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Brief : With the U.S. economy humming, corporate profits flowing and stock prices peaking, investors on Wall Street are beginning to pose an anxious question: Is it all downhill from here? Financial markets are always trying to set prices now for where the economy and corporate profits are likely to be in the future. And even though readings across the economy are still at eye-popping levels, investors see some areas of concern. New variants of the coronavirus are threatening to weaken economies around the world. Many of the U.S. government’s pandemic relief efforts are fading. Inflation is raging as supplies of goods and components fall short of surging demand. And the beginning of the end of the Federal Reserve’s assistance for markets is coming into sight.
Brief: Rishi Sunak may wait until the spring to deliver his next U.K. budget, people familiar with the matter suggested, giving the Chancellor of the Exchequer time to assess the economic damage caused by the pandemic. After delivering his last budget in March, Sunak was expected to deliver a fresh spending blueprint in the fall, given his predecessor Philip Hammond had shifted the annual statement to that period from the spring in 2016 to give businesses more time to prepare for any tax changes in the new financial year. But on Friday, two people familiar with the matter left open the prospect of a spring budget, telling Bloomberg no decision had been taken on its timing.
Brief: Stocks declined as an erosion in U.S. consumer sentiment added to concern about the sustainability of the economic expansion. Crude oil futures fluctuated and the dollar strengthened. Energy and material shares led the S&P 500 lower, reversing an earlier gain posed after a report showed June retail sales topped all estimates in a Bloomberg survey. The S&P has closed at either a gain or a loss every other day this week. Moderna jumped after the vaccine maker was named to the U.S. equity benchmark. The 10-year Treasury yield rose for the first time in three trading sessions.
Brief : DoubleLine Capital CEO Jeffrey Gundlach offered a dire long-term assessment on the U.S. dollar Thursday, telling CNBC in an interview he thinks the greenback is “doomed.” “Ultimately, the size of our deficits — both trade deficit, which has exploded post-pandemic, and the budget deficit, which is, obviously, completely off the charts — suggest that in the intermediate term — I don’t really think this year, exactly, but in the intermediate term — the dollar is going to fall pretty substantially,” Gundlach said on “Halftime Report.”
Brief: Wells Fargo & Co., the U.S. bank with the most employees, is laying out a back-to-office plan set to begin in September, telling staff their schedules will look a lot like they did before the pandemic. The firm, which has almost 260,000 workers, will start calling those who have been working remotely back to the office on Sept. 7, and the process will continue through October, according to an internal memo Friday. It will also begin collecting employees’ vaccination statuses next week.“When we return, our schedules will mostly resemble our pre-pandemic working approach, with additional flexibility,” Chief Operating Officer Scott Powell wrote in the memo. “Choosing not to get vaccinated will not influence your ability to work remotely.”
Brief: When the coronavirus pandemic spread around the world in 2020, investors quickly grasped the gravity of the situation and a sense began to emerge that it was perhaps a moment when firms with strong environment, social and governance (ESG) would be less negatively affected than others. It quickly became evident, however, that this was not the case. During the initial stages of the pandemic when equity markets fell, the established ESG indexes did not appear to capture the outperformance of ESG that many believed to be there. In fact, over the whole of the first quarter of 2020 the difference in performance between a number of ESG indices and the MSCI World Net index was less than 1%.
Brief : Wall Street leaders are pressing ahead with bringing employees back to the office, seeking to resume something that resembles normal work life as soon as possible, even as they keep a wary eye on Covid-19 variants. “At the beginning of Covid, in February of 2020, when I was asked how would this end up, I think I said that I felt 80% of all employee hours worked would be done in one of our offices,” said Morgan Stanley Chief Executive Officer James Gorman. “And that’s probably where it’s going to end up -- not 100% but not zero percent. ”Bank of America Corp.’s Brian Moynihan said he hopes to bring younger staff in front of their bosses soon, but the virus will dictate plans. Citigroup Inc., also watching the evolving delta variant closely, is forging ahead with its flexible approach.
Brief: Asian air travel may take another three years to recover fully from the devastation wrought by the pandemic, lagging behind rebounds in other regions and offering a stern headwind for refiners making jet fuel.It’ll take until 2024 for international air travel across the region to reach pre-virus levels, a year after global traffic hits that milestone, according to the International Air Transport Association. Similarly, consultancy Energy Aspects says jet fuel consumption will reach pre-pandemic volumes only in 2023-2024.The drawn-out timelines highlight the difficulties facing Asia and the likely consequences for jet fuel, a traditionally prized part of the oil-products market. Low rates of vaccination in many countries, the challenge posed by the fast-spreading delta variant, and persistent lockdowns have all set back the recovery even as the U.S. and Europe press on. All that means Asia’s aviation industry is unlikely to offer significant support to the region’s hard-pressed refineries, which process crude from the Middle East and elsewhere into fuels.
Brief: Two large pension plans are wagering that U.S.-based workers will be returning to the office following the Covid-19 pandemic. The Canada Pension Plan Investment Board and Singapore’s GIC announced Wednesday that they have partnered with Boston Properties, a publicly-traded office space developer, owner, and manager, on a $1 billion co-investment deal. Through the co-investment program, the three firms will acquire office properties in Boston, Los Angeles, New York, San Francisco, Washington, DC, and Seattle. The deal comes as office spaces begin to reopen following the pandemic. Employers remain mixed on whether office workers will ditch working from home, although major financial institutions like JPMorgan and Goldman Sachs have reportedly already encouraged employees to return.
