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Brief : Treasury Secretary Janet Yellen says that the economic recovery is going to be “bumpy” with high inflation readings likely to last through the end of this year. But Yellen insisted that the inflation pressures will be temporary and if they do threaten to become embedded in the economy, the government has the tools to address that threat. In testimony before a House Appropriations subcommittee Thursday, Yellen was asked about a big jump in prices reported last week, which showed consumer price index rising by 4.2% over the past year, the largest 12-month gain since 2008. Yellen said that the April price increase was the result of a number of special factors related to the economy opening back up. She said as she has in the past that the price jump would be temporary but she indicated it would be more than a one-time gain. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year,” Yellen told lawmakers.
Brief: Canada’s biggest banks are signaling that financial issues from the COVID-19 crisis are largely in the rear-view mirror in North America -- and earlier than analysts had expected. After a year of stockpiling record amounts of capital to protect against a wave of loan defaults, Royal Bank of Canada and Toronto-Dominion Bank -- the country’s two largest banks -- reversed course last quarter. Toronto-Dominion on Thursday reported a surprise $377 million (US$312 million) release of provisions for credit losses for its fiscal second quarter, while Royal Bank released $96 million. Analysts had projected both lenders would continue setting aside capital to absorb potentially soured loans. With vaccination campaigns putting economic reopenings in reach in Canada and the U.S., strong housing markets fueling mortgage lending, and surging equity markets supporting capital-markets and wealth-management businesses, Toronto-Dominion and Royal Bank are asserting they have more than enough capital to handle any bumps along the road to recovery. Even after reporting smaller set-asides than analysts expected in the fiscal first quarter, bank executives still struck a cautious tone on their preparations for potential credit losses, leading many analysts to expect reserve releases wouldn’t begin until the second half of the year.
Brief: Invest Europe, an association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, has published its ‘Private Equity at Work’ report which shows that the PE sector is supporting over 10 million workers across the continent and creating over a quarter of a million jobs in sectors that will help feed the recovery from the Covid-19 crisis. A total of 10.2 million people were employed at 23,009 portfolio companies at the end of 2019, ranging from start-ups and SMEs to large multinationals, according to the second edition of Invest Europe’s ground-breaking employment study. That equates to 4.3 per cent of Europe’s active workforce and is on a par with the entire population of Sweden. Private Equity at Work demonstrates private equity’s outsized contribution to European job creation. Companies backed by private equity added 254,157 net new jobs in 2019, about the same as the working population of Tallinn. The figure represents growth of 5.5 per cent on the previous year and far outstrips the average job growth of 0.9 per cent for Europe as a whole. Around half a million people in Europe found new work with private equity backed companies in 2018 and 2019 combined.
Brief: Cerberus Capital Management, demonstrating the rewards of Wall Street’s rush into health care, made a roughly $800 million profit on its investment in struggling Catholic hospitals, records show. The New York private equity firm quadrupled its money over a decade, according to internal documents and a federal filing this month. Co-founded by billionaire Stephen Feinberg, Cerberus executed an unusual exit. It offloaded its remaining interest to doctors who work in its hospital company, rather than pursue an initial public offering or sale to a rival. Cerberus bought Caritas Christi Health Care in 2010, paying $246 million in cash for Massachusetts hospitals that included flagship St. Elizabeth’s Medical Center in Boston. The company that Cerberus created, Steward Health Care, expanded into a major hospital chain as it also became saddled with a heavy debt load. Private equity firms, saying they are bringing corporate efficiency to an outdated industry, struck $288 billion worth of health care deals over the past five years, according to a report by consultant Bain & Co. Such investments have drawn scrutiny from members of Congress, consumer groups and academics, who say the firms’ use of debt puts pressure on medical providers to cut costs and hurts quality.
Brief: Investors are pouring a record amount of money into young companies trying to transform U.S. health care at an accelerating pace. Spurred by the pandemic, private funding for health-care companies has reached new highs every quarter since Covid-19 emerged. Investors steered a record $6.7 billion to U.S. digital health startups in the first three months of 2021, according to venture firm and researcher Rock Health. In 2011, Rock Health tracked $1.1 billion invested in digital health for the entire year. The flood of money is getting attention from new corners. JPMorgan Chase & Co. last week announced a new business with a $250 million investment arm to transform employer health coverage. Young startups have closed giant deals like the $500 million that online pharmacy Ro, founded in 2017, raised in March. And venture-backed health companies are reaching the public markets: Upstart insurer Bright Health Group, founded in 2015, filed for an initial public offering last week. Sustained low interest rates have investors searching for returns in new arenas, pushing money into assets from junk bonds to Dogecoin. Venture capital is no exception -- with funds raising $32.7 billion in the first quarter, on pace to exceed last year’s record, according to data from the PitchBook-NVCA Venture Monitor. All that money has to go somewhere. As the pandemic eases in the U.S., a growing chunk of venture capital has decided that the upheaval spurred by Covid-19 is accelerating shifts already underway in the notoriously inefficient $4 trillion U.S. health-care sector.
Brief: Venture capital is back, better, and younger than ever. Start-ups that survived the pandemic are raising venture financing rounds at valuations well above the period before the coronavirus shut down global economies. At the same time, investors are increasingly placing capital in early-stage deals, according to a new PitchBook report. Although there's a bump in interest in younger companies, venture capital activity is strong for deals in all stages. According to the report, both early- and late-stage venture capital deals experienced growth in pre-money valuations – the value before companies go public or get other kinds of financing. The median and average pre-money valuations for early stage companies hit $40 million and $96.3 million, respectively, in the first quarter. Both are records. For later stage companies, a number of huge deals increased the median and average pre-money valuations to $122.5 million and $1.03 billion, respectively. These were also peaks. Venture capital has had a good run recently, according to multiple third parties looking at different data sets. Returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic.
Brief : Hedge fund assets under management reached an all-time high of $4.146 trillion at the end of the first quarter of 2021, according to a Preqin report expected to be published Wednesday. Commodity trading advisors, which saw the biggest net redemptions to in the first half of 2020, saw significant improvement in the first quarter of 2021. In fact, CTAs experienced the highest quarterly net inflows of $5.8 billion at the start of 2021. So-called niche strategies followed closely behind, ending the quarter with $5.75 billion of inflows. “We see a bit of a shift towards the top level strategies that didn’t receive the attention in the pre-Covid-19 environment, because risk wasn’t a major factor,” said Sam Monfared, Preqin’s hedge fund expert and author of the report. “It seems like allocators are paying more attention to risk management and putting money into buckets that are there to protect capital.” Event-driven strategies — which experienced the second-most redemptions in the first half of 2020 — also saw improvements in flows in the first quarter. However, the category still ended the three-month period with outflows of $3.9 billion. Macro-strategies experienced a similar trajectory, ending the quarter with outflows of $2.3 billion. Fifty-six percent of marco-strategy funds experienced outflows, the worst performance among all hedge fund strategy categories.
