic response with large swathes of the emerging world struggling with very low vaccination rates, which could allow the virus to mutate. “We did not have the resolve to invest in the manufacturing, so we could get the whole world vaccinated, so we don’t have to worry about the next variant and the next variant and the next variant,” Mr Fink said during an online sustainability forum hosted by Credit Suisse.
Brief: The 2021 Global Management Survey, published by NAREIM, INREV and Ferguson Partners, paints a varied picture of real estate investment managers’ recovery from Covid-19. In terms of 2020 financial performance, 38 per cent of respondents recorded a 10 per cent increase in EBITDA, while 32 per cent reported a 10 per cent drop. The median firm in the survey recorded net AUM growth of 6 per cent. While still positive, this reflects the first year of slowing growth since 2016. The survey reports 29 per cent of respondents recording a year-on-year fall in AUM – up from 21 per cent in 2019.Unsurprisingly, employee numbers were impacted during the pandemic. In 2020, headcount either fell or stayed the same for 42 per cent of respondents, versus 26 per cent in 2019; and the number of investment managers who decreased headcount grew from 17 per cent to 27 per cent over the same period.
Brief: In 2018, Blackstone became the U.K.’s largest small-business landlord. That year, Blackstone partnered with the U.K.’s largest privately owned property company, Telereal Trillium, to buy an entire portfolio of commercial real estate off British government-owned Network Rail. It seemed like a good investment: Network Rail, swimming in £46.5 billion ($63.9 billion) in debts, had delayed £162 million in investment in the portfolio. Tenants — thousands of them, renting sometimes damp, sometimes noisy railway arches for businesses including bakeries, hair salons, and car garages — were long overdue for structural inspections to make sure the trains could still run safely overhead. And because Network Rail still owned the tracks, the British taxpayer would foot the bill to inspect and maintain the structures, while Blackstone could focus on filling empty arches and revaluing tenanted ones.
Brief: United Airlines Holdings Inc. posted a narrower loss than analysts had expected as a dip in demand from a summer surge in the coronavirus delta variant proved fleeting. The carrier lost $1.02 per share, or $300 million, in the third quarter on an adjusted pretax basis, better than the $1.61 loss analysts had estimated, according to figures compiled by Bloomberg. United shares rose 1.4% in trading after the market close. The stock has gained 6.9% this year through the end of trading Tuesday. Pandemic-driven losses persisted for a seventh quarter at United, which as recently as July had predicted a profit for the latter half of 2021 based on strong demand from leisure travelers and a gradual return of corporate road warriors. But that was before a summer wave of Covid-19 infections and hospitalizations caused an industrywide sales slowdown. United had warned investors Sept. 9 that its planned profit would turn into red ink due to this change in business conditions.
Brief: Dubai’s key tourism sector is unlikely to rebound for at least a year, according to S&P Global Ratings.While the city will witness a modest recovery this year helped by one of the world’s highest vaccination rates, “weak international tourism is likely to drag on the economy until late 2022 at the earliest,” Ratings Credit Analyst Trevor Cullinan said on Tuesday.Last year, S&P estimated Dubai’s gross domestic product would contract about 11%, given the impact of coronavirus on sectors including travel and tourism that contribute more than a third of the city’s economy. Dubai also has a “sizable” overall public debt burden projected at around 141% of GDP, according to S&P.
Brief: Fund managers may be quickly souring on global growth and earnings expectations, but their positioning remains pro-risk as they slash bond holdings to a record low and buy U.S. equities. This is a key takeaway from the latest Bank of America Corp. monthly fund manager survey, conducted in the week through Oct. 14. While the outlook for global growth turned negative for the first time since April 2020 and the overall survey was the least bullish in a year, the allocation to bonds fell to the lowest level ever as inflation woes drove expectations for higher rates, according to BofA strategists. Investors boosted their exposure to U.S. equities to a 16% overweight, the most since November 2020, while the overall positioning in stocks remained “very high,” but steady at a net 50%.
Brief: The COVID-19 pandemic may have bloated public debt to levels already pushing some governments to consider consolidation, but that’s nothing compared to the fiscal difficulties brewing in the coming decades, the OECD said. According to its long-term scenario, a deceleration in large emerging economies, demographic change and slowing productivity gains will drag trend economic growth among the OECD’s 38 members and the Group-of-20 nations to 1.5 per cent in 2060 from around 3 per cent currently. At the same time, states will face rising costs, particular from pensions and health care.To maintain public services and benefits while stabilizing debt in that environment, governments would have to raise revenues by nearly 8 per cent of gross domestic product, the OECD said.