Brief : Royal Bank of Canada is formulating hybrid, flexible work arrangements for its employees and doesn’t plan any “one-size-fits-all mandate” on how much time its staff will need to be in the offices when they reopen.“We believe that flexible and hybrid work models are here to stay, and that the role of the office has forever changed,” Chief Executive Officer Dave McKay said in a post on LinkedIn. “This means we’re going to hold onto the best of what we’ve learned over the past 18 months and recapture the best of everything we’ve missed from the pre-pandemic world.”Decisions on working arrangements will be made to match employees’ “diverse everyday experiences” and their clients’ needs, with the hope of strengthening the bank’s culture, encouraging collaboration and ensuring employees feel supported, said McKay, who oversees Canada’s second-largest lender by assets.“Over the next few months, we’ll test and learn as we go and adjust our plans along the way,” McKay, 57, said. “We need to get this right, and we’re confident that client and employee feedback will continue to inform our journey, and that ultimately we will emerge from this crisis even stronger.”
Brief: JO Hambro's new UK Profit Index, showed there was a 19%, or £349bn, decline in UK plc revenue during the first year of the pandemic outbreak - April 2020 to March 2021. However, the asset manager now expects companies to return pre-pandemic levels within an additional year. Alexandra Altinger, CEO, UK, Europe and Asia, at JO Hambro, said: "After the shock of the pandemic, the change of mood in Britain's boardrooms is palpable. "The recovery is now very strong indeed: high government spending, low interest rates, strong consumer demand, resurgent employment and a buoyant housing market mean that profits are now growing very fast, much faster than market expectations."
Brief : Moderna Inc. briefly soared above a $100 billion valuation on Wednesday as vaccinations against the Covid-19 virus continue to ramp up across the globe. Shares of the drug developer rose as much as 6.1% to $249.50 amid a broader rally in the stock market. Moderna has surged more than 220% over the past 12 months as drugmakers raced to develop a vaccine against the coronavirus. The first shots were advanced in record time with Moderna’s inoculation getting emergency use authorization in the U.S. in December, just a week behind the first approval for Pfizer Inc. and BioNTech SE’s vaccine. The breakthrough has helped vault the biotech firm to a household name as Americans identify the jab they received by the company name, “Pfizer” or “Moderna.” In late June, Moderna’s shot was cleared for importation in India where the delta variant has taken hold. Other vaccines authorized in the South Asian country include ones from AstraZeneca Plc, Bharat Biotech International Ltd. and Russia’s Sputnik V.
Brief: The latest Hedge Fund Confidence Index – published jointly by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel – shows industry optimism continued to grow in the second quarter of 2021, having earlier surged 40 per cent in Q1. The data shows hedge funds’ optimism for the coming 12 months is now at “the highest it has been for many years”, AIMA, Simmons & Simmons and Seward & Kissel observed. The AIMA Hedge Fund Confidence Index (HFCI) is a quarterly measure of hedge fund firms’ confidence in the economic prospects of their business over the next 12 months. Roughly 300 hedge funds, collectively managing some USD1 trillion in assets, are quizzed on their capital-raising, revenue-generation and cost-managing prospects, along with the overall performance outlook of their funds for the coming year. They then score their confidence levels on a scale of +50 (the highest level of economic confidence) to -50 (the lowest), with 0 indicating a neutral level of confidence.
Brief: The cost of hotel and motel accommodations in the U.S. surged 7.9% in June from a month earlier, the second-largest gain on record, the Labor Department’s consumer price index data showed Tuesday. That marked the fourth straight monthly advance and pushed the price index back above where it was before the pandemic. The government figures jibe with industry data showing revenue per available room, which combines occupancy and prices, is finally surpassing pre-Covid levels. So-called RevPar increased 43% in Phoenix during the week ended July 3, compared with the same period in 2019, the highest among major markets, according to data from lodging analytics firm STR. New Orleans and San Francisco notched the steepest declines. “There’s really not much in the way of discounts for hotels, especially the ones people want to stay in,” said Lukas Hartwich, an analyst at Green Street. “There’s a lot of pent-up demand for leisure hotels. ”U.S. hotels recorded the lowest occupancy rates on record in 2020, as the pandemic kept travelers at home and ate up lodging industry profits.
Brief : JPMorgan Chase & Co. CEO Jamie Dimon said COVID-19 appears to be "in the rear-view mirror" for American consumers, who are emerging from the pandemic with more money in their pockets and the desire to spend it. During his second-quarter earnings call with investors on Tuesday, Dimon was asked for his take on how things look today amid talk of "peak inflation" and "peak growth" compared to 2011 or so as the U.S. emerged from the financial crisis from a few years prior. "I think they are completely different, fundamentally," Dimon replied, saying, "coming out of the '09 crisis, the world was massively over-leveraged…the consumer was over-leveraged, companies were over-leveraged." The CEO said that is not the case today."The pump is primed," Dimon said on the call. "The consumer, their house value is up, their stock values are up, their incomes are up, their savings are up, their confidence is up, the pandemic is kind of in the rear-view mirror – hopefully, nothing gets worse with it."
