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Brief : Blackstone Group Inc. deployed a record $25.4 billion in the fourth quarter, as the world’s biggest alternative asset manager sealed large deals and found opportunities in an economy ravaged by the Covid-19 pandemic. New York-based Blackstone spent $11.7 billion on real estate in the three months ended Dec. 31, and its private equity unit invested $8.2 billion, the firm said in a statement Wednesday announcing their fourth-quarter earnings. The moves show that company’s leaders are making big bets after sitting out the early stages of the pandemic. The statement also showed record assets under management and distributable earnings for the period. “It was our best quarter in the 35-year history of the firm,” Blackstone President Jon Gray said in an interview. Shares rose 0.1% at 12:09 p.m. in New York. The S&P 500 was down 1.8%. The deployment strategy echoes Blackstone’s approach in 2009 when it invested amid the financial crisis and pulled off deals that helped power its rise over the past decade. While the U.S. stock market has been soaring, assets from commercial real estate to travel are struggling as lockdowns and social distancing rules have changed the patterns of everyday life from Los Angeles to Shanghai. The firm continued to bolster its business units, with $32.3 billion of inflows in the last three months of the year. Deals such as Ancestry.com Inc. and the recapitalization of BioMed Realty Trust Inc. helped to shrink piles of cash that have been sitting on the sidelines. Blackstone said Tuesday it would buy a life insurance business from Allstate Corp., adding $27.9 billion in assets to its roster.
Brief: Saudi Arabia’s flagship investment conference began on Wednesday with top global asset managers predicting that 2021 would bring a return to growth as nations get the Covid-19 pandemic under control -- and with it a rise in inflation. “We will see a rebound in growth and a rebound in inflation,” Bridgewater’s Ray Dalio said during the opening panel of the Future Investment Initiative, or FII. “With that, you’re also going to see a pick up in deficits,” leading governments to sell more bonds. That view was shared by BlackRock Chief Executive Larry Fink, who predicted that developed countries would likely reach herd immunity around September. “I think we are going to have a huge amount of job creation, but all these elements are highly potentially inflationary.” Saudi Crown Prince Mohammed bin Salman’s signature event will host top global executives like Goldman Sachs Group Inc.’ David Solomon, Blackstone Group Inc.’s Steven Schwarzman and SoftBankCorp.’s Masayoshi Son.
Brief: Most endowments and foundations believe that a traditional portfolio of stocks and bonds will not meet their return requirements, new data shows. According to results from a TIFF Investment Management survey, only 10 percent of its respondents — all TIFF clients — said they expected a passive portfolio with a 65 percent allocation to stocks and 35 percent allocation to bonds to exceed their return hurdles. TIFF, the nonprofit outsourced-CIO provider that manages $7 billion in assets, is expected to published the survey results on Wednesday with details on how its more than 100 clients view the market. Although most respondents said that the economic conditions created by the Covid-19 pandemic haven’t affected the long-term health of their organizations, the surveyed investors were not optimistic about how the markets are shaping up. Over the next ten years, 41 percent of respondents said they believed equities will fare worse than they did the previous decade. Fifty percent of respondents said the same about bonds. Very few expected the asset classes to outperform the previous decade, with only 8 percent anticipating that equities will outperform, and 5 percent predicting that bonds will. Meanwhile, over a quarter of the respondents said they expect their institutions to increase spending in 2021, the survey showed. Endowments and foundations “are spending more in the middle of a pandemic and they’re going to do it for the next three to five years,” said Kane Brenan, chief executive officer at TIFF, via Zoom Tuesday.
Brief: Sector-specialist M&A advisory firm Ciesco has reported global resilience in the tech, digital, media and marketing sectors in the face of the Covid crisis. Ciesco tracked global M&A activity in these sectors, reporting 1,091 M&A transactions in 2020, with announced deal values of USD55.9 billion. This value excluded the one mega-deal of the year (defined as a deal greater than USD10 billion): the USD27.7 billion acquisition of communication platform Slack by Salesforce. This took place despite a mostly pandemic-induced 19 percent drop in M&A activity last year. Digital Media, Traditional Media and MarTech were the most popular sectors for deal-making, collectively representing over half of all deal volume in 2020. Customer Relationship Management businesses (CRM) saw a 30 percent year-on-year rise in M&A activity. The Private Equity market showed the greatest buoyancy. PE deals in tech, digital, media and marketing represented 37 percent of all M&A activity in 2020. This was down from 42 percent in 2019, but notably higher than 13 percent in 2017. Consultancies, tech companies and holding companies contributed to a diverse buyer universe, joining Private Equity among the Top 10 acquirers. Chris Sahota, CEO of Ciesco, says: “Our report demonstrates the attractiveness of data and technology-driven business models to financial investors, and through last year’s turbulence, businesses are learning to adapt and future-proof their operations. “2021 will be a period of re-invention for many companies. Technology and data will be at the forefront of this evolution, with smart use of data informing decisions across all parts of an organisation. “Global holding networks spent much of 2020 restructuring their operations in the face of declining revenues and took the opportunity to divest under-performing legacy assets. We see a strong appetite for M&A to strengthen technology services, disciplines and geographies.”
