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Brief : Varde Partners is investing more than $250 million to fund development of single-family homes in Arizona, Florida and Texas in a bet on Sun Belt suburbs. With historically low mortgage rates driving a housing rally during the pandemic, Varde is putting money into the real estate market through a trio of transactions as Americans shift away from coastal cities in a search for larger properties. The fund, which manages more than $14 billion, is acquiring a master-planned community in Austin, according to a statement. It’s also purchasing an active-adult community in Scottsdale, Arizona, where it will partner with builder Shea Homes to complete hundreds of houses for residents 55 and older. In a third transaction, Varde is investing $100 million to develop land in Florida and Colorado. The firm is making the investments as “traditional lenders continue to retrench,” according to a statement. The transactions come at a time when the Covid-19 pandemic is accelerating demographic shifts to the suburbs. Wall Street firms have sought to invest behind those trends, placing bets on single-family rentals, suburban apartment buildings and land for developing new subdivisions.
Brief: Southwest Airlines Chief Executive Gary Kelly and the leaders of the airline’s unions urged President Joe Biden not to mandate COVID-19 testing before domestic flights, warning it would put “jobs at risk.” The letter dated Tuesday and released by the airline on Wednesday said “such a mandate would be counterproductive, costly, and have serious unintended consequences.” The Centers for Disease Control and Prevention (CDC) last month said the Biden administration was “actively looking” at expanding mandatory COVID-19 testing to travelers on U.S. domestic flights, which has sparked push back from the aviation, aerospace and travel industries.
Brief: Jim Simons added $2.6 billion to his vast wealth in 2020. His clients weren’t so fortunate. Investors in three hedge funds run by Simons’s Renaissance Technologies lost billions of dollars as the firm’s computer models were flummoxed by the market’s gyrations. Meanwhile, Simons ranked second on Bloomberg’s list of the highest-paid managers, and was the only one in the top 15 whose clients didn’t make money last year. The secret to his success: access to a Renaissance strategy that’s closed to outsiders. The legendary Medallion fund gained 76% last year, according to Institutional Investor, while the public offerings racked up double-digit losses. It’s a stark disparity that has led some observers to wonder if Simons’s 15-year experiment to bring his brand of quantitative investing to the masses no longer works. Investors, including some employees, have yanked at least $5 billion from the three public funds since Dec. 1. After a further 9.5% dip in the $26 billion Renaissance Institutional Equities Fund in January, investors said they expect more will follow. Investors said they were surprised by the firm’s reaction to the losses.
Brief: Macquarie, the world’s largest infrastructure investor, has raised 1.6 billion euros ($1.93 billion) for its second global renewables fund, driven by strong demand from institutional investors in Britain and Germany. Countries and companies are seeking to increase their usage of renewable energy to lower carbon emissions and fight climate change. At the same time, record low interest rates have crimped fixed income returns and boosted the allure of alternative assets. Macquarie Infrastructure and Real Assets (MIRA), manager of the fund, said it had drawn investment from 32 institutions, including pension schemes, insurers and sovereign wealth funds, helping it exceed a minimum target of 1 billion euros. While Europe-based investors contributed most of the capital - German and British investors accounting for 30% each - the fund, Macquarie Green Investment Group Renewable Energy Fund 2, also attracted interest from Asia Pacific and North America. It will target wind and solar projects in Western Europe, the United States, Canada, Mexico, Japan, Taiwan, Australia and New Zealand.
Brief: The global pandemic has highlighted both the importance of ESG issues and is accelerating ESG integration by institutional investors, according to the respondents of MSCI’s 2021 Global Institutional Investor Survey, a survey of 200 asset owner institutions with assets totalling approximately USD18 trillion. The survey of sovereign wealth funds, insurers, endowments/foundations, and pension funds found that over three-quarters (77 per cent) of investors increased ESG investments “significantly” or “moderately” in response to Covid-19, with this figure rising to 90 per cent for the largest institutions (over USD200 billion of assets). “The combination of climate-related events, such as devastating wildfires, floods and droughts, and a global pandemic have accelerated the paradigm shift on ESG and climate change. Once an issue for ‘green funds’ and side-pockets, ESG and Climate are now firmly established as high priority issues,” says Baer Pettit, President and Chief Operating Officer, MSCI. “2020 marked a profound shift in the way institutions invest as many investors have recognised that many companies with strong environmental, social and governance practices outperformed during the pandemic.” The survey reveals that while US investors in general have been lukewarm about ESG in the past, with some high-profile exceptions, 2020 dramatically shifted their views closer to those of their international counterparts. Of US respondents, 78 per cent said they said they would increase ESG investment either significantly or moderately as a response to Covid-19, while the figure was 79 per cent and 68 per cent in Asia-Pacific and EMEA, respectively.
Brief: One of the biggest risks in 2021 is betting that vaccines will bring a quick end to the coronavirus pandemic, according to Pacific Investment Management Co. With growth-linked assets at or near records, “the biggest risk is probably the market prematurely pricing the end of the pandemic,” said Robert Mead, Pimco’s co-head of Asia-Pacific portfolio management. “It’s easy for markets to get a little too optimistic.” Mead is also sanguine about the chances of a breakout in inflation and interest-rate risks, while remaining broadly upbeat about the prospects for growth across developed and emerging economies this year. The money manager expresses his view through bets on steeper yield curves in Australia and the U.S. -- though his positions are less aggressive than they were last year. Mead’s strategy is based on the premise that although economies are seeing some pick up in prices, inflation targets remain stubbornly out of reach and major central banks are unlikely to raise borrowing costs for at least three to four years. His views are in contrast to the vibe in markets this week, with bond traders seeing the strongest inflation outlook in years and warnings from BlackRock Inc. and JPMorgan Asset Management on resurgent price risks.
Brief : KKR & Co. deployed a record $12.5 billion in the fourth quarter, finding buying opportunities in the market turbulence of the Covid-19 pandemic. New York-based KKR also had a record fundraising for the year, taking in about $44 billion, according to a statement Monday. KKR “had the most active fundraising and deployment year in our history,” co-Chief Executive Officers Henry Kravis and George Roberts said in the statement. Private equity firms have been bringing in cash at a rapid pace and KKR has been among the most active dealmakers. Notable acquisitions last year included a $3 billion-plus deal for lens retailer 1-800 Contacts and spending 4.2 billion pounds ($5.8 billion) for waste management business Viridor Ltd. It has also expanded its U.S. industrial real estate holdings. Its $2.8 billion Dislocation Opportunities Fund, raised at the height of pandemic anxiety, gained 52% last year as it seized on credit opportunities.
Brief: U.S. President Joe Biden will meet with the chief executives of JPMorgan Chase, Walmart, Gap Inc, and Lowe’s Companies on Tuesday as part of his efforts to boost an economy still reeling from the coronavirus pandemic. Biden and the executives, who will be joined by Vice President Kamala Harris and Treasury Secretary Janet Yellen for the 1:45 p.m. EST gathering in the Oval Office, will discuss Biden’s $1.9 trillion coronavirus recovery package, known as the American Rescue Plan, the White House said. JPMorgan’s Jamie Dimon, Walmart’s Doug McMillon, Gap’s Sonia Syngal and Lowe’s Companies’ Marvin Ellison were all slated to attend along with Tom Donohue, the head of the U.S. Chamber of Commerce, a top business lobby. Speaking at a briefing with reporters ahead of the meeting on Tuesday, White House press secretary Jen Psaki said the goal was to hear thoughts on the plan from some of the nation’s top employers, though she expected it to be the first of many meetings with the business community. “It’s more of a discussion about the country and the economic downturn that we’ve gone through,” Psaki said. “The president wants to lay out all of the specifics of his plan, hear feedback from them as he has with many different groups over the past couple of weeks,” she added.