Brief: After an unprecedented year, what one word best sums up the equity markets of Latin America? “Busy,” according to Carlos Sequeira, head of research at BTG Pactual. While the region as a whole was largely impacted both socially and economically by Covid-19, each country from Brazil to Chile reacted very differently to the pandemic. This is in part due to global monetary policy, as well as each country’s individual government stimulus plans. With just as varied economic recoveries — despite virus surges — throughout the region, there is cautious optimism across the investment chain in Latin America. But another looming election cycle means there is no downtime for the region’s sell side — or their clients. “From a market perspective, the countries in Latin America rebounded quite quickly from the shutdowns during the pandemic with tons of transactions,” Sequeira said. “Clients, as well as us, have been very busy with all of the IPOs coming to market.”
Brief : The Covid-19 pandemic is fueling a productivity boost for the U.S. economy by speeding up workplace digitization, according to an analysis by Goldman Sachs Group Inc. Since the crisis began, annualized growth in output per hour has risen 3.1%, compared with 1.4% in the previous business cycle, Goldman economists wrote in a note. “Stronger productivity growth has been one of the silver linings of the pandemic,” they said. Those gains are most visible in sectors that can take advantage of virtual meetings, and where in-person expenses such as travel and entertainment have scope to decline. The gains are being led by sectors including information technology, professional services and wholesale trade, while online shopping has lifted productivity in the retail sector. Figuring out how to boost productivity among workers and companies is often identified as one of the biggest obstacles for global growth. The ability to work from home has been singled out as one area where gains are obvious, with a recent study estimating a productivity lift in the U.S. economy of 5%, mostly because of savings in commuting time. However, that study found gains were disproportionately available to the highly educated and well-paid, with many lower-paying jobs -- such as in food preparation and other essential industries -- unable to be done remotely.
Brief: The United States remains unparalleled as a magnet for investors, according to the 10th anniversary edition of the Venture Capital (VC) and Private Equity (PE) Country Attractiveness Index. The index ranks 125 countries according to the quality of their investment environment for adventurous VC and PE investors. The countries are analysed and ranked according to thousands of weighted data points covering six key drivers: economic activity, depth of capital markets, taxation, investor protections and corporate governance, human and social environment, and finally entrepreneurial culture and deal opportunities. Based on its strong performance in all six areas, the United States continues to be the index benchmark with a score of 100. It is followed by the United Kingdom, Japan, Germany, and Canada to round out the top five. Within the top 10, the most remarkable gains were seen for China, South Korea and France, who entered the top 10 for the first time. All top-ranked countries are expected to make swift recoveries from the COVID-related recession, especially China (now 7th), where GDP growth is already recorded.
Brief: Proponents of women’s progress on Tuesday launched a political push in Rome to ensure that global pandemic recovery efforts won’t leave women lagging even farther behind, with the chief of the European Union's executive arm lamenting the scarcity of women in political leadership positions. Advocates are using Italy’s current leadership of the G-20 grouping to campaign for pay equality, greater involvement in decision-making and elimination of cultural stereotypes that hinder women’s advancement. “At the next G-20 summit in Rome, I could be the only woman in the group” of leaders, European Union Commission President Ursula von der Leyen told a forum examining where women lag behind and how they can catch up to men. Italy holds a summit of G20 leaders until the end of October. While von der Leyen didn't elaborate, she appeared to be referring to the prospect that Angela Merkel would no longer be leading Germany's government after elections in September. “There could be no better reminder of how long the road towards gender equality still is,” von der Leyen said, speaking by video message at the opening of the three-day forum.
Brief : Three-quarters of asset managers want to embrace the new normal, with only 25% desiring to return to the pre-Covid work environment, according to a survey from Magellan Advisory Partners. Three-quarters of asset managers want to embrace the new normal, with only 25% desiring to return to the pre-Covid work environment, according to a survey from Magellan Advisory Partners. The Post-Pandemic Working Environment study spoke to management teams across 62 fund houses globally, with assets under management ranging from under $1bn to more than $1trn and found that 75% want the post-Covid hybrid working environment to be permanent. There is an overwhelming preference for three days in the office per week to become the norm, with almost 60% of respondents opting for this balance. Regionally, there was some divergence, with asset managers in the Middle East and Africa and the US leaning towards a four-day office week, while employees in Asia-Pacific may find themselves in work just two days out of five. When not in the office, the majority of firms do not mind where their employees base themselves, with 56% stating they would allow staff to work from anywhere in the world that is not their home address.
Brief: The total market value of B.C.’s public companies grew nearly 50 per cent in 2020 to reach record highs, despite the impact of the pandemic on global financial markets, according to a new report from the British Columbia Securities Commission (BCSC). The BC Capital Market Report 2020 shows that the total market value of B.C.-based companies grew 47 per cent in 2020 to $286 billion, compared to 2 per cent growth in the previous year. “COVID-19 rattled B.C. investment markets in the first quarter of 2020, but they rebounded quickly, demonstrating their resilience and strength even during a global pandemic,” said John Hinze, the BCSC’s Director of Corporate Finance. “Not only did B.C. public companies finish the year with a record market capitalization, they also reported record capital-raising, including filing a record number of prospectuses with the BCSC.” The annually produced report provides a snapshot of the province’s capital market activity in the calendar year, detailing how much money was raised by B.C. companies and investment funds as well as how much was raised from B.C. investors.