Brief: Private equity firms are snapping up U.K. companies at a rate not seen since before the 2008 financial crisis. Buyout firms have spent $18.3 billion on takeovers of publicly-traded British targets this year, according to data compiled by Bloomberg. At this rate of investment, they will surpass the $27.5 billion of such transactions struck in 2019, which was a post-crisis high, the data show. The tally has been fueled by a surge of take-privates in May, the latest of which came Wednesday when Carlyle Group Inc. said it would buy drugmaker Vectura Group Plc for about 958 million pounds ($1.4 billion) in cash. Already this month, KKR & Co. had agreed to buy infrastructure firm John Laing Group Plc for about 2 billion pounds and Blackstone Group Inc. confirmed a 1.2 billion-pound offer for St. Modwen Properties Plc. Clayton, Dubilier & Rice also struck a deal for UDG Healthcare Plc at 2.6 billion pounds. These deals all came after a brief lull in U.K. take-privates in April. Private equity firms remain flush with record amounts of unspent investor money and continue to come to market to raise new funds. Buyout funds are offering shareholders of their U.K. targets an average 33.2% premium this year, the Bloomberg-compiled data show. That’s the third-highest level of the last 10 years.
Brief: There are clear signs of a forthcoming revival in global dividends following the first quarter of 2021, according to the latest Janus Henderson Global Dividend Index. Compared against pre-pandemic Q1 2020 levels, payouts were only 2.9 per cent lower year-on-year at USD275.8 billion. On an underlying basis, dividends were just 1.7 per cent lower than the same period last year, a far more modest decline than in any of the preceding three quarters, all of which saw double-digit falls. Janus Henderson’s index of dividends ended the quarter at 171.3, its lowest level since 2017, but growth is now likely. For the full year 2021, the stronger first quarter along with a better outlook for the rest of the year have enabled Janus Henderson to upgrade its expectations for global dividends. The new central-case forecast is USD1.36 trillion, up 8.4 per cent year-on-year on a headline basis, equivalent to an underlying rise of 7.3 per cent. This compares to January’s best-case forecast of USD1.32 trillion. Over the four pandemic quarters to date, companies cut dividends worth USD247 billion, equivalent to a 14 per cent year-on-year reduction, wiping out almost four years’ worth of growth.
Brief: Senate Banking Committee Chairman Sherrod Brown ripped Wall Street at a high-profile hearing featuring the top executives at the six largest U.S. banks, saying it’s “past time” for the industry to step up and help struggling workers. Brown, a Ohio Democrat, opened the proceedings Wednesday with a blistering attack on how banks operate, arguing that their business model is “built on short-term profits at the expense of long-term growth for everyone.” He challenged the chief executive officers to “be as good to the American people as the nation has been to you,” noting that taxpayers spent billions to rescue banks during the 2008 financial crisis. When employees get sick or lose their jobs, they “don’t get a taxpayer bailout.” Brown said. “And they all remember that Wall Street did.” The remarks set the tone for what’s expected to be hours of tough questions over issues ranging from workforce diversity to minority lending and executive pay. The hearing is the first time the CEOs have been called before the panel -- and, much to the chagrin of some in the industry, it may also not be the last. Brown’s title for the event: ”Annual Oversight of Wall Street Firms.” Among the CEOS testifying is Citigroup Inc.’s Jane Fraser, the first women to lead one of the U.S.’s biggest banks. Appearing with her are JPMorgan Chase & Co.’s Jamie Dimon, Goldman Sachs Group Inc.’s David Solomon, Bank of America Corp.’s Brian Moynihan, Morgan Stanley’s James Gorman and Wells Fargo & Co.’s Charles Scharf.
Brief: Masked, desk-bound and unable to recognize their colleagues in an elevator, people are starting to return to offices in cities around the world where the pandemic is receding. Many will find their offices transformed, too. In the challenge to make offices both Covid-safe and attractive places to work, firms have been experimenting with working arrangements and space while employees toiled at home. Some gave up floor space to adjust to less rigid schedules, others introduced movable walls to create flexible areas. Many installed safety innovations such as touchless lifts and worked to improve air quality. Lockdowns have provided a “fantastic opportunity to create and recreate a new world for each of us, which may, for each company, be slightly different,” said Neil McLocklin, a Knight Frank LLP partner. Employees of Arcadis NV, a design and engineering consultancy, will be able to choose one of 20 different types of workspace via an app when they move into new offices in the City of London next month. The company’s Building Intelligence app, developed during the pandemic, provides options for meeting spaces, focused work and collaboration, as well as social and wellbeing areas such as a winter garden.
Brief: The U.S. labor market will take about a year and a half to return to full steam after the economic blow from the Covid-19 pandemic, according to Fitch Ratings. Federal stimulus and a gradual reopening of service industries that were hit hardest will help boost demand for workers, Fitch said in a report released Wednesday. Still, analysts led by Chief Economist Brian Coulton don’t expect unemployment levels to reach their natural rate, about 4.3% in Fitch’s view, until the fourth quarter of 2022. Doing so would require the creation of about 7 million jobs. The massive disruption last year will cause some “scarring” because some older workers were permanently discouraged from working, dampening the labor supply. Even so, Fitch sees persistent supply and demand imbalances in the months ahead, limiting upward pressure on wages. “Many office workers in large cities in New York and California successfully worked remotely during the pandemic,” Olu Sonola, a Fitch senior director, said in a statement. “The likelihood that many will continue remote work, in some form, may also prove to be a drag on the pace of labor market recovery in New York and California.”
Brief : When countries went into lockdown to stop transmission of the coronavirus, travel— particularly business travel — took a brutal hit. And though demand for travel is slowly picking up as the country heads into the summer, business travel will still face an excruciating uphill struggle, according to a new Barclays report. "Global business travel — especially long haul — will likely be among the last markets to recover," Barclays economists wrote in a special report on May 25. "Companies were quick to halt international travel as the pandemic struck, and businesses will also be careful when it comes to restarting travel for work purposes." Pre-pandemic, business tourism-related spending accounted for 21.4% of the global travel and tourism industry in 2019, with bigger contributions in countries like Canada, Japan, the United Kingdom, and the U.S., the authors stated. Business tourism contributed to 1.5% of global GDP, and had been growing at an average of 3.6% over the last five years, they added, with the U.S. and China accounting for nearly 45% of all global business travel. But between April and the end of December 2020, global spending on business travel fell 68% and is estimated to have fallen more than 50% year-over-year. (In contrast, in 2001, business travel fell around 11%; in 2009, it fell around 7.5%).
Brief: Markets are paying less attention to geopolitical risks as focus has shifted to inflation prospects and economic restarts, according to BlackRock Investment Institute. The research arm of the world’s largest asset manager said in a note on Monday that its Geopolitical Risk Indicator is currently at a four-year low, signalling below-average attention on geopolitics. “We believe this is justified, as investors appear more focused on the economic restart and inflation outlook and less concerned about geopolitics since the change in US administration,” write BlackRock’s analysts. “Yet it’s worth watching specific risks as flare-ups can catch investors off guard when attention is low.” Risks including US-China strategic competition, Covid-19 resurgence and Gulf tensions have receded in the minds of investors over the past year, write the analysts. BlackRock’s Geopolitical Risk Indicator ranks the top 10 geopolitical risks, based on mentions of different geopolitical risks in brokerage reports and financial news stories, coupled with the firm’s model for the potential impact on global assets from specific geopolitical events. Two of these risks, a global technology decoupling and a major cyber-attack, remain ‘high’, according to BlackRock.