Brief: Individual investors have reduced spending and increased their investments during the Covid-19 pandemic, research indicates. A survey of 2,000 investors in the UK showed that 4 in 10 – or 39% - had “dramatically” cut spending and were funding investments. ITI Capital, a broker that sponsored the research, said low interest rates were the cause and that 35% of investors would invest more if bank rates were cut further. Investors favoured traditional investment asset classes, although 24% were exploring cryptocurrency as an alternative investment as it had “not been negatively impacted by Covid-19”. Just over a quarter said they were more willing to try new investment products and take more risks over the next 12 months. Meanwhile, 40% of investors said they anticipated a bull run in 2021 if the Covid-19 situation dramatically improved, but 35% expected a house price crash worse than the 2008 crash to occur this year. Despite the appearance of piles of cash created by reduced spending, 36% of investors said they had dipped into their savings to stay afloat during the Covid-19 crisis.
Brief: Public pension plans tracked by investment data and analytics firm eVestment reported USD154.6 billion of commitments to private markets funds in 2020. This is a 2 per cent increase from 2019’s totals. In a pandemic-impacted year that turned fund due diligence and the normal course of business on its head, 2020’s results clearly show how the investment business was able to pivot to virtual due diligence to eke out an increase in commitments compared to 2019. There were clear winners and losers across the asset classes tracked however, with both private equity and private debt having strong years while real estate and real assets saw significant declines in reported commitment totals. Across all private fund commitments eVestment tracks, pension giant CalPERS was the biggest allocator of capital to private markets, with USD19.94 billion of commitments reported. CVC Capital Partners’ funds were the top destination for public plan money, raising USD5.2 billion from the public pensions eVestment tracks. Private equity was a big winner in 2020, according to eVestment’s year-end data. Reported commitments to private equity funds grew 20 per cent year-over-year to USD83.1 billion. The 2020 total of 1,047 individual commitments represented a 9 per cent increase from 2019’s total number of commitments and the average commitment size in 2020 was USD79 million compared to USD72 million in 2019.
Brief: Remote working is now one of the top daily challenges facing traders and a development that will likely boost the use of technology and electronic trading in the months ahead, a survey by JPMorgan released on Tuesday showed. According to the survey of 260 fixed income, currencies and commodities (FICC) traders conducted in December, almost a third cited the availability of liquidity -- how quickly and easy it is to buy and sell an asset in markets -- as their chief trading challenge. That was followed by workflow efficiency and remote working, a new addition that highlights the impact of the coronavirus pandemic on trading floors following widespread lockdowns that began almost a year ago. According to the survey, 77% of respondents said they worked from home between March and June for an average of four days a week, with 21% reporting a change in the their execution style. Many cited increased electronic trading. For 2021, 55% of respondents said they expected to work from home for an average of four days a week, with 18% saying their execution style could continue to change going forward -- again mostly through increased electronic trading.
Brief: Activist investor Jeff Ubben is seeking to raise as much as $8 billion for a hedge fund at his investment firm Inclusive Capital Partners, according to a person familiar with the matter. The Spring Fund II would be a successor to the $1.5 billion Spring Fund that Ubben started at ValueAct Capital Management, the activist hedge fund he founded in 2000. The new offering would focus on so-called impact investing, which aims to make systemic changes at companies and sectors to the betterment of society, the person said. The fundraising goal was reported earlier Tuesday by Reuters. Ubben launched Inclusive Capital after leaving ValueAct in June. The new firm counts electric-truck company Nikola Corp., power generator AES Corp. and bioenergy firm Enviva Partners among its investments. While at ValueAct, Ubben agitated for changes at high-profile companies including Citigroup Inc., Rolls-Royce Holdings Plc and Microsoft Corp. The fundraising comes as Ubben is in the midst of negotiating for a board seat at Exxon Mobil Corp. He’s also discussing making a sizable investment in the oil giant if he were granted a seat.
Brief : For years, Renaissance Technologies was among the most exalted names in high finance, as close to a sure-thing as Wall Street had. But recent months have battered its reputation, and investors are now streaming to the exits. Renaissance has seen at least $5 billion in redemptions since Dec. 1 -- a once-unthinkable rebuke from clients after unprecedented losses from the East Setauket, New York-based firm. The walkout comes after three funds open to the public fell by double digits last year, their computer models flummoxed by the rapid stock market crash and even faster rebound. Renaissance now finds itself in a position unlike any other in its near 40-year history: Trying to convince investors who once clamored to get into its funds that it’s still worth their money, and can be trusted to deliver market-beating returns.
Brief: European Central Bank President Christine Lagarde pledged monetary support for the economy amid extended coronavirus lockdowns and said governments must do the same. “The renewed surge in Covid-19 cases, the mutations in the virus and the strict containment measures are a significant downside risk to euro-area economic activity,” she told European Parliament lawmakers on Monday. “It remains crucial that monetary and fiscal policy continue to work hand in hand. Fiscal policy -– both at the national and at the European level -– remains crucial to bolster the recovery.” While the outlook is highly uncertain, the ECB chief noted that the start of vaccination campaigns across the euro area “provides the eagerly awaited light at the end of the tunnel.”
Brief: A class action lawsuit filed in California Southern District Court on 28 January, 2021 has been amended to include six hedge fund companies worth billions of dollars, a total of ten online brokers who manipulated the stock market, and the thirteen stocks involved. The various brokers and hedge funds allegedly conspired together to knowingly deprive retail investors of the ability to invest in the open market during an unprecedented stock rise, in order to benefit the hedge fund companies, such as Citadel, Melvin Capital, and Maple Lane Capital. The lawsuit alleges that the online brokers involved froze the everyday investors out to enable the hedge funds to stop losing money when the stocks rose in value. The lawsuit continues to allege that Robinhood and nine other online brokers failed to provide duty of care to their customers and that they purposefully harmed their customers positions in GameStop Corp (NYSE: GME) and twelve other stocks, such as Blackberry, LTD (NYSE: BB), AMC Entertainment Holdings Inc. (NYSE: AMC), Nokia Oyj (NYSE: NOK), Koss Corporation (NYSE: KOSS), and Naked Brand Group Ltd (NYSE: NAKD). The lawsuit is also alleging that Robinhood was recently fined USD1.5 million by the SEC, and a monitor has been assigned to watch their activities closely.
Brief: Investors pulled back from equity funds in January, with appetite for risk assets dampening as global coronavirus cases registered a post-holiday surge. Funds network Calastone found that December’s vaccine-fuelled inflows to equity funds “evaporated” in January, with net monthly inflows falling 97.5 per cent month-on-month to just GBP64.6 million. Total trading volumes in this period exceeded GBP21 billion. Heavy outflows of GBP965 million were dealt to active equity funds that lacked an ESG mandate, causing them to lose almost all of the GBP1 billion in new capital that they had gained in December. “The euphoria that characterised the huge inflows to equity funds in the last few weeks of 2020, including even unloved traditional active funds, dissipated with the cold light of the post-holiday hangover,” says Edward Glyn, head of global markets at Calastone. “The pandemic has increased in intensity in almost all parts of the globe, causing stock markets to falter and investors to curb their enthusiasm for equities.”
Brief: Hedge funds are turning bullish on oil once again, betting the pandemic and investors’ environmental focus has severely damaged companies’ ability to ramp up production. Such limitations on supply would push prices to multi-year highs and keep them there for two years or more, several hedge funds said. The view is a reversal for hedge funds, which shorted the oil sector in the lead-up to global shutdowns, landing energy focused hedge funds gains of 26.8% in 2020, according to data from eVestment. By virtue of their fast-moving strategies, hedge funds are quick to spot new trends. Global oil benchmark Brent has jumped 59% since early November when news of successful vaccines emerged, after COVID-19 travel curbs and lockdowns last year hammered fuel demand and collapsed oil prices. Last week it hit pre-pandemic levels close to $60 a barrel.