Brief: Hang in there -- that’s been the simple motto of equity market mavens who are bullish on the FTSE 100 Index. The U.K. benchmark is one of only a handful of major indexes that have yet to fully recover pandemic losses, being down more than 3% in that time. Among the main concerns of investors is a supply crunch that’s more acute for Britain than many other advanced economies due to the country’s high dependence on trade and because Brexit exacerbated a trucker shortage. “Brexit disruptions are having a huge sentiment effect on U.K. assets,” said Edmund Shing, chief investment officer at BNP Paribas Wealth. The energy crisis is another cause for concern, he said. After years of relative underperformance, dating back before the 2016 referendum on leaving the European Union, U.K. stocks are cheap. The FTSE 100 trades at a near-record 40% valuation discount to the S&P 500, and at 20% discount to the euro-area benchmark Euro Stoxx 50.
Brief: One prominent Bay Street economist is warning that Canada's uneven labour recovery post-pandemic could have long-lasting economic effects if not addressed. “We still see this asymmetrical widening in the income gap. So, not only are we seeing the wealth gap widening, but also the income gap is widening,” Benjamin Tal, deputy chief economist at CIBC World Markets Inc., said Monday. “That worries me a lot.” His comments come on the same day BDO Debt Solutions released new data showing the deepening financial divide among Canadians. The latest BDO Affordability Index showed 43 per cent of respondents acquired additional debt because of the pandemic, up from four per cent from 2020. Around 28 per cent of people polled reported their financial situation improved during the pandemic as they saved money and paid down debt.
Brief: Offices are starting to fill up again, but it’s still not where Londoners are spending their entire work week. More than 80% of London-based office employees who participated in a JPMorgan Chase & Co. survey said working full time either from home or from the office were their least preferred options after the ending of pandemic restrictions, analysts led by Neil Green wrote in a note. The analysts polled about 650 workers between Sept. 30 and Oct. 12, with about two-thirds of respondents saying they were back in the office on a regular basis. Only 37% said they had been going in five days.“This data strongly supports the trend for flexible offices,” the analysts wrote. “Employee demands are evolving.”
Brief: The “nightmare scenario” of stagflation rearing its head is less likely than many investors think, according to investment professionals, who say the current backdrop is not comparable to the last prolonged period of stagflation during the 1970s and early 1980s.However, they warn that expectations for stagflation could lead to a "significant reversal" across nominal bond and equity markets. Stagflation, when economic growth slows and unemployment increases while inflation ticks higher, creates a tough environment for investors, given consumer spending slows, companies' earnings fall and unemployment continues rising. It is a difficult cycle to break, as evidenced between 1973 and 1982, when the oil embargo of 1973 hit prices and first challenged the seemingly stable inverse correlation between inflation and unemployment.
Brief: Prime Minister Boris Johnson will host a dinner Monday with 20 of the world’s most powerful executives ahead of a summit designed to boost investment into the U.K. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Bill Gates will be among the guests, according to the Daily Telegraph. Stephen Schwarzman, co-founder of private equity firm Blackstone Inc., Barclays Plc CEO Jes Staley andBanco Santander SA Chairman Ana Botin and will also be there, the newspaper reported. Chancellor of the Exchequer Rishi Sunak will host a separate dinner for other leading business figures on the same evening in the capital’s financial district alongside William Russell, the Lord Mayor of London. More than 200 top business people have been invited to Tuesday’s summit, which is aimed at boosting business investment in Britain.
Brief: Assets under management (AuM) at the world’s 500 largest asset managers have reached a new record of USD119.5 trillion, according to new research from the Thinking Ahead Institute. As of the end of 2020, this represents an increase of 14.5 per cent on the previous year when total AUM was previously USD104.4 trillion.The research, conducted in conjunction with Pensions & Investments, a leading US investment newspaper, confirms growing concentration among the top 20 managers whose market share increased during the period to 44 per cent of total assets. Of the top 500 managers, 221 names which featured on the list a decade ago in 2011 are now absent in 2021, demonstrating a quickening pace of competition, consolidation and rebranding.
Brief: Wall Street banks have been among the biggest beneficiaries of the pandemic-era trading boom, fueled by the Federal Reserve's massive injection of cash into financial markets. With the central bank nearing the time when it will start winding down its asset purchases, banks are set to profit again as increased volatility encourages clients to buy and sell more stocks and bonds, analysts, investors and executives say. The Fed has been buying up government-backed bonds since March 2020, adding $4 trillion to its balance sheet, as part of an emergency response to the COVID-19 pandemic. The strategy was designed to stabilize financial markets and ensure companies and other borrowers had sufficient access to capital. It succeeded but also resulted in unprecedented levels of liquidity, helping equity and bond traders enjoy their most profitable period since the 2007-09 financial crisis.