Brief: Based on performance in the first half of the year, 2021 is shaping up to be a record-breaking year for private equity. In deals, exit activity, and fundraising, the industry its set to outpace previous highs, according to new data from PitchBook. In the second quarter of 2021, private equity deal making “continued at a frenetic pace,” the report said, with funds closing 3,708 deals worth an estimated total of $456.6 billion. For context, the entire year of 2020 saw 5,734 deals with a combined value of $711.6 billion. “We are running out of metaphors to describe record-breaking deal, exit, and fundraising activity,” said Rebecca Springer, PE analyst at PitchBook and co-author of the study. The report attributed the staggering levels of deal activity to various factors, including a partially vaccinated population, high investor confidence in the equity markets, a “frenzied” demand for high-yield debt, and the regulatory nature of the Biden administration. June’s club buyout of Medline Industries, a medical supply company, was cited as an example of the “risk-on” environment for dealmaking.
Brief : Chief executives in financial services rank cyber-attacks as the greatest threat to future growth prospects – more than a pandemic or over-regulation – according to a PwC survey. Executives at some of the world’s biggest banks, insurers and asset managers were asked to choose from a list of potential business, economic, policy, social and environmental threats to growth. They ranked cyber-attacks top (56 per cent), followed by pandemics (51 per cent) and over-regulation (50 per cent). The prospect of financial institutions being subject to a cyber-attack has grown considerably in recent years. Only 33 per cent of CEOs considered cyber threats the biggest concern for their business five years ago in 2016.
Brief: Invesco today released its ninth annual Global Sovereign Asset Management Study, which details the views and opinions of 141 chief investment officers, heads of asset classes and senior portfolio strategists at 82 sovereign wealth funds and 59 central banks, who together manage USD19 trillion in assets. With Covid-19 top of mind, impacting both operations and investment strategies, the impact of the ongoing pandemic is a major theme running throughout this year’s report. In response to Covid-19, governments rushed to implement policy measures designed to prop up their economies and public services such as health, as well as providing support for businesses and households at a time when tax revenues retreated with depressed economic activity.
Brief: The growth-cycle outlook is steadily increasing for the world’s leading economies with the gradual lifting of lockdown measures and progress in vaccinations, the OECD said. The organization’s Composite Leading Indicators, which tend to precede economic turning points by about six months to nine months, continue to expand for the group’s 38 members as a whole and in some large emerging-market economies. The OECD cautioned that despite the improvements in containing the spread of Covid-19, its measures should still be interpreted with care and may say more about the signal than the degree of actual economic growth.
Brief : In-person conferences are back sooner than anticipated in the U.S., a sliver of good news for industries like airlines and hotels that are relying on corporate travel for a full recovery. About half of attendees at a large annual meeting of accountants are expected to make the trip to Las Vegas this month, substantially more than the organizers anticipated at the start of the year. And some conferences planned in the fall have a full pre-pandemic flavor, with almost all of the speakers and attendees planning to be on site rather than over Zoom. “We are offering digital-only tickets, but are expecting about 95% of our attendees to be in-person,” Jon Weiner, founder and chief executive officer of health-care conference HLTH, said via email. “Attendee sales are trending as they were for our last in-person event (2019) and sponsorships are selling out quick.” This year’s gathering takes place in Boston in October.
Brief: Across industries, mothers bear the burden of household labor and childcare, a trend that translates into weaker performance at work compared to their male counterparts and other women without children. For mothers in the hedge fund industry, the Covid-19 pandemic exacerbated these disparities. According to new academic research, on average, female managers with young children — aged 12 and younger — missed a 7 percent excess return compared to male-only funds during the months of pandemic-related school closures. This cost increased with the proportion of mothers in a firm. In contrast, fund performance was not significantly affected for managers who are fathers or women without children.
Brief : In the upside-down world of global banking, getting back to normal is bad news for the bottom line. Wall Street churned out massive windfalls during the pandemic, but the economic reopening made possible by widespread vaccinations means this year’s earnings will look weaker by comparison. The big down arrow will be trading revenue, which is expected to show a 28% tumble for the top U.S. investment banks when they begin reporting second-quarter results next week, according to analysts’ estimates. Trading isn’t the only soft spot. Loan growth is still proving elusive as consumers and companies, still flush with cash from trillions of dollars of government stimulus, have yet to demand more bank financing. Total loans for the commercial banks probably fell a combined 3% in the quarter, analysts predict.
Brief: Hedge funds gained more than 10 per cent in the six months of 2021, the industry’s strongest first half performance in 22 years, despite June seeing a shift in market sentiment which moderated the sector’s monthly returns. Now, managers are positioning for a “dynamic performance environment” heading into the second half of the year, shaped by ongoing Covid concerns, as well as energy and tech trends. Hedge Fund Research’s main Fund Weighted Composite Index – a monthly measure of more than 1400 single manager hedge funds’ performance across all strategy types – gained 0.4 per cent in June, putting the benchmark up 10.03 per cent over the six-month period starting in January. That January-to-June advance is the hedge fund industry’s best first-half performance since 1999, HFR said. It is also the longest run of consecutive monthly positive returns – which together totals 22 per cent – since the index registered 15 months of consecutive gains ending in January 2018.