Brief: It’s been almost a year since in-person meetings were wiped from the calendar and replaced with all-virtual interactions. While investors and other professionals have since adapted to the efficiency of Zoom and other video platforms, research shows that physical meetings were worth the extra time and money for fund managers. Meetings between portfolio managers and company leaders were found to predict higher investment returns in a recent paper by researchers at the Massachusetts Institute of Technology, China Investment Corp., and Remin University of China. The study, which examined investor meetings with firms listed on the Shenzhen Stock Exchange in China — where companies are required to disclose such meetings — found that a higher number of face-to-face meetings were tied to outperformance of about 70 to 100 basis points per month. According to authors Eric So of MIT, Rongfei Wang of CIC, and Remin University professor Ran Zhang, the results likely stem from investors allocating more time and resources to meetings with firms that they perceive to be undervalued.
Brief : BNP Paribas warned investors on Friday that a debt-trading bonanza that supported its earnings last year was unlikely to last, while signalling that the worst of the global coronavirus crisis was over for its loan book. Charges linked to the COVID-19 pandemic took their toll on fourth quarter net profit at BNP Paribas, which said it had set aside more provisions for loans that could turn sour. But the eurozone’s biggest listed bank struck a more upbeat note for 2021, saying it expected its cost of risk, which reflects provisions for bad loans, to drop compared to 2020 as the outlook improves in the second half. Another side-effect of the pandemic, a surge in fixed income trading business, provided a boost to earnings in the fourth quarter, but BNP Paribas warned that this level of market activity was unlikely to persist in 2021. The Paris-based bank said revenue at its corporate and institutional banking business rose 6.9% in the quarter as fixed-income, currencies and commodities (FICC) trading revenue jumped by 22%, mirroring gains among its global competitors. “FICC is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity”, BNP Paribas said in a statement.
Brief: The health of the UK’s Defined Benefit (DB) pension schemes has surpassed that of their pre-Covid levels as they continued to recover through Q4 2020, according to Legal & General Investment Management (LGIM). LGIM's Health Tracker, a monitor of the current health of UK DB pension schemes, found that the average1 DB scheme can expect to pay 97.1 per cent of accrued pension benefits as of 31 December 2020, up 1.6 per cent from 30 September 20202. This compares to the pre-COVID level of 96.5 per cent from 31 December 20193 as well as the lows of 31 March 20204 which saw the EPBM (Expected Proportion of Benefits Met) metric drop to 91.4 per cent. This latest improvement means LGIM’s measure was actually up on 2020 (from 96.5 per cent to 97.1 per cent) despite falling to 91.4 per cent at the end of March and marks a third successive quarter of growth across 2020. Nominal rates were around 0.6 per cent lower at the end of 2020 than at the start, but the impact from this was outweighed by the overall performance of growth assets over the year. However, it is important to note that these figures may yet still understate the negative impact of the pandemic, due to a weakening of covenants that many schemes will have endured. John Southall, Head of Solutions Research at LGIM, says: “The last quarter of 2020 was another positive period for our measure of UK DB scheme health, with the ratio continuing to rise, as it has consistently done so since the March lows of 91.4 per cent. This change was almost entirely driven by outperformance of growth assets with interest rates and expected inflation broadly flat over the quarter.
Brief: Japan’s macroeconomic backdrop is strengthening alpha-generating opportunities for hedge funds, with a growing number of newly-launched Japanese equity strategies looking to capitalise on a kaleidoscopic range of stockpicking ideas arising from market-friendly structural reforms, a pick-up in economic momentum, improving fundamentals, and a falling number of coronavirus cases. Strategists at Lyxor Asset Management said on Friday the prevailing market landscape appears supportive for risk assets and stronger economic growth heading into Q2, with a second Covid-19 wave now appearing past its peak and its impact so far appearing largely manageable. “With the pandemic gradually abating and as the Japanese economy regains some momentum, we see a wider set of investment themes, supporting stockpicking,” senior Lyxor strategists Jean-Baptiste Berthon and Philippe Ferreira, and EU head of hedge fund research Bernadette Busquere Arnal, said in a market commentary. “These themes include stocks sensitive to domestic consumption, exposure to Asia, reflation policies or capex. The alpha environment has already improved.”
Brief: Prudential Financial Inc. Chief Executive Officer Charles Lowrey unveiled his three-year strategy to transform the company through deals, cost savings and share buybacks. The life insurer has allocated $5 billion to $10 billion to invest in and acquire growth businesses, which will contribute more than 30% to its earnings by 2023 from a current 18%, Lowrey said Thursday in an interview. The firm is looking to expand in China, India, Indonesia, Latin America and Africa, and is considering bolt-on purchases in asset management, he said. “Our strategy is designed to deliver higher growth, with greater efficiency and lower market sensitivity,” he said. “We’re always looking for strategic acquisitions.” Lowrey, who took the helm in December 2018, laid out the plan alongside Prudential’s fourth-quarter results. After-tax adjusted operating income was $2.93 a share, beating the $2.56 median estimate of 13 analysts surveyed by Bloomberg. The CEO also laid out plans to cut $750 million in costs and return about $10 billion to shareholders via dividends and share repurchases over the next three years. Prudential aims to halve the contribution of individual annuities to its earnings, and it’ll achieve this through sales, reinsurance transactions or the expiration of policies, Lowrey said.
Brief: Assured Capital Partners' Balanced Growth Fund had another extraordinary year in 2020, despite the coronavirus pandemic, narrowly missing out on surpassing a 40 per cent return for the third time in the fund’s existence. According to hedge fund database service EurekaHedge, the fund has now returned over 376 per cent since inception as of the end of 2020 and the firm is positive on the outlook for the year ahead, despite the ongoing economic disruption caused by the Covid-19 crisis. Assured Capital writes: "In early 2021 there’s nearly USD5 trillion sitting on the sidelines at the moment. That’s about a qaurter of the total US Gross Domestic Product on an annual basis (2020: USD20.8 Trillion). Not to mention the government is considering further injection of cash into the economy via additional rounds of stimulus. And when all of this pent-up capital gets unleashed on the market, and the economy at-large, the upshot will likely be staggering. "Additionally, the Federal Reserve Bank has indicated it intends to maintain a low interest rate policy for the foreseeable future. Presumably keeping bond yields suppressed in the near-term. Forcing more investors to seek positive returns in equities. Also, many companies will see favourable earnings comparisons during much of 2021 relative to last year leading to a large swath of positive earnings beats.
Brief: With office buildings emptied, hotels left vacant, and commercial tenants struggling to pay rent, it should come as no surprise that 2020 was a challenging year for real estate investing. In private equity real estate, deal making plummeted in both number and value, with the total deal value declining 50 percent from 2019 levels, according to Preqin data. Deal numbers, meanwhile, dropped from 9,848 in 2019 to 5,979 last year. This slowdown in deal making was accompanied by a decline in fundraising, with 283 funds closing in 2020, compared with 494 funds in 2019. As in other alternative classes, large funds run by established managers had the most success in fundraising, with the ten biggest funds accounting for 34 percent of the total capital raised. In total, private equity real estate funds secured $118 billion in investor commitments in 2020, a 34 percent decline from the previous year’s total, Preqin said. “Restrictions on travel, lockdowns, and reduced physical interaction among market participants hit fundraising and played a major part in deal declines,” David Lowery, head of research insights at Preqin, said in astatement.