Brief: Your return to the office might come with no desk, toilet paper or refrigerator to stash your lunch. The supply-chain disruptions and chip shortages that have retailers fearing empty shelves for Christmas are complicating employers’ plans for a smooth reopening of offices, according to a report this week from consultancy Korn Ferry. Office managers are saying that orders for breakroom refrigerators they need in January may not be fulfilled until next summer, said Elise Freedman, a senior client partner at Korn Ferry who is advising companies on their return-to-work strategies. New desks are also months behind schedule, she said, though that’s a smaller issue as offices are slow to fill to capacity. With workers already reluctant to go back to the five-day office routine — a third of professionals responding to a Korn Ferry survey in August said they’re never returning full-time — each hiccup makes it harder for the employer to make reliable plans.
Brief: The pass rate for the first level of the chartered financial analyst exam rose from the record low set in July. In August, 26% of candidates passed the Level I test, up from 22% for those who sat for the exam the previous month and 25% in May, according to the CFA Institute’s website. The 10-year average pass rate is now 41%. “We see a similar phenomenon in the lower-than-average pass rate from the August Level I administration as we did earlier this year,” Peg Jobst, managing director for credentialing at the institute, said in a statement Thursday. “As Covid-19 continues to challenge a large number of candidates on their journey through the CFA program, we continue to see the impact reflected in the lower pass rates.” The latest results follow historically low pass rates across all levels of the CFA exam. The institute said its pass rates would improve in the future, approaching pre-Covid levels as long as pandemic pressures subside.
Brief: Just a few months ago, the U.S. economy looked like it was roaring back from the pandemic slump. Now the recovery is starting to look more like a grind. The spread of the delta variant has held back millions of Americans from spending on services like restaurants and hotel rooms. Supply chains are still creaking and Hurricane Ida, which caused havoc in petrochemicals hub Louisiana as well as roughly $20 billion of flooding damage in the Northeast, may have made them worse. And high inflation is stretching household budgets. The Atlanta Federal Reserve’s real-time estimate of economic activity now predicts growth of just 1.3% in the quarter that ended in September. Two months ago it was forecasting 6%. Economists surveyed by Bloomberg are more upbeat. Still, the consensus growth forecast for the third quarter has dropped sharply since August. None of this means the U.S. rebound is heading into reverse, says Nathan Sheets, newly appointed chief economist for Citigroup Inc. “I think recession’s too strong,” he says. “But it’s certainly softer.” Here are five indicators that illustrate and explain the gathering gloom.
Brief: The U.K.’s benchmark equity index is clawing back pandemic losses, driven by a rally in mining, energy and banking stocks. The FTSE 100 Index rose as much as 0.5% to 7,242.73 on Friday, taking it to the highest level since February 2020, when market jitters about the pandemic started to surface. “Having underperformed for so much of the last 18 months, the FTSE 100 is now reaping the benefits of its heavy weighting of basic resources, energy and financials,” said Michael Hewson, chief market analyst at CMC Markets. A surge in metals and energy prices as well as rising yields are lifting miners, oil companies and banks higher, he said. Royal Dutch Shell Plc and BP Plc have both soared more than 15% over the past month, with HSBC Holdings Plc and Standard Chartered Plc also among the top performers. Meanwhile, reopening beneficiaries Rolls-Royce Holdings Plc and British Airways owner IAG SA have benefited from easing travel restrictions.
Brief: The dealmaking and trading windfall that the pandemic unleashed on Wall Street firms just keeps piling up as the economy recovers -- and U.S. banking leaders are pointing to signs that it’s far from over. A fresh round of earnings reports by five of the nation’s largest lenders included revenue hauls from investment banking at Morgan Stanley and Bank of America Corp. that were at or near record levels, and dramatic surges in equities trading across the industry, such as a surprising 40% jump at Citigroup Inc. Closely watched Goldman Sachs Group Inc. reports its third-quarter results Friday. The latest phase of the 18-month frenzy was driven by companies eager to do deals as they adjust their businesses, and by traders betting on the pace of an economic recovery amid supply-chain woes and inflation worries. The outlook, according to several financial industry leaders, is more of that, along with mounting pressure on the Federal Reserve to reduce its emergency pandemic support for the economy.