Brief: Emerging-market nations’ struggle to claw out of the pandemic-induced economic crisis can spill over to hurt the developed world, which should be doing all it can to ensure better access to vaccines and a more equitable recovery, the head of the International Monetary Fund said. Poorer nations are faced with the risk of interest rates increasing while their economies aren’t growing, and may find themselves “really strangled” to service debt, especially if it’s dollar-denominated, Managing Director Kristalina Georgieva said Tuesday in a virtual event hosted by the Washington Post. “That is not only danger for them, it is a danger for global supply chains, it’s a danger for investor confidence -- in other words, it has a ricochet impact on advanced economies,” she said. “Closing our eyes to this divergence can harm not only those countries and their people, which is bad enough, but it can harm the global recovery and it can harm investor sentiment in a way that we see to be significant and requiring very close attention.” Measures taken to stimulate the U.S. economy are, on balance, translating into “good news” for other countries because of the spillover effect of demand, the IMF chief said.
Brief: The number of acquisitions made by private equity backed businesses in the UK hit record levels in the first quarter of 2021, with 168 transactions completed in just three months, according to Rickitt Mitchell’s Buy and Build Barometer. The latest analysis from the corporate finance firm, conducted in partnership with Experian Market iQ, reveals an 85 per cent rise in the figures seen in the corresponding quarter last year. Q1 2020 saw 91 deals completed, prior to the first Covid-19 lockdown, with the latest figures nearly triple the 57 deals in Q1 2019. On a local level, the majority of regions saw a significant boom in activity. The South West saw the highest number of transactions, with 18 deals completed in the first quarter. This was followed closely by London and the East of England (both 17), the South East (16), with the North West the first of the Northern regions with 11 bolt-on deals in this period. This was also the third successive quarter that transactions hit triple figures, with the GBP980 million value in Q1 2021 also the highest levels for a quarter since the end of 2018.
Brief: Whistleblowing reports to the FCA dropped by 9 per cent between 2019 and 2020, likely because the majority of the UK’s workforce left the office and operated remotely, according to new research from Kroll, a provider of services and digital products related to governance, risk and transparency. Data obtained by Kroll from the FCA under Freedom of Information Act shows that there were 1,073 whistleblower reports to the FCA last year, down from 1,179 in 2019. Anonymous reports experienced a larger drop of 29 per cent, with just 206 reports compared to 291 in 2019. This is the first year-on-year fall since 2016, with steady growth in reports between then and 2019. Last year brought significant disruption to working patterns across the world, and the majority of UK financial services teams worked from home for most of 2020. It is likely that home working also increased isolation and limited accidental discovery of questionable and illicit business practices.
Brief: Even as India is attracting all the global attention for the worst virus outbreak, the pandemic has done little to dent the confidence of overseas investors who are betting on a strong rebound. BlackRock Inc. plans to use any weakness in the rupee to add to a modest long position while GW&K Investment Management LLC is boosting its stock holdings following a recent selloff. Invesco Hong Kong Ltd. and Lombard Odier favor debt linked to India’s sustainable investing and renewable energy sectors. Portfolio managers are attempting to navigate India’s pandemic by focusing on the nation’s long-term growth prospects, with consumption expected to drive a recovery once the virus crisis passes. While the outbreak has fueled the world’s worst health crisis, limited stock outflows and a rebound in the currency attest to investors’ confidence in the South Asian economy. “Economic growth will be tempered by the second wave in 2021, but growth will be strong this year and the long-term outlook is quite positive,” said Tom Masi and Nuno Fernandes, co-portfolio managers at GW&K Investment Management. “Short-term investors will be compelled to step aside, but long-term oriented investors understand the opportunity.”
Brief : The increased frequency of client communications during the pandemic has been a “game-changer” for the hedge fund manager-allocator dynamic, according to speakers on the fundraising and investor relations panel at this year’s hedgeweekLIVE Technology Summit. The discussion explored how investor relations and fundraising has been reshaped by the Covid-19 pandemic, and weighed up how the past 15 months of virtual networking may have permanently altered client communications, capital introduction, investor appetite and more. Greg Zaffiro, partner and head of IR and marketing at Electron Capital, a global long/short equity manager which manages more than USD2 billion and focuses on mainly on public utilities, said the frequency of investor updates has been a seismic shift. “It’s much more than just your quarterly update, or even monthly update,” Zaffiro observed, adding the change is underpinned by a greater degree of transparency which was boosted by an early switch from dial-in telephone calls to video conferencing. He believes that move has empowered investors to more closely probe managers on portfolio decisions and opportunity sets. “That sort of feedback has really never been omnipresent as it is today,” he added. “It’s been a game-changer in terms of the level of transparency.”
Brief: The Group of Seven nations will next month discuss ways to recognize Covid-19 vaccination certifications internationally, according to a person familiar with the matter. The group of major economies aims to support the creation of a global framework for mutual recognition of documents showing proof of inoculation, said the person, who asked not to be identified. Such an endorsement, if it leads to the creation of concrete measures, would ease the revival of global travel as more people get the coronavirus jab. It would be especially welcomed by the airline and tourism industries, among the hardest hit by the pandemic. The European Union announced this week that it will soon allow quarantine-free travel to the bloc for vaccinated visitors. The move hasn’t been matched by other G-7 members, with the U.S. yet to loosen rules for European visitors. The U.K. requires travelers from the vast majority of the EU to quarantine and is advising against travel to several nations. The EU is also in the final stages of approving a framework for member states and their vaccination certificates. As part of a declaration that G-7 health ministers will adopt when they meet in Oxford in early June, the group is expected to set out the need for multilateral collaboration on an inter-operable, standards-based solution that can be used internationally to verify vaccinations.
Brief: Wealthy investors and highly-skilled workers are very much on New Zealand's radar as it outlined this week a post Covid-19 immigration plan to reduce the economy's dependence on low wage migrants. The Government's economic development minister Stuart Nash said the new border exceptions would allow more than 200 wealthy international investors to come to New Zealand over the next 12 months, the New Zealand Herald reported. In a speech about the Government's intentions for immigration policy, Nash said that it would include making it harder for employers to take on workers from overseas, other than in areas of genuine skills shortages. Chris Moorcroft, of law firm Harbottle & Lewis said in a briefing note that the speech outlining plans to actively seek to court wealthy investor through reforms to its immigration rules, was "light on detail but setting out a clear direction of travel". "They are not alone. In the UK, the non-dom regime and investor regime look to be more secure than for many years. The Italian and Portuguese regimes are now firmly bedded in and attracting the wealthy in greater numbers. 'Golden visa' schemes exist across the globe and continue to thrive."