Brief : The vaccine-induced euphoria that saw equity funds enjoy their second-best month on record in December evaporated in January as contagious new Covid-19 variants prompted surging infection rates around the world. The latest Fund Flow Index from Calastone shows that net inflows fell by 97.5 per cent month-on-month to just GBP64.6 million, no more than a rounding error in the context of busy trading volumes well above average at GBP21.8 billion. As the UK descended into a full national lockdown with no prospect of release for months to come, outflows from funds focused on UK equities accelerated to GBP179 million, the eighth consecutive month in which investors have shed UK equities. Equity income funds, which are heavily weighed to UK shares, had their second-worst month on record, in effect a vote against UK equities too. Meanwhile, Europe’s vaccine debacle prompted a U-turn in investor sentiment towards funds focused on European shares. After months of accelerating inflows culminating in a record month in December, January saw investors once again bail out of European funds, selling down GBP141m. All other regions saw modest inflows. Global funds, however, had another good month, in line with the average for the last year. Two thirds of global fund inflows are driven by ESG. There was bad news for traditional active equity funds (ie those without an ESG mandate), as they gave up almost all the new capital they had garnered in December. Investors shed holdings to the tune of GBP965m in January, having added GBP1.0 billion the previous month. The return to outflows marks a return to trend.
Brief: German venture capital firm MIG AG, which was among the first backers of COVID-19 vaccine developer BioNTech, has paid 600 million euros ($719 million) to its investors, cashing out parts of an initial investment of 13.5 million euros. MIG said on Thursday that investors in its funds would now receive 340 million euros from the sale of an unspecified stake in BioNTech, following a payout of 260 million euros last year. MIG’s funds have provided funding to BioNTech, which developed the vaccine with U.S. drugmaker Pfizer, since the German biotech company’s inception in 2008. BioNTech now has a market capitalisation of around $28.4 billion, more than eight times its valuation of $3.4 billion when it made its stock market debut on the Nasdaq exchange in October 2019. MIG AG general partner Kristian Schmidt-Garve said the investment firm was proud of BioNTech’s role in fighting the pandemic. “We are also very pleased that we could realise considerable returns for the shareholders in the involved funds, which amount to a multiple of the initial deposits,” he added. MIG did not say how many BioNTech shares were sold and how many it still holds in the company.
Brief: Washington-based Carlyle Group reported a USD518.8 million fourth-quarter profit on the back of strong asset sales at the end of last year, including its divestment of a 50 percent stake in streetwear fashion brand Supreme to VF Corporation as part of a USD2.1 billion deal in November. VF Corporation already includes the brands Vans, The North Face, Timberland and Dickies, and the company said that it expects Supreme to contribute at least USD500 million of revenue and USD0.20 of adjusted EPS in the fiscal year 2022. Carlyle's December results swung upwards from a loss of USD8.3 million, or 8 cents per share, in the same period of 2019. The better-than-expected figures came largely on the back of the disposal of assets in the global PE-firm's private equity division and credit businesses. Carlyle’s private-equity portfolio increased in value by 11 per cent during the period, compared with an 11.7 percent gain by the S&P 500 stock market index. The private equity group recorded total assets under management at USD246 billion, an increase of 10 per cent year-over-year. Meanwhile, fee-earning assets under management stood at USD170 billion, up 6 per cent year-over-year. It also has a remaining USD76 billion of capital available for investment.
Brief: Dealmakers across Asia are busy fielding calls from company founders who are mulling letting go of their life’s work as the Covid-19 pandemic has upended how global business is done. After riding the region’s rise over the past decades, family firms that dominate the economic landscape are now also looking for bigger partners, help to modernize management teams and in succession planning, according to consultants, bankers and private equity firms. “We’ve seen founders, particularly the older entrepreneurs, saying there are more challenges in the world now and that they’re thinking about succession issues and management issues,” said Ed Huang, co-head of Asia acquisitions in private equity at Blackstone Group Inc. “Private equity is better understood now as either a potential strategic partner or as an exit path.” The shifting sentiment could spell seismic moves in capital. Just publicly listed family firms in Asia have a market capitalization of more than $5.56 trillion, according to Credit Suisse Group AG. In Hong Kong and Singapore 70% and 60% of listed firms, respectively, are family-backed businesses, a report from the Family Firm Institute showed. Recent deals include a CVC Capital Partners-led privatization of Hong Kong fashion chain I.T Ltd. as well as a takeover by TPG and Northstar Group of a unit of Singapore-based food company Japfa Ltd. Pankaj Goel, Credit Suisse’s co-head of investment banking and capital markets for Southeast Asia and frontier markets, said the region could be in line for a “many-fold” increase in deals already this year. He singled out sectors such as consumer, health care and technology as key areas.
Brief: Man FRM is optimistic on what it describes as an “unusually large” spectrum of hedge fund strategies amid a growing medley of investment opportunities and themes arising from the fledgling economic recovery. In its Q1 strategy outlook published on Thursday, Man Group’s funds-of-funds unit spelled out how a spring economic recovery, coupled with dovish central bank stances and ongoing fiscal support, will help sustain and extend the market rally, particularly in equities. That, in turn, will likely strengthen the hand of a range of hedge fund strategies including credit, equity long/short, macro and relative value, during the first quarter. Stronger earnings and multiple expansions are underpinning an increasingly bullish investor sentiment for 2021, particularly in US equities, with low interest rates and abundant liquidity helping to support expensive valuations. At the same time, though, Jens Foehrenbach, Man FRM’s CIO, also acknowledged how certain “speculative excesses” in the market may potentially throw up risks further down the line this year - including sharp interest rate hikes, rotations, and policy mistakes such as a premature withdrawal of stimulus amid the Covid recovery. “Cognisant of this bullish expectation for equity markets, we believe investors should remain disciplined around the goal of portfolio positioning, which is to provide diversification if this expectation turns out to be wrong – not to beat the market if we experience a strong year for equities,” Foehrenbach wrote in the outlook.
Brief: Governments and developers around the world are exploring the potential use of “vaccine passports” as a way of reopening the economy by identifying those protected against the coronavirus. Those developing the technologies however, say such tools come with consequences such as potentially excluding whole groups from social participation, and are urging lawmakers to think seriously about how they are used. The travel and entertainment industries, which have struggled to operate at a profit while imposing social distancing regulations, are particularly interested in a way of swiftly checking who has protection. Among those developing passports are biometrics company iProov and cyber security firm Mvine which have built a vaccine pass now being tested within Britain’s National Health Service after receiving UK government funding. iProov founder and chief executive Andrew Bud believes such vaccine passports only really need to hold two pieces of information. “One is, has this person been vaccinated? And the other is, what does this person look like?” You need only match a face to a vaccination status, you don’t need to know a person’s identity, he added. Confirmation of patrons’ vaccination status could help the night-time economy, which employs some 420,000 people in the northern English city of Manchester, off its knees, experts say.
Brief : The World Economic Forum has again pushed back its 2021 annual meeting in Singapore, rescheduling it for August from May given what it called “challenges in containing the pandemic”. The Geneva-based WEF, which last month delayed the event by 12 days in May, said on Wednesday it would now be held from Aug. 17-20. “Although the World Economic Forum and Government of Singapore remain confident of the measures in place to ensure a safe and effective meeting, and local transmission of COVID-19 in Singapore remains at negligible levels, the change to the meeting’s timing reflects the international challenges in containing the pandemic,” it said in a statement. Global travel restrictions have made planning difficult for an in-person meeting in the first half of the year, while differing quarantine and air transport regulations increased the lead time needed to ensure participants can join, it added. Singapore’s ministry of trade and industry said the government understood the challenges the WEF faced and had agreed to reschedule. The annual meeting typically takes place in January in the Swiss ski resort of Davos, but the pandemic made that impossible this year.