Brief: DN Capital, one of Europe’s most established Venture Capital firms, today announces the launch of its latest $350m (£220m, €300m) fund. In a year which has already seen four of the DN Capital portfolio reach billion dollar-plus valuations, the firm’s Fund V will back the most ambitious early stage entrepreneurs across Europe, the UK and the US, who are creating businesses built on the pandemic-accelerated surge in digital adoption, and developing technologies critical to the global recovery. Under the leadership of private equity and VC stalwarts Nenad Marovac and Steve Schlenker - who head up a senior team with a combined 100 years-plus of investment experience - DN’s predominantly young and ambitious team has a consistent track record of partnering with some of Europe’s most promising startups, long before they became market leaders.
Brief : Diverse reasons are driving the rotation in stocks and a slide in bond yields, but weakness in travel, leisure and other COVID-19-sensitive stocks suggest that fears of the Delta variant are doing their part. Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months. Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.
Brief: Red-hot demand from leisure travelers boosted a key lodging industry metric higher than it was during the same period in 2019, marking the first time since the pandemic began that U.S. hotels outperformed pre-Covid levels. Revenue per available room, which combines occupancy and prices, increased 5.7% last week compared to the same period in 2019, according to data from lodging analytics firm STR. RevPar in Phoenix increased 43% from 2019, the highest among major markets, while New Orleans and San Francisco notched the steepest decline. Hotels in New York City also continue to struggle.
Brief : The number of Americans filing for unemployment benefits rose slightly last week even while the economy and the job market appear to be rebounding from the coronavirus recession with sustained energy. Thursday's report from the Labor Department showed that jobless claims increased by 2,000 from the previous week to 373,000. Weekly applications, which generally track the pace of layoffs, have fallen steadily this year from more than 900,000 at the start of the year. The four-week average of applications, which smooths out week-to-week volatility, is now 394,500 — the lowest such level since the pandemic erupted in March of last year. The rollout of vaccinations is driving a potent economic recovery as businesses reopen, employers struggle to fill jobs and consumers emerge from months of lockdown to travel, shop and spend at restaurants, bars, retailers and entertainment venues.
Brief: London-based fintech firms have already raised more VC investment in the first six months of 2021 than any other year, according to new research from Dealroom.co and London & Partners. London’s strong performance has also helped to drive record levels of investment into Europe’s fintech sector, with European fintech firms raising USD13.9 billion, up 51 per cent on full year 2020 investment levels. London was at the heart of this growth, with its fintech firms accounting for over a third of all European fintech funding. The bumper start to the year for VC funding sees the UK capital further cement its position as a global fintech hub, with investors pumping USD5.3 billion into London-based fintech companies – an increase on all previous full year investment figures for London’s fintech sector and over 2.5 times more VC investment than any other European city. Investment into London’s fintechs in the first half of 2021 is 2.4 times greater than during the same time period in 2020, showing investor confidence returning as the UK economy starts to recover from the global pandemic. London ranks second on the worldwide list for fintech VC investment so far this year, slightly ahead of New York (USD5.2 billion) and behind San Francisco in first place (USD7.2 billion).
Brief: Eight in 10 U.K. companies do not expect to make redundancies in the next three months, an indication the labor market could avoid a severe shock as government job support is wound down. The finding is contained in the latest batch of high-frequency indicators from the Office of National Statistics, which said only 1% of firms definitely planned to shed staff when they were asked late last month. Nineteen percent were not sure. The furlough program, which has paid the wages of workers at firms forced to close during the pandemic, was still supporting 2.4 million jobs at the end of May. Employers are now having to contribute to the cost ahead of the program ending altogether in September. That’s led to fears of job cuts at businesses that are continuing to struggle, despite the lifting of lockdown restrictions. The figures painted a generally upbeat picture of the labor market, with online job listings reaching 135% of pre-pandemic levels.
Brief : Despite economic uncertainties rising from the pandemic, the asset management industry has surpassed the centi-trillion mark to reach $103 trillion in assets under management at the end of 2020, an increase of 11 percent from the previous year, according to Boston Consulting Group’s annual report on the industry expected to be released Thursday. Of the total, institutional investments represented 59 percent at $61 trillion, while retail portfolios comprised 41 percent of the global assets, or $42 trillion. North America was seen as the main driver of growth and held the lion’s share of assets at $49 trillion. As the end of the pandemic draws near and remote-working models become “permanent fixtures,” BCG called on asset managers to seek growth opportunities in private markets and data and analytics, which it said will be crucial to everything from client engagement and distribution to customized investment products.
Brief: More than two-thirds (67 per cent) of private equity professionals expect to achieve higher returns this year than in 2020, with just 3 per cent expecting lower returns, according to Investec’s annual GP Trends survey. The research, which analyses the views of 219 private equity professionals around the world, reveals an industry upbeat as we emerge from the pandemic, eager to deploy capital and sanguine about the threat of SPACs. When the pandemic struck last year, GPs made significant downward adjustments to their return expectations. This year, optimism has flooded back, with the overwhelming majority (97 per cent) expecting their returns to exceed (67 per cent) or match (31 per cent) those achieved in 2020. This is especially true of smaller funds: 70 per cent of those managing funds smaller than GBP1 billion expect to improve on last year’s performance, compared to 55 per cent of those managing funds larger than GBP1 billion.