Brief: Canada Pension Plan Investment Board is bullish on U.S. consumer credit and sees good opportunities in emerging markets, despite the devastating toll the Covid-19 pandemic has taken on leading countries such as Brazil and India. U.S. households are flush with savings and central banks will continue to prime the economy with easy money for a while, new Chief Executive Officer John Graham said in an interview. That’s positive for returns in consumer-oriented investments, he said. “A year ago there was a lot of uncertainty with high unemployment, but with the stimulus that came in the U.S., consumer credit performed very well. Our investment in home improvement loans really exceeded our expectations,” Graham said Thursday. CPPIB returned 20.4% for the year ended March 31, its best showing since it was created in the late 1990s, helped by base effects: Global equity markets were just starting their climb back from the crash of early 2020 as the new fiscal year began. The fund’s holdings of Canadian stocks advanced 40.8% for the year and emerging markets stocks gained 34%, the fund said in a statement. Private-equity investments outside of Canada returned well over 30%.
Brief: Foreigners opening a company in the UAE will no longer need an Emirati shareholder or agent under changes to the UAE company law that will take effect on June 1, said the state news agency WAM. "The amended Business Companies Law aims to boost the country's competitive advantage and is part of the UAE government's efforts to facilitate business," said Economy Minister Abdulla bin Touq Al Marri. The UAE announced the law allowing 100% foreign ownership of companies last year, one of several measures to attract investment and foreigners to the Gulf state. A previous foreign investment law in 2018 allowed foreigners to own up to 100% of some companies, and foreigners could already own up to 100% of those registered in designated business parks known as "free zones."
Brief: To say investing is tricky during the pandemic would be an understatement. And so it has proved for many hedge-fund managers since last year’s Sohn Investment Conference in Hong Kong. Among those who made investment calls at the September event, Quintessential Capital Management’s Gabriel Grego was a winner after vouching for Japan’s Sun Corp., which owns an Israeli cybersecurity firm that’s going public via one of the trends of the times: a SPAC. Asia Research & Capital Management’s Alp Ercil cashed in on a rally in lower-rated investment-grade bonds issued by U.S. energy companies that were sold off in the March 2020 rout. Meanwhile, some bearish bets have flopped, as stock markets continue to rise on the back of unprecedented global economic stimulus. Anatole Investment Management’s George Yang made a short call against Zara parent Inditex SA, only to see the stock soar. Egerton Capital’s Jay Huck expected similar declines from Arista Networks Inc., which benefited from the migration to cloud computing.
Brief : Private equity is making a comeback from its pandemic lows — and firms have big plans to capitalize on the booming exit environment. In the second quarter of 2020, private equity exit activity dropped to decade lows, according to the 2021 global private equity divestment study from Ernst & Young. Then, it sprung back, as private equity leaders saw opportunities to produce stronger valuations. From March 2020 to March 2021, PE exits jumped nearly 40 percent to $600 billion, higher than it had been since before 2010. Firms hope to ride this wave of increased capital access and maximize deal valuations along the way. In the next 18 to 24 months, about half of surveyed PE executives said they are planning exits to public markets through initial public offerings or special-purpose acquisition companies. “I think there are a few dynamics here,” said Pete Witte, EY’s lead analyst for global private equity. “You’ve still got your traditional trade buyers; you’ve got secondaries where PE firms have all this dry powder that they’re looking to put to work. Those buyers are still out there, and they’re still very active. The IPO markets have clearly rebounded, and now you’ve got SPAC buyers in the mix as well.”
Brief: Many fund managers are to recruit chief data officers after the Covid-19 pandemic caused firms to focus on fixing data problems, research suggests. According to a study by Alpha FMC, a consultancy, 19% of firms surveyed will make the chief data appointments and the research also found that just over half will adopt enterprise data models. Alpha’s report, ‘2021 Data Strategy & Operating Models’, found that the majority of firms are focused on implementing firm-wide data initiatives in recognition of a lack of enterprise-wide data management in many firms. As many as 68% of respondents said that data governance remained siloed by function within their companies. But the focus on firm-wide data projects is likely to come as the expense of experimenting with alternative data. The study found that alternative data usage had fallen since last year with social media and the web being the only sources still commonly used. The survey also revealed some familiar frustrations among asset managers about data capture from third-party sources. The rising cost of market data was one, and the lack of consistency among ESG data providers was cited by 80% of respondents.
Brief: When the Gherkin tower opened 17 years ago, its skyline-defining silhouette heralded a new era in the low-rise City of London. Now, a spate of new planned skyscrapers threaten to erase it from view and from relevance. As one of the Gherkin’s main residents weighs a move, even iconic buildings risk struggling to keep or replace tenants in London’s premier financial district. While the pandemic is emptying City offices at the fastest pace in more than a decade, it hasn’t slowed the coming wave of towers. That carries a warning for landlords: if there is a return to the office, it won’t be to drab buildings that only feature endless rows of desks. It all augurs another period of change for the City, a geographical area of just over one square mile with a 2,000-year track record of reinvention. For property firms that have seen the district as a cash cow for decades, the challenge is daunting: how to refill, revamp or sell hundreds of aging offices vulnerable to the twin blows of Brexit and the pandemic. In a financial hub that draws more international capital than any other, the fate of the older buildings could hit the fortunes of some of the world’s biggest real-estate investors, from China Investment Corp. to Norway’s sovereign wealth fund and Malaysia’s biggest pension fund.
Brief: Mizuho Financial Group Inc. is requiring that staff who choose to return to its U.S. offices are vaccinated, according to a spokesman for the Japanese lender. Employees can return to the office through August on a voluntary basis and those who do must have had shots, subject to some limited exceptions, spokesman Jim Gorman said in an emailed statement. Protocols after August are still under evaluation, according to Gorman. Wall Street is seeking to bring staff back as vaccines help the U.S. recover from a pandemic that forced most employees to work from home. JPMorgan Chase & Co., which mandated a return to office for its entire U.S. workforce by early July on a rotational schedule, said in April that it wouldn’t require returning staff be vaccinated, though it strongly encouraged employees to get the shots. Blackstone Group Inc. earlier this month asked U.S. investment professionals to return to the office full-time on June 7 provided they are fully vaccinated. Mizuho’s U.S. offices include locations in New York, Los Angeles, Houston, Dallas, Chicago, Boston and Atlanta, according to its website.
Brief: Aviva Investors has decided to shut down its UK Property fund after a near 15-month suspension period. The £367m fund was forced to close its doors last March along with all the major UK property funds after the Covid crisis made it impossible to determine the value of their underlying holdings. Following the re-opening of the M&G Property Portfolio earlier this month, Aviva Investors UK Property and Aegon Property Income were the last funds in the sector to remain shuttered. Aviva Investors explained since the fund’s suspension it had become “increasingly challenging to generate positive returns while also providing the necessary liquidity to re-open the fund” and had made the decision to close the fund and two feeder funds. In its second assessment of value report published in January the fund board recommended the three funds be placed under review to “ensure investors’ long-term interests could continue to be served”. But after taking the review and projected levels of redemptions upon re-opening into account, the asset manager concluded UK Property’s “ability to fully benefit from the economies of scale and diversification of investments that collective investment schemes normally bring would soon be limited”.