Brief: A $3 billion credit fund Centerbridge Partners began investing in March returned an annualized 90% in 2020, making it a top performer among vehicles designed to take advantage of pandemic-related price dislocations. As the pandemic took hold in the U.S., Centerbridge deployed $1.8 billion in funds following its special credit strategy, according to people with knowledge of the matter. It continued to invest additional money in beaten-down debt through year-end, the people added. The firm’s Special Credit III Flex Fund, which targeted consumer-facing industries battered by market turmoil, including rental cars, airlines, auto parts and entertainment, returned 121% on a gross basis, said the people, who asked not to be identified discussing private results. A representative for Centerbridge declined to comment. Centerbridge’s $1.3 billion flagship vehicle, the Special Credit III fund, gained a net 8.7% last year, the people said. The $28 billion private investment firm specializes in lending to and buying troubled companies, many of which are going through Chapter 11 restructurings. It recently became the owner of SpeedCast International Ltd. following the satellite communications company’s bankruptcy last year.
Brief: Three-quarters of UK fund buyers say all funds will soon incorporate ESG as sustainable investing gathers further momentum in the aftermath of Covid-19, new research shows. A CoreData Research study of 200 professional fund buyers around the world found nearly two-thirds (63 per cent) think all investment funds will incorporate ESG in five years. This proportion increases to almost three-quarters of respondents in the UK (73 per cent) and Europe (72 per cent). However, only half of fund selectors in North America (50 per cent) believe such a scenario will play out. The survey, conducted in November and December 2020, also shows that momentum towards ESG has accelerated since the pandemic. Six in 10 (60 per cent) global professional fund investors say they have increased their focus on ESG in the wake of Covid-19. The UK is leading the sustainability charge, with eight in 10 (81 per cent) raising their ESG commitment. But the picture is somewhat different in North America, where less than half (42 per cent) have upped their focus on ESG in light of the pandemic. A key factor driving the heightened ESG focus is a belief that sustainable investments can help deliver superior performance. Half (50 per cent) of global respondents say ESG funds tend to outperform their non-ESG counterparts — a sentiment most pronounced in the UK (65 per cent) and Europe (60 per cent). However, less than a third (31 per cent) of North American respondents share this conviction.
Brief: Kuwait’s government has transferred the last of its performing assets to the country’s sovereign wealth fund in exchange for cash to plug its budget deficit, after a political dispute over borrowing left one of the world’s richest nations short of cash and prompted Fitch to cut its outlook to negative. Fitch affirmed Kuwait’s AA rating but said “the imminent depletion of liquid assets” and “absence of parliamentary authorization for the government to borrow” was creating uncertainty. Its report follows S&P Global Ratings’ recent warning that it would consider downgrading Kuwait in the next six to 12 months if politicians fail to overcome the impasse. Though it’s a high-income country, years of lower oil prices have forced Kuwait to burn through its reserves. Desperate to generate liquidity, the government began last year swapping its best assets for cash with the $600 billion Future Generations Fund, which is meant to safeguard the Gulf Arab nation’s wealth for a time after oil. With those now gone, it’s not clear how the government will cover its eighth consecutive budget deficit, projected at 12 billion dinars for the fiscal year beginning April. The assets include stakes in Kuwait Finance House and telecoms company Zain, a person familiar with the matter said, asking not to be named because the information is private. State-owned Kuwait Petroleum Corp., which has a nominal value of 2.5 billion dinars ($8.3 billion), was also transferred from the government’s treasury in January, the person said.
Brief: In a year when a pandemic gripped the world, beginning and experienced retail investors flocked to the stock market using taxable, non-retirement investment accounts, according to new research by the FINRA Investor Education Foundation (FINRA Foundation) and NORC at the University of Chicago. The study, Investing 2020: New Accounts and the People Who Opened Them, found that market dips that made stocks cheaper to buy and the ability to invest with small amounts were among the top reasons younger and inexperienced investors reported entering the stock market. For respondents who opened new accounts in 2020, investing for retirement was the most frequently cited reason for opening the account, despite the study’s focus on taxable investing. Researchers further found that the majority of new investors—meaning those who opened a non-retirement investment account for the first time during 2020—were under the age of 45 and had lower incomes than investors who already owned taxable investment accounts prior to 2020. New investors were also more likely to be racially or ethnically diverse.
Brief: The coronavirus crisis hasn’t stopped the world’s wealthy from flying -- they’re just increasingly doing it privately, and some are getting outsized returns from it. Bill Gates, Nassef Sawiris, James Packer and Kerry Stokes have accumulated more than $1.2 billion in the world’s largest operator of private-jet bases, according to data compiled by Bloomberg. The company, Signature Aviation Plc, has recently become the focus of a takeover fight involving Blackstone Group Inc., Carlyle Group Inc. and Global Infrastructure Partners, helping its shares almost triple since a low in mid-March. Private flying is one of the few travel categories to have held up during the Covid-19 pandemic, offering the well-heeled the opportunity to jet off while minimizing potentially risky contact with other passengers. As global airline passenger traffic has plunged, private-jet activity has fared better and was at about the same level in the first three weeks of January as at the start of 2020, despite a resurgence of the virus, according to research from aviation data and consultancy company WingX. “Some clients only flew commercial before the pandemic, but Covid-19 has changed all of that,” said Michael S. Harris, director of family office at Verdence Capital Advisors, which oversees about $2.5 billion. “The way we travel may now have changed forever.”
Brief : Brookfield Property Partners LP posted a $2 billion loss as the fallout from the Covid-19 pandemic caused it to reassess the value of its real estate. The loss last year compares with $3.2 billion in net income for 2019, a decline the company attributed primarily to “unrealized reductions of values of certain assets within the portfolio,” according to a statement on Tuesday. Funds from operations, a measure of cash flow for real estate companies, were down about 18% to $540 million for the company’s portfolio of office buildings, while FFO from retail properties fell 29% last year to $550 million, according to the statement. The pandemic kept many offices and malls around the world empty for large portions of last year, while also accelerating changes to how people work and shop. The success of remote working during the pandemic has many companies examining how much office space they need, while stay-at-home orders have pushed broader adoption of e-commerce at the expense of brick-and-mortar retail. Amid this pressure, Brookfield Property Partners’ corporate parent, Brookfield Asset Management Inc., has proposed taking the company private by acquiring the shares it doesn’t already own for $5.9 billion, or $16.50 a share. The company’s shares have gained 18% this year, closing Monday at $17.08.
Brief: Steve Cohen’s Point72 Asset Management has opened to new cash and raised more than $1.5 billion in commitments in a matter of days, according to people familiar with the matter. The move comes after the hedge fund provided $750 million in emergency cash to Gabe Plotkin’s Melvin Capital, which was struggling with GameStop Corp. and other short bets gone sour. Citadel’s hedge funds, along with founder Ken Griffin and his firm’s partners, put $2 billion into Melvin. By the end of last month, Melvin sunk 53% after retail investors banded together online to push up the prices of GameStop and other popular targets of short-sellers. Point72 is raising the fresh cash because it sees investment opportunities in the market, one of the people said, asking not to be identified because the information isn’t public. The firm had about $18.9 billion in assets as of October. The hedge fund fell about 9% in January, the people said. Before its recent cash injection, Point72 had about $1 billion invested in Melvin. A spokeswoman for the Stamford, Connecticut-based firm declined to comment.
Brief: BTIG employees will not be required to return to any of the firm’s US offices prior to Labor Day of 2021.In March 2020, BTIG was one of the first financial services firms to send all of its employees home to work remotely in response to the Covid-19 pandemic. BTIG will continue to evaluate the data on the global health crisis, and make all future reopening and other logistical decisions based upon the latest information available from the medical community and local government officials. BTIG believes that remote work will continue to offer the best protection to its employees, their families, clients and its business operations. The firm does not anticipate a return to its offices until vaccines are widely available, and when it is confirmed that the newly discovered Covid-19 mutations do not pose any additional risks to employees. Once the firm’s offices fully reopen, BTIG expects approximately 30-50 per cent of its employees will choose to incorporate remote work into their regular schedules. “As a firm, we are very fortunate to find ourselves in a position where we can choose when to safely reopen our offices for staff. The positive feedback we’ve received from our clients, as well as the high levels of employee engagement thus far, enabled us to extend the period of remote work longer than we anticipated in the summer,” says Jennifer Mermel, Chief Operating Officer of BTIG.