Brief: Hedge funds betting against Sainsbury’s have taken a dent after the UK supermarket giant’s share price rose this week on the back of strong Q1 sales numbers, prompting the FTSE 100-listed firm to revise its profit outlook upwards. A number of well-known hedge funds – including BlackRock, Marshall Wace and Citadel – have built negative wagers against Sainsbury’s lately, while the likes of Pelham Capital and Third Point continue to hold longer-standing bearish bets, according to regulatory disclosures made to the FCA. The UK’s second biggest supermarket chain – which is one of the ‘Big Four’ grocers alongside Tesco, Asda, and Morrisons – has been a popular short among hedge funds over the past 18 months. Panic-buying during the initial coronavirus outbreak saw its value slide to around 179p in March 2020, and the company continued to lag competitors last summer amid warnings of increased costs, with several high-profile hedge funds - including AHL and GLG Partners, Man Group’s systematic and discretionary hedge fund units – registering short positions.
Brief : KKR & Co. has committed to $8 billion in commercial-property loans so far in 2021, more than double its previous full-year record, as the pandemic reopening stokes demand for financing. “The market is just roaring back from a volume perspective,” Matt Salem, KKR’s head of real estate credit, said in an interview. “Pipelines are very big across the board.” Demand for new loans has revived as construction picks up, debt matures and low interest rates spur refinancing on favorable terms. Total debt on U.S. commercial and multifamily properties increased to $3.93 trillion as of March 31, up 1.1% in the first three months of this year, according to the Mortgage Bankers Association. That growth continued as trillions of dollars in stimulus money flowed into the economy and vaccination campaigns fueled a revival of commerce and real estate investors’ appetites for risk.
Brief: ESG criteria is an outperformance factor and an essential prerequisite for companies' resistance to crises, according to the latest "SRI & Performance Study by LFDE," conducted by French asset manager La Financière de l'Echiquier (LFDE) for the third consecutive year. "The exceptional year of 2020 in particular, with its rapid market collapse and equally rapid recovery, has shown how resilient SRI investments are during crises," says Coline Pavot, Head of SRI Research at LFDE. During 2020, the portfolio with the best ESG scores (Top 40) posted a 15 per cent return, outperforming the portfolio with the worst ESG scores (Flop 40) by a factor of 68. At the same time, the MSCI Europe SRI Index (+1.4 per cent) outperformed the Flop 40 portfolio (0.2 per cent) and the MSCI Europe Index (-3.32 per cent).
Brief: Toronto’s financial district has been quiet ever since banks sent their employees home at the beginning of the coronavirus pandemic. That may be about to change. New cases of COVID-19 are down more than 95 per cent in Toronto compared with three months ago. About half of adults there are now fully vaccinated, and schools are preparing to reopen in two months. To Phil Verster, the chief executive officer of Metrolinx, the agency that runs commuter rail and bus service in Canada’s largest metropolitan area, that means many workers will go back to the office at least part of the time. “I am very optimistic that we are going to see a resurgence of travel — very much so starting in September and October,” Verster said in an interview, noting that he sends out Metrolinx staff to speak with business leaders about how their return-to-office plans are evolving. “What we’ve seen in our ridership is that considerations about whether children can go back to school or not are critical.”
Brief : Labor markets in developed nations have recovered only half of the loss of employment they suffered in the pandemic, with the young and low-skilled hurt most. That’s the conclusion of a 400-page study by the Organization for Economic Cooperation and Development, which found that about 22 million jobs disappeared by the end of 2020 in industrial nations. The Paris-based institution said a full recovery to pre-pandemic levels of employment won’t come until the end of next year. The findings indicate that the coronavirus crisis accelerated a number of trends that started over the past decade, including growing income inequality, a shift toward more technically demanding jobs and fewer secure employment opportunities for lower-skilled workers. “Failing to address inequality and exclusion now is likely to result not only in deeper social divisions but will have negative ramifications for productivity and economic recovery,” said Stefano Scarpetta, the OECD’s director for employment, labor and social affairs.
Brief: Digital health funding continues to smash new records each quarter, as venture-backed companies raised $14.7 billion in the first half of the year. That sum already surpasses the total venture funding raised in all of 2020, according to a new report from venture firm Rock Health. The Covid-19 pandemic has fueled the adoption of new digital health technologies, which already set an all-time high venture funding record of $6.7 billion in the first quarter of 2021. Rock Health’s CEO Bill Evans says that while even he was a bit surprised by such a huge increase compared to last year, the fundamentals checked out. “We saw pace increase and size per round increase,” says Evans. This translated to an average of 11 digital health deals totaling $548 million each week in the first six months of the year, compared to an average of 7 deals totaling $285 million in the second half of 2020
Brief: Hedge fund managers have grown even more optimistic about their business prospects over the next 12 months.On a scale ranging from -50 to +50, hedge funds rated their economic confidence at +19.5, up from an average of +18.4 the previous quarter, according to the second quarter Hedge Fund Confidence Index from AIMA, Simmons & Simmons, and Seward & Kissel. Confidence is also up significantly from +13.8 in the fourth quarter, according to the index.In a survey of more than 300 hedge funds around the world accounting for approximately $1 trillion in assets, respondents were asked to consider three factors for determining their outlook: “their firm’s ability to raise capital, their firm’s ability to generate revenue and manage costs, and the overall performance of their fund(s).”