Brief: Most workers in Canada want to return to the office, but about three quarters prefer a “hybrid” model that allows some flexibility to work remotely, according to a survey of about 2,000 people done for KPMG. Half of respondents said they’re more productive and effective in a virtual work environment. That was a drop from 59 per cent in a similar survey a year ago, suggesting that 14 months of work-from-home arrangements are taking a toll on some employees. Canadian office workers in finance, government and other sectors haven’t returned to their places of work as quickly as their U.S. counterparts, in part because the country’s COVID-19 vaccination campaign got off to a slow start. Less than 4 per cent of the population is fully vaccinated, according to the Bloomberg Vaccine Tracker. But Canada’s vaccine supply is improving and Prime Minister Justin Trudeau has pledged that all Canadians who want a vaccine will be able to get two shots by September, providing companies with an impetus to solidify their back-to-the-office plans. Some firms including Manulife Financial Corp. have already committed to retaining some form of flexible work policy when the pandemic is over.
Brief : As the world begins to emerge from lockdown, some hedge funds are slashing technology investments that thrived in the work-from-home era. Philippe Laffont’s Coatue Management slashed many of its tech holdings that have benefited from the pandemic-induced lockdowns, including most of its stake in fitness-equipment maker Peloton Interactive Inc. The fund cut its exposure to cyber-security solutions company Crowdstrike Holdings Inc. and Zoom Video Communications Inc. in half. Overall, its exposure to technology stocks fell by about 8%, data compiled by Bloomberg show. Alex Sacerdote’s Whale Rock Capital Management exited its investment in Zoom, and decreased stakes in Peloton and Crowdstrike. The hedge fund trimmed its overall exposure to tech stocks by about 5%, Bloomberg data show. The filings offer a glimpse into the maneuvering by major hedge fund managers and other investors during the first quarter of 2021, a tumultuous period for the industry marked by a Reddit-fueled trading frenzy and the implosion of Bill Hwang’s Archegos Capital Management. At the same time, investors are looking toward a post-Covid 19 economic recovery where the world gradually reopens and people return to work.
Brief: Event driven strategies topped the hedge fund performance chart during the first three months of the year, as the industry drew some USD9 billion in new capital in Q1 and saw trading volumes surge, new analysis by hedge fund asset administrator Citco shows. Citco Fund Services’ ‘2021 Q1 Hedge Fund Report’ probed strategy performance, investor flows and trading volumes, among other things. The study found that close to three-quarters – 73.4 per cent – of hedge funds delivered a positive return during Q1 as the strong performances at the end of 2020 carried through into the new year. The quarterly report noted that event driven strategies led the pack during the three months to the end of March, with a weighted average return of 8.25 per cent for the quarter. Overall, the industry notched up a 2.75 per cent weighted average gain. Positive outliers across event driven, commodities and macro strategies drove average gains higher, Citco said. As oil markets spiked in the early months of the year, commodities strategies rose 7.24 per cent, as global macro funds climbed 5.31 per cent during the three-month period. Though equity-based funds were bottom of the pile, they still managed to generate a 1.65 per cent gain. Within equities, long bias performed better at 5.45 per cent, while equity long/short managers scraped a 0.42 per cent gain.
Brief: White House officials are seeking to quell anxiety about inflation and the pace of hiring — issuing a memo Tuesday that highlights robust economic gains as the United States gets vaccinated and recovers from the coronavirus pandemic. The memo, obtained by The Associated Press, said the administration is “focused on an economic strategy of containing the virus and growing the economy from the bottom-up and middle-out. Data suggest that this strategy is working.” It is from Brian Deese, director of the White House National Economic Council, and Cecilia Rouse, chair of the Council of Economic Advisers. The memo makes the case to senior administration officials and members of Congress that the government’s $1.9 trillion relief package has helped boost growth and that workers will return to jobs with “fair wages and safe work environments.” It also argues that President Joe Biden’s $4 trillion infrastructure and families plan will lay “the groundwork for strong, durable growth for decades to come.” The administration had until recently been basking in optimism about the economy, only to face a worrisome set of reports that showed a jump in consumer prices and a disappointing level of hiring in April. The memo is an attempt to promote a sunnier narrative and stress the need for additional spending to be paid for with higher taxes on corporations and the wealthy.
Brief: Thailand plans to borrow an additional 700 billion baht ($22.3 billion) to fund measures to counter the worst Covid-19 outbreak to hit Southeast Asia’s second-largest economy, people familiar with the matter said. A meeting of the cabinet chaired by Prime Minister Prayuth Chan-Ocha on Tuesday approved the new borrowing plan from the finance ministry, the people said, declining to be identified before a public announcement. The government proposes to spend 400 billion baht of the new borrowing to help various sections of the society affected by the new outbreak, while 270 billion baht will be used to revive the economy, the people said. About 30 billion baht will be set aside to finance medical supplies and vaccines to contain the latest outbreak, they said. The fresh borrowing can be completed before Sept. 30 next year, and is on top of an ongoing 1-trillion baht debt plan authorized by the cabinet last year to fund pandemic relief measures, they said. Thailand’s public debt-to-gross domestic product ratio may rise to 58.6% by September with the additional borrowing, but would still be below the nation’s 60% debt ceiling, the people said. The government will need to issue an emergency law that needs to be endorsed by the king before the public debt management office can begin raising fresh debt, they said. Kulaya Tantitemit, a spokesperson for the Finance Ministry and head of its Fiscal Policy Office, declined to comment. Anucha Burapachaisri, a government spokesman also declined to comment.
Brief: A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble. “The best days are behind” for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote in a May 16 midyear outlook. “The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.” Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 basis points over Treasuries on Monday, fueled by investor demand for the lowest-rated yet highest-yielding part of the asset class. Should spreads breach 100 basis points, it would be the first time since the dot-com era of the late 1990s. Morgan Stanley is calling for 17 basis points of widening for U.S. investment-grade bonds through the first half of 2022, and downgraded its credit outlook to neutral.
Brief: The European Union’s final bond sales for its regional jobs program failed to live up to the hype of previous editions, a concerning sign for its landmark borrowing spree that’s due to start in the second half of the year. Investors placed 88.7 billion euros ($108 billion) of orders for eight- and 25-year securities tied to the SURE social program, little more than a third of the record set for a dual-tranche issue last year. It comes as yields across the region climb as investors prepare for European Central Bank to scale back its bond purchases in the face of growing inflationary pressures. The bloc is ready to start sales for its 800 billion-euro recovery fund by July. It marks a stark turnaround for one of the hottest new triple-A rated bond markets in town. When the EU launched the securities last year, Europe was still firmly in the throes of lockdowns, the ECB was committed to pumping money into debt markets and investor demand for the securities was enormous. Now, with economies reopening and consumer prices expected to accelerate, they’re becoming a less attractive asset. “We had been used to some very strong demand for the EU bonds,” said Jens Peter Sorensen, chief analyst at Danske Bank AS. “Why buy today, if you can buy cheaper tomorrow? That’s becoming a self-fulfilling prophecy.”