Brief: With hedge funds at the center of market drama for the second time in less than 12 months, the GameStop saga is likely to expedite a regulatory review of the ever-larger role non-bank firms play in the financial markets, regulatory experts said. Scrutiny of the non-bank financial sector was already expected to be high on newly appointed Treasury Secretary Janet Yellen’s agenda after hedge fund de-leveraging contributed towards turmoil in the U.S. treasury market in March 2020. But the sector is likely to garner much closer attention after a retail buying frenzy in GameStop and other stocks burnt several hedge funds that had bet against the companies, and led retail brokerages to restrict trading in the affected stocks. The incident appeared to spark market-wide volatility, as hedge funds scrambled to meet their obligations and close out bad bets, trading the highest volume of shares since 2009, according to an analysis from Goldman Sachs Group Inc. It has shone a spotlight on the huge footprint of non-bank equity trading firms, particularly that of Citadel Securities, which accounts for over 20% of all U.S. equities volumes and roughly 39% of all U.S.-listed retail volume, according to its website. Its heft has raised questions over the company’s market power.
Brief: Investments into the online healthcare sector soared in 2020, supercharged by Covid-19. According to the research data analysed and published by Finaria, the total digital health funding in 2020 amounted to USD21.6 billion. VC funding led with a total of USD14.8 billion across 637 deals, a 66 per cent year-over-year (YoY) uptick. Based on a Silicon Valley Bank (SVB) report, investments in the healthcare sector as a whole amounted to USD51 billion during the year. Biopharma led in deal value, with investments worth USD24.5 billion across 570 deals. The total VC funding in the digital health sector set a new record. It also drove its total investment value since 2010 to USD59 billion across more than 5,000 deals. Around 77 per cent of all funding in 2020 went to US companies, USD11.5 billion across 429 deals. Comparatively, China received USD1.1 billion in eight deals. Consumer-centric companies received USD9.6 billion (+81 per cent YoY) while practice-centric ones got USD5.3 billion (+47 per cent YoY). Telemedicine was the highest ranked category, receiving USD4.3 billion, up by 139 per cent YoY. It was almost equivalent to the next three categories combined. Data Analytics raised USD1.8 billion, mHealth Apps got USD1.4 billion and Clinical Decision Support gained USD1.2 billion.
Brief: Executives from Ares Management and KKR have joined Patient Square Capital, a new healthcare investment firm, as founding partners. Patient Square announced on Monday that Alex Albert, who was most recently the co-head of healthcare private equity at Ares, and Neel Varshney, previously a managing director at KKR’s Americas healthcare private equity team, have joined the firm. Patient Square was launched in August by Jim Momtazee, who spent more than 20 years at KKR. Soon after its launch, the firm sponsored a special-purpose acquisition vehicle called Montes Archimedes Acquisition Corp. Albert spent six years at Ares before leaving for Patient Square, according to the announcement. Prior to joining Ares, he worked as a vice president at FFL Partners. He previously was an associate at KKR, where he was on the healthcare team with Momtazee. Before joining KKR, Albert was an analyst in the investment banking division at Goldman Sachs. Meanwhile, Varshney spent roughly four years at KKR, where he also worked with Momtazee on healthcare deals. Before joining the firm, he worked as a vice president at Linden Capital Partners, focusing on healthcare. He also worked as an engagement manager in healthcare, private equity and corporate finance at Mckinsey and Co., and worked in business development at Medtronic. Varshney is a doctor who trained in internal medicine at Massachusetts General Hospital, the announcement said.
Brief : Over the past week, many people have asked me the same question: “Will the GameStop situation lead to a market crash?” The direct answer is an emphatic NO! However, it will likely lead to increased volatility over the near-term, which is why I suggest traders use lighter than normal positions until the volatility calms down. The markets have always been dominated by the large institutions and, for the record, I absolutely love the recent surge in retail trading. Here is one side effect: When retail traders take long positions against the short positions of these big institutions, and then drive up the price of these stocks, it leads to what is called a “short squeeze.” When these institutions are forced to cover a stock, they are sometimes forced to sell their long positions (if the loss is big enough) to meet margin requirements, to reduce leverage, or to possibly raise cash for future redemptions. This forced liquidation of long positions can lead to a quick, short-term decline in stock prices, such as the one we saw on Monday, Jan. 25 between 10:45 am.-11:05 a.m. EST, (see chart) but I don’t see it leading to a market crash.
Brief: Wall Street’s retail trading frenzy has distorted markets, global hedge funds industry body AIMA said on Monday, adding it was concerned that lawmakers were encouraging such moves. Retail investors gathering in social media chatrooms like Reddit have been driving up the price of stocks like GameStop shorted by hedge funds, with the focus shifting to other parts of the market on Monday, such as silver. “What is dangerous, amid this trading frenzy, is that retail investors have been chasing prices so far above any sane valuation and that many will end up nursing losses,” AIMA CEO Jack Inglis said in a letter to members, who manage $2 trillion. “The role of some supposedly responsible lawmakers, who have been cheering these events from the side-lines, with a knee-jerk reaction against short selling, is concerning to say the least.” U.S. Democratic lawmaker Alexandria Ocasio-Cortez, said last week that people felt “everyday people” were finally able to “get back” at those who had all the marbles on Wall Street and forced once hedge fund into an existential crisis.
Brief: UK private equity deal activity bounced back in the second half of 2020, although a profound slump in transactions in Q2 as lockdown gripped the M&A market meant that total annual deal volumes hit their lowest levels in more than seven years. KPMG’s latest study of UK transactions involving private equity investors indicates that a total of 889 deals completed over the course of 2020, with a combined value of GBP87.2 billion. This was the fewest number of private equity transactions seen in the UK since before 2014, and a fall of 26 per cent on the previous year, which saw 1,199 deals worth GBP107.7 billion. Mid-market PE deals Transactions with an EV between GBP10m and GBP300m. were particularly impacted by the challenges brought about by the Covid-19 pandemic, with both volumes and values falling by a third on the previous year. In total, 452 mid-market transactions completed during the year, with a combined value of GBP28.45 billion. However, while total annual deal volumes were ultimately hampered by the cliff-fall seen in the second quarter, there was a clear bounce-back in activity in Q3 and Q4. Deals that had been put on hold sprung back to life, and PE investors, still sitting on substantial reserves of capital, mobilised once more, resulting in over two hundred transactions completing in each of the final two quarters. Jonathan Boyers, head of M&A for KPMG in the UK, says: “This is a tale of retreat and recovery.
Brief: Greylock Capital Associates filed for bankruptcy protection in New York as investors pulled money from the hedge fund following three consecutive years of losses. The Chapter 11 proceedings will allow Greylock to restructure its debt and terminate its Madison Avenue office lease in Manhattan, according to a Jan. 31 filing signed by Chief Financial Officer David Steltzer. Assets under management at the emerging markets hedge fund -- which more than halved since 2017 to $450 million at the end of 2020 -- will drop by $100 million by the end of March in the absence of new investments, according to the filing. Greylock has cut its staff to nine people from 21 three years ago, and is in talks with its remaining major investors, confident that the business can “successfully reorganize and continue as a going concern” after the bankruptcy, Steltzer wrote. The firm hasn’t hired any financial or business consultants. The firm has no plans to shut down, according to a message from Greylock President Ajata “AJ” Mediratta. The hedge fund opened a small office in Stamford, Connecticut last year to make it easier for the firm’s commuters, reducing the need for a large office in midtown Manhattan.