Brief : Investors looking to make a buck on corporate distress can only hope the post-pandemic world is more accommodating. Rock-bottom interest rates, a reopening economy and yield-starved investors mean all but the most-troubled businesses have managed to borrow their way out of trouble. Credit markets may not be so friendly if the projections underlying that borrowing prove too rosy once post-Covid results come out, according to Phil Brendel of Bloomberg Intelligence. “The market will shift from pricing on projections and start looking more at actuals,” Brendel said in an interview. “We’re at credit bubble levels of distressed debt. So credit markets are vulnerable to a significant correction.” The pile of distressed debt outstanding, which totaled almost $1 trillion at the height of the pandemic, has sunk to about $60 billion, data compiled by Bloomberg show. By one measure, the proportion of high-yield bonds outstanding that is trading at distressed levels is the lowest since the run-up to the 2008 financial crisis, Brendel said.
Brief: Fund management firms in a sample study were not implementing rules that should demonstrate how much value they provide to clients. The Financial Conduct Authority (FCA) said most of the 18 firms it reviewed had not implemented Assessment of Value (Avon) arrangements that met FCA standards. Avon rules were brought into force in 2019 and require firms to justify their fund fees by demonstrating value based on certain criteria such as performance, costs and savings from economies of scale. The findings will be a disappointment to the FCA which has increased scrutiny of asset managers in recent years and whose Avon regime is expected to set the standard elsewhere in Europe. However, the firms have escaped any tough regulatory action, such as fines. Reporting on its review, which happened between July 2020 and May 2021, the FCA said “too many” of the fund managers often made assumptions that could not be justified when challenged by the regulator, and that this undermined the credibility of their assessments. Many firms did not consider what the fund’s performance should deliver when set against the investment policy, investment strategy and fees.
Brief: The UK IPO market has continued its resurgence throughout H1 2021 with the number of new listings on the London Stock Exchange already exceeding the number that listed in the whole of 2020, according to research from law firm Pinsent Masons. As of 28 June 2021, 45 companies have listed on AIM and the Main Market and six more say they intend to list this year. That compares to 31 companies that listed in the whole of 2020. There was more IPOs in Q1 2021 (20) on the London Stock Exchange than in any previous first quarter of the year since 2007. Companies have been eager to exploit the renewed investor optimism so far this year. Healthcare companies (6), tech companies (11) and online retailers (7) make up 53 per cent of the businesses to have listed so far in in 2021. Companies from those sectors see now as an ideal time to float as, in many cases, Covid has provided a strong tailwind to help their sales growth. Julian Stanier, head of Corporate Finance at Pinsent Masons says, “This has been the busiest period for London Stock Exchange IPOs for about 15 years.
Brief : The annual Schroders Institutional Investor Study, which polls 750 industry professionals in 26 locations across the globe, showed an average expectation return of 6.4%, up from 5.6% a year earlier. Almost half of respondents estimate that their average annual total return will be above 6% over the next five years, with 13% expecting returns of more than 9%. These expectations are higher than last year, when only 35% of global investors thought they could return over 6% and 5% believed they could top 9%. Keith Wade, Chief Economist, said: “Clearly, confidence is rising. This is due to a combination of vaccine success, increasing consumer demand across the globe, and indications that the global economic recovery from Covid-19 could be relatively swift. “However, expectations are even higher than before the pandemic hit, indicating a more sustained shift in confidence. It could be that even professional investors are being swayed by the strong real returns achieved by both equity and bonds in the past decade. Understandably, they’re feeling more optimistic. The reality is that, to achieve decent returns, investors will need to navigate a number of challenges, from low rates to demographic shifts to technological disruption.
Brief: The European private equity industry rebounded strongly in the 12 months to 30 June 2021 following the initial shock of Covid-induced lockdowns, according to the first provisional half-yearly data announcement from CMBOR, the Centre for Private Equity and MBO Research, since its re-establishment within Nottingham University Business School last month with support from Equistone Partners Europe. CMBOR’s latest report has found that the volume of private-equity-backed acquisitions in Europe fell to its joint-lowest level since mid-2009 during the first wave of the pandemic. But after just 102 transactions were completed in Q2 2020, the industry quickly recovered to pre-Covid activity levels. The 791 buyouts that took place in the past 12 months, with a cumulative value of EUR116.6 billion, exceed the corresponding figures for 2019 (716 deals with an aggregate value of EUR112.4 billion) and approach the post-2008 high-water mark set in 2018 (811 deals valued at EUR124.7 billion). The resurgence in deal-making since Q3 2020 was also in evidence in exit activity, as private equity investors made 354 realisations totalling EUR98.9 billion in value, compared to 360 exits with a value of EUR73.7 billion in 2019. This too followed a decade-low exit volume of just 46 sales in Q2 2020.
Brief: Asset management firms are accelerating their digital transformation, with almost half planning to boost their digital spend in the coming year. The push to digitalise been driven by the rise of low-cost passive investing and digital-first challenger banks, which have squeezed the margins of traditional asset managers. Alpha FMC recently surveyed 36 asset managers with a collective USD25 trillion in assets under management, and found that almost all, 97 per cent, regard going digital as a top priority. Most managers, 69 per cent, are already undergoing or recently completed a significant digital transformation. However, most believe they are not yet fully meeting their clients’ and customers’ ever-shifting digital expectations. Nearly half of asset managers, 45 per cent, plan to increase spending by between 5 and 20 per cent over the next year. This is on top of budget rises over the last year, as the coronavirus pandemic forced all areas of business to be conducted online, remotely. “Across the board we have seen managers progress well in shifting to digital and remote ways of delivering services to clients, to respond to the global pandemic,” says Kevin O’Shaughnessy, head of Digital and Agile Transformation at Alpha FMC. O’Shaughnessy says that asset managers are now thinking about digital as a “core and critical function within the firm”.