Brief :Millennium Management will trial a hybrid working arrangement as it seeks to find a best-of-both-worlds approach for staff in the wake of the pandemic. Employees at Izzy Englander’s hedge fund firm will be required to come into the office three days a week and can work the remainder from home, according to a person with knowledge of the matter. The approach will start on Sept. 7 and apply to most of the firm’s offices globally, said the person, who asked not to be identified because the information is private. Firms around the world are grappling with whether to bring all staff back to their offices full time after the global spread of the deadly coronavirus showed that many could effectively do their jobs from home. Millennium plans to monitor the viability of its plan and will settle on a longer-term solution at a later stage, the person said. Millennium, which manages more than $51 billion and employs more than 3,500 people globally, had sent all but a few key people home to work last year as the pandemic spread around the world.
Brief: The World Economic Forum has cancelled its annual meeting - the blue riband event for the global elite to discuss the world's problems - due to be held in Singapore later this year, the organisers said on Monday. The COVID-19 pandemic meant it was not possible to hold such a large event as planned on Aug. 17-20, they said. "Regretfully, the tragic circumstances unfolding across geographies, an uncertain travel outlook, differing speeds of vaccination roll out and the uncertainty around new variants combine to make it impossible to realise a global meeting with business, government and civil society leaders from all over the world at the scale which was planned," the WEF said in a statement. The event, which attracts VIPs from the worlds of politics and business, has been held since 1971. It was originally shifted from the Swiss Alpine resort of Davos last December due to concerns about safeguarding the health of participants. Singapore has in recent days imposed some of the tightest restrictions since it exited a lockdown last year to combat a spike in local COVID-19 infections.
Brief: Using data from HFR and Eurekahedge, AlternativeSoft selected five funds with the highest 2020 returns to see if simple momentum has generated strong returns in 2021. The five funds generated returns between 149 per cent and 300 per cent in 2020, with the best performing, SYWLP, returning 300.45 per cent was SYWLP. However, when AlternativeSoft analysed the performance of the same funds in the first quarter of 2021, it found that their momentum were not carried over. SYWLP, for example, has a negative return of 28.47 per cent so far this year, while overall, the top five funds in 2020 generated an average return of 203.81 per cent, the same five funds in Q1 of 2021 generated an average return of 13.26 per cent. When comparing the 2021 top-ranked funds, they all ranked very low in terms of returns in 2020. For example, the best performing fund in Q1-2021, Loyola Capital Fund Ltd was ranked 82nd in 2020.
Brief: A robust short base has formed in the Treasury market, expecting an economic recovery, and it’s willing to overlook data points that contradict its preferred narrative. “Investors seem to take the view that what matters is that the U.S. economy is recovering, rather than worry too much about the precise strength of the recovery at any particular moment in time,” Bank of America strategist Ralf Preusser said in a note. Positioning has become a “sea of uncertainty,” he said. Response to the weak U.S. employment report for April, released May 7, was a case in point. Bank of America’s FX and Rates Sentiment Survey for May -- which polls 70-80 institutional investors who combined manage more than $1 trillion -- found that duration underweights increased over the month. Similarly, in JPMorgan’s Treasury client survey, short positioning is most stretched since 2017.
Brief: BlackRock Inc. will ask U.S. employees to return to offices in September, when it will begin a trial period allowing some remote work each week. The world’s largest asset manager will allow up to two days a week of remote work on average for U.S. staff, a spokesman for New York-based BlackRock said Friday. BlackRock will ask employees to start “re-acclimating” to office work periodically in July and August if they feel comfortable doing so, the spokesman said. Staff will be divided into groups, with office access on a two-week rotational basis during those months. Employees can continue working from home full-time through June 30. The company will use its findings from the trial period that begins in September to decide how to shape its staffing plans for next year. Money managers are experimenting with expanding remote-work arrangements as vaccination rates climb. Vanguard Group is adopting a hybrid work model for the majority of its staff. Hedge funds Two Sigma Investments and Bridgewater Associates are also planning to allow employees to continue to work remotely at least part-time.
Brief : Investors in exchange-traded funds are abandoning junk bonds as riskier assets come under pressure from inflation fears. About $1.2 billion was pulled from BlackRock’s iShares iBoxx High Yield Corporate Bond (HYG) on Thursday in its worst day of outflows since February 2020, according to data compiled by Bloomberg. Traders have withdrawn about $5.6 billion from the ETF so far in 2021, putting it on track for its worst year since its inception in 2007. Meanwhile, the rival $9.6 billion SPDR Bloomberg Barclays High Yield Bond fund (JNK) is on pace for its second week of outflows, totaling more than $970 million. With interest rates at rock-bottom lows, investors had previously favored the high-yield market. But that calculation could now be changing, said Matt Maley, chief market strategist for Miller Tabak + Co. “Investors are taking some risk out of their portfolio,” he said. “With inflation fears growing, that means the yields on some safer assets will be rising as well. That will provide at least some competition for a high-yield market that hasn’t seen any competition for a long time.”
Brief: When London’s Science Museum reopens next week, it will have some new artifacts: empty vaccine vials, testing kits and other items collected during the pandemic, to be featured in a new COVID-19 display. Britain isn’t quite ready to consign the coronavirus to a museum — the outbreak is far from over. But there is a definite feeling that the U.K. has turned a corner, and the mood in the country is upbeat. “The end is in sight,” one newspaper front page claimed. “Free at last!” read another. Thanks to an efficient vaccine rollout program, Britain is finally saying goodbye to months of tough lockdown restrictions. Starting Monday, all restaurants and bars in England can reopen with some precautions in place, as can hotels, theaters and museums. And Britons will be able to hug friends and family again, with the easing of social distancing rules that have been in place since the pandemic began. It’s the biggest step yet to reopen the country following an easing of the crisis blamed for nearly 128,000 deaths, the highest reported COVID-19 toll in Europe. Deaths in Britain have come down to single digits in recent days. It’s a far cry from January, when deaths topped 1,800 in a single day amid a brutal second wave driven by a more infectious variant first found in southeastern England.
Brief: Remote workers in Canada are logging more hours, experiencing more stress, and feeling less engaged with their work, according to a new survey. The online survey, conducted by ADP Canada and Angus Reid, asked 1,501 Canadians working remotely and in person to evaluate their experience working during the pandemic, including their work hours, productivity, engagement, stress levels, and quality of their work. The survey found that 44 per cent of remote workers reported they were logging more hours of work than they were in pre-pandemic times. Of those, one in ten reported working an additional day, or more than eight extra hours per week. In contrast, only 15 per cent reported working fewer hours and 38 per cent said there was no change in the hours they worked. Janet Candido, a human resources professional of 20 years and founder and principal of Candido Consulting Group, said she thinks people are working longer hours because they’re not as busy in the evenings or on weekends due to pandemic-related restrictions. “I heard this from my own team a year ago: ‘Well, I don't have anything else to do so I might as well get this done,’” she told CTVNews.ca during a telephone interview on Thursday.