Brief: Research by regional mid-market private equity firm YFM Equity Partners (YFM) has revealed a growing focus on culture and working practices, rather than simply valuation, after almost a year of interrupted working and repeated lockdowns. The survey polled over 120 entrepreneurs, advisers and dealmakers across the UK in December, and showed that the primary consideration for boards looking for VC and growth funding was the investors’ approach to working (48 per cent), closely followed by their cultural fit with investors (45 per cent), whilst the financial terms, once the dominant consideration, came in as the third most important criteria, only selected by 38 per cent of respondents. David Hall, investment partner at YFM and managing director, says: “It is clear that entrepreneurs have different priorities after the experience of the pandemic, and the impact it has had on their organisations, their people and their own quality of life. “Our survey suggests that management teams are now placing more value on their long-term organisational health and bringing on board a supportive partner. That doesn’t mean that VCs can get better value for money, but rather they have to demonstrate the right approach and ethical standards as a prerequisite before they get through the door of the best growth businesses,” he added.
Brief: Wells Fargo & Co Chief Executive Officer Charles Scharf’s annual pay fell by about $3 million, or 12%, in 2020, a regulatory filing showed on Friday. Scharf will receive $20.3 million for his work during the year, compared with $23 million in 2019, the bank said. bit.ly/3ahptPv. Scharf, who served as a top lieutenant to JPMorgan Chase and Co Chief Executive Jamie Dimon during the financial crisis of 2008, took over the reins at Wells Fargo in 2019. The fall in Scharf’s pay compares with a 36% drop in Goldman Sachs Chief Executive David Solomon’s salary and a 20% jump in compensation for Morgan Stanley’s top boss James Gorman. JPMorgan held CEO Dimon’s annual pay at $31.5 million. Wells Fargo’s board cited the drop in the bank’s financial results for 2020 as one of the reasons for Scharf’s lower compensation, noting that the results were significantly impacted by the effects of the COVID-19 pandemic. The bank last year posted its first quarterly loss since 2008 and also saw its profit plunge to just 1 penny per share in the first quarter of 2020. However, Wells Fargo ended the year with a rare quarterly profit beat. The bank has operated under a dark cloud since 2016 when details emerged about millions of phony accounts employees had created in customers’ names without their permission to hit sales targets.
Brief : The U.S. securities regulator on Friday said it would review actions that may “unduly inhibit” trading of certain securities and said it was closely monitoring potential wrongdoing amid recent price volatility in the U.S. stock market. Securities and Exchange Commission (SEC) officials warned against illegal “manipulative trading activity” and said they were working closely with other regulators to monitor the situation after a wild week of trading during which an army of small investors have driven a dramatic squeeze of Wall Street hedge funds in shares of GameStop Corp and other hot companies. “The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” the SEC said on Friday, following a statement earlier in the week it was monitoring market volatility. Online broker Robinhood earlier in the week placed disputed trading restrictions on certain shares, drawing ire from lawmakers and scrutiny from regulators. The firm had eased restrictions on Friday. “Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence,” the SEC said on Friday.
Brief: Canada’s economy showed surprising strength in the final two months of 2020, even amid a new wave of Covid-19 restrictions. Gross domestic product expanded 0.7% in November from a month earlier, Statistics Canada reported Friday in Ottawa, topping the 0.4% forecast of economists in a Bloomberg survey. A preliminary estimate from the agency showed GDP grew 0.3% in December, defying expectations for a contraction. Friday’s report is helping to ease concern about the economic costs from a second wave of lockdowns that has closed large parts of the country. Some analysts are even questioning whether a first-quarter contraction, which had been almost taken for granted, will even happen. “Today’s result for November and early read on December do indeed suggest that the economy overall is managing much, much better with this second stage of lockdowns,” Doug Porter, chief economist at Bank of Montreal, wrote in a report to investors. Porter said he’s raising his 2021 GDP forecast to 5%, from 4.8%, “as a direct result of this high-side surprise.” The unexpected resilience largely reflected gains in resource production and manufacturing. Growth in the fourth-quarter came in at about 8% annualized, according to Bloomberg calculations, above the 4.8% pace projected by the Bank of Canada. The Canadian dollar jumped on Friday’s report, gaining 0.7% to C$1.2740 against the U.S. currency at 10:31 a.m. Toronto time.
Brief: Demand to invest in funds which focus on environmental, social and governance (ESG) issues jumped in 2020, driving assets under management up 29% in the fourth quarter to nearly $1.7 trillion, industry tracker Morningstar said on Thursday. In a turbulent year marked by the effects of the COVID-19 pandemic, the surge in ESG assets was bolstered by a stimulus-driven market recovery and as investors increasingly looked for more resilient investments. Covering everything from how a company handles climate change or boardroom diversity to how a country is positioned to withstand the impact of changing weather patterns, the belief is that those with a good ESG score will perform better over time. The flows have also been helped by an accelerating push from governments globally to transition to a low-carbon economy, changing market rules and tax regimes to encourage climate-friendly investments, many of which are held by ESG funds. Given the strong demand, inflows into sustainable funds hit a record high during the fourth quarter, up 88% to $152.3 billion, with Europe-domiciled funds accounting for almost 80% of the total inflows, or $120.8 billion.
Brief: Real estate has proven resilient throughout the Covid-19 pandemic so far. Over the course of last year, global direct property funds saw their net assets grow, despite ripples of market turbulence felt across the investment industry. Data from Morningstar shows total net assets in ‘bricks and mortar’ funds reached nearly €247 billion in 2020 compared to around €243.5 billion in 2019. Meanwhile, assets invested in European ‘sustainable landscape’ direct property funds have increased from €2.5 billion in 2015 to nearly €12 billion by the end of last year. ESG is becoming an increasingly core focus in the real estate industry, with sustainability set to be a megatrend. There is a lot of space for improvement in the sector in terms of aligning structures with sustainability targets, however. A report by the Buildings Performance Institute Europe found that 97% of buildings in the EU need to be upgraded if they are to meet energy targets. Earlier in January, Aviva Investors announced plans to reach net zero emissions across its £47.3 billion real estate platform over the next 20 years, bringing green real estate goals further into the mainstream.
Brief: For Kuok Meng Xiong’s family office, 2020 was a bumper year with investments in technology startups like Bytedance Inc. doing well throughout the pandemic. Despite this good fortune and promises of a vaccine, the grandson of billionaire Robert Kuok remains wary about private deals in the year ahead. “We anticipate Covid may be protracted even with the vaccine, and travel may not go back to pre-March 2020 days so the early-stage startups would be challenging,” he said, stipulating that he only spoke for his tech-focused remit at K3 Ventures Pte and not his family’s Shangri-La hotel empire. It’s a view shared by many of his Asian family office peers. Government subsidies for jobs and loans that have helped prevent broader meltdowns are set to end in the coming months, and vaccines may take years to be fully deployed. When combined with continuing geopolitical strife between China and the U.S., that’s left many of the region’s wealthiest clans feeling anxious. “The key word is ‘uncertain,’” said Ben J Benjamin, co-founder at Genesis Alternative Ventures, which provides debt funding to startups. “A lot of the pain and the shock that was brought about by Covid-19 is going to come to the fore in 2021.” Their caution comes even as Asian economies begin to bounce back, led by China and India, and as the region’s stocks rally. It contrasts with the bullish forecasts of many capital markets specialists and Western family offices, with some even getting into risky assets such as Bitcoin. JPMorgan Chase & Co. is predicting the strongest global recovery in a decade if vaccine distribution plays out as expected.