Brief : The Federal Reserve’s tapering of its asset purchases, which he hopes will start “soon,” will run smoother this time around because investors already know that a move is being discussed, said Federal Reserve Bank of Dallas President Robert Kaplan. “I want it to get out into the market, and I think this debate we’re having at the FOMC, some of it publicly, is good,” Kaplan said Wednesday in an interview with Michael McKee on Bloomberg Television, referring to the Federal Open Market Committee. “People are on notice that these adjustments are coming, the only question is when.” Kaplan said the Fed learned a number of lessons in 2013, when it first announced a slowing its purchases of Treasuries and mortgage-backed securities following the global financial crisis. The news caused a violent spasm in financial markets as investors sold riskier assets for the safety of bonds in an episode dubbed the “taper tantrum.” The central bank has been purchasing $80 billion of Treasuries and $40 billion of MBS monthly since last year to support the U.S. economy during the pandemic. Chair Jerome Powell said earlier this month that the taper debate was getting into gear and would continue at coming FOMC meetings.
Brief: Event driven hedge funds are making hay amid soaring levels of corporate activity, with new stats showing these managers raked in their best first-quarter returns in almost 30 years, as a number of newly-launched strategies look to get a piece of the M&A action. Event driven managers – which seek to capitalise on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events using activist, merger arbitrage and special situations strategies – posted a first quarter composite return of 7.3 per cent, according to new research by bfinance, their strongest Q1 showing since 1993. M&A activity has rapidly picked up momentum since the third quarter of 2020, and since the start of 2021 volumes have risen to more than USD2.4 trillion globally, as economies look to recover from Covid-19 and deals put on hold during the pandemic are kickstarted. Against that backdrop, event driven strategies advanced 11.7 per cent in the first five months of 2021, according to data published by Hedge Fund Research, outflanking HFR’s industry-wide Fund Weighted Composite Index, which was up 9.92 per cent over the same period.
Brief: Billionaire Warren Buffett says the one constant throughout the coronavirus pandemic has been that it has been difficult to predict how it would affect the economy, but clearly it has devastated many small businesses and individuals while most big companies have fared OK. “The economic impact has been this extremely uneven thing where I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly have done fine, unless they happen to be in cruise lines or, you know, or hotels or something,” Buffett said in an interview that aired on CNBC Tuesday night. Buffett and Berkshire Hathaway Vice Chairman Charlie Munger touched on a variety of topics during the interview. Munger said China had the right approach to the pandemic by essentially shutting down the country for six weeks. “That turned out to be exactly the right thing to do,” Munger said. “And they didn’t allow any contact. You picked up your groceries in a box in the apartment and that’s all the contact you had with anybody for six weeks. And, when it was all over, they kind of went back to work. It happened they did it exactly right.”
Brief : Almost one in two investment trusts from the Association of Investment Companies (AIC) has undergone corporate activity in the past five years, new data has revealed. While a degree of corporate action is regular in the investment company space, since the onset of the pandemic more substantial changes have become the norm as boards are under increasing pressure to prove shareholder value. The figures showed 47% of investment companies have undergone a manager change, merger, fee change, policy change or liquidation since the beginning of 2016, with some undergoing multiple changes. In the last 18 months alone, 11 companies have changed their manager, with two more currently undergoing strategic review, compared to 18 in the previous four years. Additionally, 11 companies have been liquidated, 12 have seen policy change and there have been three mergers. "Since the onset of the pandemic, investment company boards have been particularly proactive in addressing performance and other issues such as liquidity," said Annabel Brodie-Smith, communications director at the AIC.
Brief: The pandemic-related collapse in international tourism could cost the global economy as much as $4 trillion for the years 2020 and 2021, according to a new United Nations report. The estimated losses have been caused by Covid-19's direct impact on tourism as well as its ripple effects on other sectors closely linked to it. The steep drop in international arrivals led to a $2.4 trillion loss in 2020 and the UN's report warns that a similar loss could occur this year with the recovery largely dependent on the uptake of global Covid-19 vaccines. The report states that while tourism losses are falling in most developed countries, the situation is deteriorating across much of the developing world due to vaccine inequality. While the industry is expected to rebound faster in countries with high vaccination rates such as the France, Germany, Switzerland, the United Kingdom and the United States, experts don’t expect a return to pre-Covid-19 international tourist arrival levels until 2023 or later. The report bases its loss estimates for 2021 on three scenarios involving different drops in tourism arrivals as well as varying vaccination rates. The most severe scenario involves a 75% reduction in tourism arrivals which would lead to a $2.4 trillion loss this year.
Brief: Lazard Ltd. said any employee working in its U.S. offices must be fully vaccinated against the coronavirus by July 6, and North American financial-advisory bankers will have the option of working from home two days a week. The investment bank encouraged more employees to return to offices, calling the experience “vital” for younger workers, according to a memo to staff obtained by Bloomberg and confirmed by Lazard. Individuals can work remotely, subject to client needs, on Monday and Friday if they choose.
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