Brief: Brevan Howard Asset Management is moving to a new London headquarters that’s almost three times larger than the hedge-fund firm’s existing office, signaling an expansion plan after a record year of gains. The company has taken over a lease from French advertising giant Publicis Groupe SA in the city’s West End, according to people familiar with the matter. The building at 82 Baker Street, which is near the firm’s current headquarters, has more than 70,000 square feet (6,500 square meters) of office space, the people said, asking not to be identified because the deal is private. It’s not clear if Brevan Howard will occupy the entire space itself or sublease parts of the office. A spokesman for the firm declined to comment and a spokeswoman for Publicis didn’t respond to emails seeking comment. Brevan Howard, which managed $14.6 billion at the end of March, and other hedge funds have been on a hiring spree as market volatility creates more trading opportunities. The company co-founded by billionaire Alan Howard last year posted the best returns in its near two-decade history, with its main fund up more than 27% and its U.S. Rates Opportunities Fund soaring nearly 99%.
Brief: Global equity funds enjoyed a second consecutive month of record inflows as UK investors added nearly £3 billion to the asset class. According to the latest fund flow data from Calastone, investors favoured global, UK and North American funds. Demand for European equity products waned, perhaps as the continent lags the UK and US in its Covid-19 vaccine drive, Calastone said. UK investors also added over £880 billion to bond funds. Total inflows across all asset classes hit £6.1 billion by the end of the month. Edward Glyn, head of global markets at Calastone, highlighted that the pandemic is “claiming more lives than ever around the world, but in the UK and North America it is in retreat. “The situation in Europe is improving, and it remains under control in most parts of Asia. Stock markets have been on a gently rising trend, while bond yields which are bad for share prices when they rise, have been steady,” he said, adding that investors are looking to the post-pandemic boom.
Brief: Ethereum’s co-founder Vitalik Buterin, who became the world’s youngest known crypto billionaire less than two weeks ago, has donated over $1 billion in crypto to the India Covid Relief Fund and a range of other charities. He made the donation by offloading massive amounts of dog-themed meme tokens, which he was gifted by the creators of Shiba Inu coin (SHIB), Dogelon (ELON) and Akita Inu (AKITA). These cryptocurrencies have taken off following Dogecoin’s staggering rally of the last few months. Though built around similar memes, these copycats have much larger token supplies. In a single transaction, Buterin donated 50 trillion SHIB tokens worth $1.2 billion as of May 12, 16:37 pm E.T. to the India Covid Relief Fund set up by Indian tech entrepreneur Sandeep Nailwal. Nailwal is best known as the co-founder and COO of Polygon, a protocol which aggregates scalable solutions on Ethereum in a multi-chain system. Earlier in April, Buterin donated about $600,000 in ether and maker (MKR) tokens to the fund. Nailwal immediately took to Twitter to thank Buterin and assure SHIB investors the funds will be spent responsibly. “We will not do anything which hurts any community specially the retail community involved with SHIB,” wrote Nailwal.
Brief : Almost two-thirds of managers in the finance sector have experienced burnout at work because of the Covid-19 pandemic, with a quarter having considered quitting their job as a result, according to new research from not-for-profit healthcare provider, Benenden Health. Assessing the impact of the coronavirus pandemic on the nation’s workforce one year on, research has found that as many as 63 per cent of managers in the finance sector have suffered from burnout at work since the UK was first placed into lockdown, with a quarter (26 per cent) of all managers either considering, or actually quitting their job as a result of the strain on their mental wellbeing. With the Office for National Statistics reporting that the number of individuals experiencing symptoms of depression has almost doubled since the start of the pandemic, Benenden Health has examined the impact on the nation’s workforce. This has revealed the effect of Covid-19 on the working lives of managers and their subsequent experiences of burnout, which is the occurrence of exhaustion, stress, cynicism and/or feelings of reduced professional ability due to demands at work. The main causes of burnout at work for those in the finance sector in the past year were shown to be anxiety about the future (36 per cent), a lack of sleep (35 per cent) and increased demands from management (32 per cent), whilst a third of burnout sufferers in finance (30 per cent) revealed that working longer hours had contributed.
Brief: Brookfield Asset Management Inc. reported a profit in its latest quarter compared with a loss a year ago as its funds from operations hit a record high. The asset manager, which keeps its books in U.S. dollars, reported net income attributable to common shareholders of US$1.24 billion or 77 cents per diluted share for the quarter ended March 31. The profit compared with a loss attributable to common shareholders of US$293 million or 20 cents per share in the same quarter last year. Revenue totalled US$16.41billion, down from $16.59 billion in the first three months of 2020. Funds from operations were a record US$2.82 billion or US$1.80 per share, up from US$884 million or 55 cents per share a year ago. Brookfield says it realized $6.4 billion in disposition gains in the quarter, split $1.8 billion for Brookfield and $4.6 billion for its clients.
Brief: Howard Marks, co-founder of Oaktree Capital Management, says making money in today’s environment is nearly impossible, particularly for “bargain hunters” that saw last year’s selloff come and go so quickly. “In the short term, I worry about not having great things to buy,” Marks said during a MacroMinds virtual event moderated by Bloomberg’s Alix Steel. The safer plays aren’t especially attractive, according to Marks. “You can keep the portfolio you’ve historically had and expect that the return will be lower than it used to be,” he said. “You can say the market is a little high,” reduce risk if you’re wary of a correction, “and then your return will be even lower,” Marks continued. Or you can get out of the market entirely, and “your return will be zero.” Investors who don’t like the safer scenarios can take on more risk, Marks said, or find a niche money manager who “drives people to illiquid or so-called alternative investments,” which then introduces “manager risk.” “The answer is that there is no, and can be no safe, dependable way to make a high return in a low-return world,” Marks said. “It’s too good to be true.” Global credit and equity markets have staged a dramatic rebound since last year, when the Federal Reserve took unprecedented steps to steady the economy amid the pandemic.
Brief: Global investor Barry Sternlicht told CNBC on Thursday he has some long-term concerns about the U.S. economy, saying there are risks beyond the immediate boom from the Covid recovery. In a wide-ranging interview on “Squawk Box,” the billionaire businessman worried about numerous shortages in the economy and criticized the Federal Reserve’s highly accommodative monetary policy and legislative proposals in Washington. “I do think the Fed, interest rates, are being suppressed by the government. .... We have to get off of this sugar-cane and Fluffernutter economy and get to the meat-and-the-potatoes economy,” Sternlicht said. “We have to get back to a sustainable economy and people coming back to work.” The chairman and CEO of Starwood Capital Group pointed to recent Labor Department data that showed a record number of job openings in March. “Something is wrong,” he said. Sternlicht, whose firm operates hotels as part of its broader portfolio, said hiring challenges for businesses are largely the result of enhanced unemployment benefits that were included in a federal coronavirus relief package. However, economists say the reason people may still be hesitant to return to work is due to many factors, including Covid concerns and a lack of reliable child care.
Brief: Africa’s biggest lender sees opportunity in both its core South African market and the rest of the continent amid a recovery from the Covid-19 pandemic. “South Africa is fiercely competitive,” Standard Bank Group Ltd. Chief Executive Officer Sim Tshabalala said in an interview on Thursday. “We have to continue making investments” there. The Johannesburg-based lender is also ready to take advantage of consolidation throughout Africa, where it has a presence in 20 countries, he said. Standard Bank has increasingly turned its focus outward in recent years, with Africa producing the fastest-growing parts of its business last year and contributing about a quarter of its total income. “We are going to go where the returns are highest and the risks are lowest,” Tshabalala said. Geographically, Ethiopia and the West African Economic and Monetary Union -- including Côte D’Ivoire, Mali and Senegal -- are attractive, he said. The lender expects growth in South Africa to rebound by 4.6% this year, Tshabalala said.