Brief: Given the economic instability generated by the ongoing Covid-19 pandemic, European private equity deal activity showed remarkable resilience last year, according to Pitchbook’s 2020 European PE Breakdown. The report found that private equity deal volume rose to a new quarterly peak in Q4 last year, closing more than 1,200 deals for the first time. Both deal value and volume recorded third- and fourth-quarter decade-raging records, respectively, during what proved to be the worst economic climate since the Great Depression in Q2 2020, with 4,179 deals closing for a total of EUR449.1 billion. The European private equity industry held back towards the end of Q1 2020 after starting the year off on a high. As economic and political shocks including the Covid-19 crisis, world wide protests and Brexit chaos ensued, deal activity slowed down in March throughout June last year as GPs paused to reflect and review current portfolios, while holding off temporarily on looking at new deals. Year on year deal volume decreased by more than 30 percent during the second quarter in 2020 as managers focused elsewhere, such as PIPE and minority stake deals, due to lockdowns, restrictions on social gatherings and a sharp drop in global travel.
Brief : KKR & Co Inc aims to attract at least $15 billion for its flagship North America private equity fund, which would make it the second largest amount raised for a fund managed by the U.S. firm, people familiar with the matter said on Thursday. Buyout firms are seeking to tap cheap and plentiful financing for acquisitions amid rising corporate valuations, as economies start recovering from the COVID-19 pandemic. Several investors have committed to KKR’s new fund, North America XIII, the sources said, requesting anonymity as the matter was confidential, adding that the target included money KKR employees would contribute. It will be the largest pool of capital KKR has attracted since its KKR 2006 Fund raised $17.6 billion. A spokeswoman for New York-based KKR, which now has $234 billion in assets under management, declined to comment. KKR Americas XII Fund raised $13.9 billion in 2017 and delivered 20% growth by June 2020, according to the website of Oregon Public Employees Retirement Fund, one of the investors. This means the fund ranks in the top quartile of all private equity funds of that vintage based on its financial performance, according to Cambridge Associates. KKR North America Fund XI raised $9 billion in 2013 and delivered 100% growth by June 2020, the Oregon Public Employees Retirement Fund website said.
Brief: The U.S. economy contracted at its deepest pace since World War Two in 2020 as the COVID-19 pandemic depressed consumer spending and business investment, pushing millions of Americans out of work and into poverty. Though a recovery is underway, momentum slowed significantly as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government. The moderation is likely to persist at least through the first three months of 2021. The economy’s prospects hinge on the distribution of vaccines to fight the virus. President Joe Biden has unveiled a recovery plan worth $1.9 trillion, but some lawmakers have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus in late December. White House economic advisor Brian Deese said the report from the Commerce Department on Thursday underscored the urgency for Congress to pass Biden’s plan, warning that the cost of doing nothing was too high. “Without swift action, we risk a continued economic crisis that will make it harder for Americans to return to work and get back on their feet,” said Deese. Gross domestic product decreased 3.5% in 2020, the biggest drop since 1946. That followed 2.2% growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession.
Brief: Two months after acquiring bathtub maker American Bath Group, Centerbridge Partners decided it was time for an early payout. Days later, Bain Capital cut itself a check from a distributor of building products it had owned for just five weeks. On Wednesday, Clayton, Dubilier & Rice got in on the action, seeking to sell $300 million of junk bonds to take a dividend out of White Cap, a construction firm it acquired three months earlier. Such early dividend payouts are rare in the private equity industry -- and have little to do with an investment charging hard out of the gate. Rather, they’re a product of a surge in demand for high-yield debt that’s pushed borrowing costs for the riskiest debtors to their lowest ever, in a market where almost anything goes. “It’s a case of fear of missing out,” said Matt Freund, co-chief investment officer at Calamos Investments. “The economic outlook has not dramatically changed, but market yields are lower, investors look ahead to the new year with more optimism and new mandates. It all leads to higher risk tolerances.” The average borrowing cost for debt rated just above default -- the kind typically used to finance leveraged buyouts -- dropped on Jan. 21 to 6.42%, its lowest level since records began, according to Bloomberg Barclays indexes. The average yield on junk bonds, in general, hasn’t topped 4.3% since the beginning of the year, and also touched an all-time low this month. That has helped fuel a flurry of new deals that have made January the busiest on record for junk-bond sales in the U.S., with almost $50 billion sold, according to data compiled by Bloomberg.
Brief: Venture capital returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic. As of the third quarter — the latest period for which returns are available — venture capital funds globally had delivered “exceptional performance” for the year, according to a report from eFront, a BlackRock-owned financial software and research company. Data from eFront show that venture capital returns reached a record-high multiple of 1.64x in the second quarter of 2020. These return multiples stayed elevated at 1.63x in the third quarter, eFront said. The company used multiples of invested capital, or TVPI, to analyze venture capital returns. “Thus far, it is difficult to find any impact of the Covid-19 pandemic on the performance of active VC funds,” eFront said in the report. It’s not just venture capital performance that hit all-time highs in 2020. U.S. venture capital funds also set new records in deal making, exits, and fundraising last year, according to a January 14 report from PitchBook and the National Venture Capital Association. The report said that deal value topped $150 billion for the first time in 2020, while exit value hit a record $290 billion after a surge of public listings in the second half of the year. In addition, new venture capital funds raised $73.6 billion in their biggest haul ever, PitchBook and the NVCA said. According to eFront, the new performance heights achieved by active venture capital funds in 2020 are part of a longer trend of increasing multiples over the last decade. “In terms of performance, active VC funds have so far gone from record to record,” the report stated. “This evolution echoes the progression of the valuation of listed tech firms.”
Brief: More than £78m was stolen from investors over the course of 2020 as clone investment firm scams took advantage of pandemic-induced financial worries, according to new data from Action Fraud. The increased prevalence of these scams has led the Financial Conduct Authority (FCA) to issue a warning to investors as part of its ScamSmart campaign. April 2020 saw a month-on-month increase of 29% in these types of scams as the UK entered its first full month of lockdown. Two out of five investors (42%) say they are "currently worried" about their finances due to the pandemic, while three-quarters (77%) either have or plan to make an investment over the coming six months to help improve their financial situation. The FCA warned that even experienced investors could be at risk of these clone firm scams, as despite 75% of investors saying that "felt confident" they could identify a scam, 77% admitted they did not know or were unsure what a clone investment firm was. Over the course of 2020, fraudsters imitating genuine investment firms cost consumers an average of £45,242 each. The FCA issued alerts relating to more than 1,100 firms over 2020, more than double the amount issued in 2019, according to Mark Steward, executive director of enforcement and market oversight at the FCA, who warned investors to check both the FCA Register and Warning List of firms before engaging.
Brief: For once, Main Street is beating Wall Street. In a matter of weeks, two hedge-fund legends -- Steve Cohen and Dan Sundheim -- have suffered bruising losses as amateur traders banded together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up rushing to the aid of a third, Gabe Plotkin, whose firm was getting beaten down. Driven by the frenzied trading in GameStop Corp. and other stocks that hedge funds have bet against, the losses suffered over the past few days would rank among the worst in some of these money managers’ storied careers. Cohen’s Point72 Asset Management declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday. It’s a humbling turnaround for the hedge fund titans, who in 2020 staged a comeback by pouncing on the wild markets caused by the Covid-19 pandemic. But that crisis helped push thousands if not millions of retail traders into the U.S. stock market, creating a new force that for now the professionals seem powerless to combat. And it’s not just the big names: Jack Woodruff’s $2.8 billion Candlestick Capital has fallen 10 to 15% in January on its short wagers, while the $3.5 billion Maplelane Capital lost about 33% through Tuesday in part because of a short position on GameStop, according to investors.
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