Brief: As the U.S. economy and stock market recover from the Covid-19 pandemic, investors are returning to their pre-pandemic expectations for how companies report financial results. While investors have maintained their pandemic-driven focus on companies making long-term investments, they have shifted their expectations for earnings and guidance back to “less permissive pre-pandemic norms,” according to Boston Consulting Group’s most recent Covid-19 investor pulse survey. Investors’ recovery-driven mindsets are also evident in their shifting approach to capital allocation, with survey respondents focusing less on capital preservation and more on capital distribution. From April 29 to April 30, BCG surveyed “leading” investors, representing investment firms with over $5 trillion in combined assets under management, about their expectations for the U.S. economy and stock market and their perspectives on impending decisions from corporate executives and boards of directors. When asked whether it is important for the management of financially healthy companies to provide or revise guidance within the next 90 days, 87 percent of investors answered “yes,” the highest proportion to say so since BCG began conducting the periodic surveys in March 2020.
Brief : The U.S. budget deficit surged to a record of $1.9 trillion for the first seven months of this budget year, bloated by the billions of dollars being spent in coronavirus relief packages. In its monthly budget report, the Treasury Department said Wednesday that the shortfall so far this year is 30.3% higher than the $1.48 trillion deficit run up over the same period a year ago. The oceans of red ink in both years are largely due to the impact of the coronavirus pandemic, which led the government to approve trillions of dollars in relief to cover three rounds of individual payments, extra unemployment benefits and support for small businesses. The deficit for the budget year that ended Sept. 30 totaled a record $3.1 trillion and many private economists believe this year’s total will surpass that amount. Some are forecasting a deficit of $3.3 trillion. For April, the deficit totaled $225.6 billion, down from a deficit in April 2020 of $738 billion. That improvement reflected the fact that fewer relief payments were made this year and individuals making quarterly tax payments had to meet the normal April deadline. Last year, all tax payments were delayed at the onset of the pandemic.
Brief: The Bank of England is pushing for a shakeup of the $6.9 trillion money market fund industry, saying the business amplified strains during the financial crisis and in the Covid-19 pandemic. The U.K. central bank’s Governor Andrew Bailey said the Financial Stability Board soon will consult on changes to the market, which covers short-term debt securities like commercial paper. At the height of turmoil in the early days of the pandemic, those funds were not resilient, he said. The remarks including some detailed options for what regulators could do are the clearest sign yet that action is coming for money market funds, which are supposed to have cash-like liquidity but instead froze up when the global system was under strain. “We are very much in the world of having a second chance to deal with the issue of how to structure money market funds consistent with their role,” Bailey said in a text of a speech to the International Swaps & Derivatives Association. Bailey said there’s a need to improve the resilience and functioning of the funds so they didn’t contribute to stress in short-term funding markets. Sterling money market funds saw outflows of around 25 billion pounds ($35 billion), or 10% of their total assets, in the eight days between March 12 and 20 last year -- a period known as the dash for cash.
Brief: British investors added record new capital to equity funds for the second month in a row, according to the latest Fund Flow Index from Calastone. Net inflows hit a record GBP2.98 billion in April and took the year-to-date total to GBP6.93 billion, easily the best start to a year since Calastone began recording figures in 2015. The last six months have seen four of the best months of inflows to equity funds on record. At 55.7, Calastone’s FFI:Equity was the most positive reading since April 2020. This does not mean buying has been indiscriminate. Investors were most enthusiastic about global funds, which absorbed GBP1.59 billion, North American funds, which saw record inflows of GBP576 million and UK equity funds [ie funds focused on UK equities] which enjoyed inflows of GBP303 million. In the last three months, a turnaround in sentiment towards the UK means UK equity funds have recouped all the outflows from the previous six. European equity and equity income funds are out of favour, although equity income funds are seeing a marked slowdown of outflows.
Brief: Having seen inflows of close to £2.3bn ($3.25bn, €2.7bn) in 2020, funds invested in US equities witnessed net outflows of £1.6bn in the first quarter of 2021, according to the Investment Association. The bulk of those outflows took place in March, with the IA revealing investors redeemed a net £1.09bn from the IA North America sector. This made it the second least popular peer group behind Sterling Corporate Bond – which witnessed an outflow of £1.47bn for the month. While some of this may be a result of profit taking following a very strong run for the US market, Laith Khalaf, financial analyst at AJ Bell Investments, said another factor may also be at work. “Investors might also be concerned about the prospects for interest rate rises to dent the share prices of the big US tech firms that now make up such a large part of the S&P 500,” said Khalaf. “This could be a pretty significant turning point, as investors reflect on what’s performed well in the past, and where opportunities lie for the future,” he added. “The global sector continues to attract inflows, so investors aren’t totally downbeat on the US, seeing as these funds have a high weighting to the US, which now makes up around two thirds of the global developed stock market.”
Brief: Private equity firm Clayton, Dubilier & Rice (CD&R) has agreed to buy London-listed UDG Healthcare for 2.6 billion pounds ($3.7 billion), the pharmaceuticals services company said on Wednesday. CD&R will pay 10.23 pounds in cash per share in UDG, representing a premium of 21.5% to Tuesday’s close. By 0735 GMT the London-listed shares were up 22.2% at 10.30 pounds. UDG, which has its headquarters in Dublin, specialises in healthcare advisory, communications, commercial, clinical and packaging services. “We believe that this is an attractive offer for UDG shareholders, which secures the delivery of future value for shareholders in cash today,” UDG Chairman Shane Cooke said in a statement. UDG has two divisions - Ashfield and Sharp - and employs about 9,000 people in 29 countries. “UDG has long established itself as a leading provider of high-value services to pharma and biotech companies globally, supported by a highly skilled workforce,” said CD&R partner Eric Rouzier. The deal is expected to be declared effective during the third quarter of 2021, subject to shareholder and regulatory approvals.
Brief: Cashed-up as the crisis began, many sovereign funds took the opportunity to invest heavily through the coronavirus pandemic. But while some looked to international markets for contrarian positions, more looked to see what they could do at home. The world’s sovereign wealth funds (SWF) almost doubled their direct investments during 2020, as funds found opportunity during the Covid-19 global pandemic. The latest annual review by the International Forum of Sovereign Wealth Funds (IFSWF), whose membership includes sovereign vehicles in nearly 40 countries, shows a mixture of opportunism and duty in fund behaviour during 2020. Publicly disclosed direct investments were $65.9 billion in 2020, up from $35.9 billion in 2019, with a particular focus on sectors such as renewable energy, food production, e-commerce and logistics. The year before, 2019, had represented something of a low for direct investment, the lowest level since 2015, and one consequence of this was that institutional investors – particularly sovereign funds – entered the pandemic crisis with high levels of cash.
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