Brief: Fewer than four-in-ten (37 per cent) of data scientists in financial services firms currently use AI, machine learning and other advanced technologies in their key analysis and investment processes and workflows, according to new research executed in the UK, US and Asia, for Alveo a solutions provider of managed data services for data mastering and analytics. Conducted among banks, investment companies, insurance firms and hedge funds, the research reveals how the slow adoption of AI and other cutting-edge automation technology is seriously hindering quants and data analysts in their most valuable work. Two-thirds (66 per cent) of respondents say quants and data analysts in their organisation have to spend between 25 per cent and 50 per cent of their time collecting, preparing and quality-controlling data; time they could otherwise have spent on modelling and analysis. Poor data quality also prevents risk managers from making the best use of analytics. Nearly one-in-three respondents (29 per cent) say problems with data quality are most severe in risk management and market making. The benefits of data integration are, however, appreciated by more than a quarter of respondents. 27 per cent agree that improved productivity is one of the main gains from more closely integrating market data and reference data into advanced data analytics – a task vastly accelerated through integration of data using AI and machine learning.
Brief: UK fund buyers have a greater appetite for active and alternative funds than their global counterparts as a means to manage increased volatility, according to research. A survey conducted by Coredata Research found that 77% of those based in the UK are using alternatives for risk management, compared to the global average of 57%. There is a similar disparity in the use of active funds to protect against volatility, a strategy adopted by 65% of UK respondents compared to 47% globally. There was more alignment in the respective views of UK and global funds buyers when it came to predicting volatility for 2021. Covid-19 was identified by 23% of respondents in the UK and globally as the top volatility concern. Similarly, 60% of global respondents expect market volatility to increase in 2021 compared to 54% of UK fund buyers. Andrew Inwood, principal of CoreData, said that fund buyers will continue to favour active strategies and alternative assets in 2021 if, as expected, markets remain choppy. “We will likely see a continued shift to private markets and alternatives as investors seek out uncorrelated sources of return to diversify portfolios and generate alpha,” he said. The survey was conducted in November and December 2020 and canvassed 200 professional fund buyers globally.
Brief : Bridgewater Associates Chief Executive Officer David McCormick, a former U.S. Treasury undersecretary, said policymakers and business leaders are making a mistake trying to return the economy and U.S. society to a pre-pandemic “normal.” “There were some really significant underlying problems with normal,” McCormick, 55, said Tuesday during an interview at Bloomberg’s “The Year Ahead” virtual conference. He cited a lack of social mobility, political polarization, China’s rise as a global power and the U.S.’s ill-defined role in the world as reasons not to embrace the recent past as an ideal. If anything, McCormick said President Joe Biden should pursue policies that reassert American leadership and restore the nation’s sense of opportunity. McCormick, a Republican, served in the Treasury Department under President George W. Bush during the 2008 financial crisis and left in 2009. If he were in government today, he said he’d advocate for better access to education and health care for poorer Americans and collaboration between the public and private sectors that prioritizes innovation. He described both as the “building blocks of power.”
Brief: More pension funds, insurers and asset managers are outsourcing part or all of their dealing desks to specialist traders as they seek to cut costs and adapt their operations to deal with the coronavirus crisis, industry sources say. Last year’s volatility in markets, plunging as the pandemic took hold and rebounding as government stimulus kicked in, meant asset managers spent more time juggling trades and less time on their usual job of long-term asset allocation. Moving some or all of their trading to specialist firms offers access to a larger group of banks and brokers, making it cheaper to execute trades and allowing asset managers to cut trading staff and trading terminal costs, industry sources say. The shift to outsourcing has also been accelerated by changes in working practices brought about by the pandemic. “As we all work from home, people are realising you don’t need to be physically sitting next to the traders to be able to communicate,” said Tom Carroll, head of asset management at British fund manager Sanlam Investments, which outsourced trading to Northern Trust shortly before the pandemic. Carrol said the move meant his company’s 20 fund managers could “focus more on what they’re good at” - picking assets for the long term rather trading through short-term volatility.
Brief: Adapt to survive: this was the message for the asset management sector in 2020, which turned out to be one of the most extraordinary and unpredictable years in living memory. In March, the onset of the Covid-19 crisis and national lockdowns caused stock markets to lose a third of their value in one month, and mobilised an immense digital transformation as swathes of the economy adjusted to home-working. The asset management industry weathered the storm better than most. Assets under management worldwide have risen to exceed USD110 trillion, thanks in part to a remarkable rebound in underlying financial markets, with some indexes recouping their losses in as little as six months. While vaccine roll-outs indicate the pandemic’s end may be on the horizon, many of the changes it has caused are likely to stay – including a ‘lower for longer’ interest rates landscape and competition from passive investing putting more pressure on fees. Arguably the biggest shift asset managers have faced has been the pendulum of investor preferences, which has swung decidedly in favour of sustainable investing. At the start of 2021, a third of all assets under management in the US were held in sustainable strategies, and three quarters of institutional investors in Europe said they plan to stop buying European non-ESG products within the next two years. The story for asset management in 2021 will be over whether it can keep up with the pace of change and thrive in a post–coronavirus world.
Brief: Formidable Asset Management LLC, which gained about 83% last year, said “now more than ever, a nimble, active approach to management is required” for investment success in 2021. “Though we are early in the year, the truly bizarre events, both societally and in terms of markets, seem to be continuing in 2021,” the hedge fund’s Chief Executive Officer William Brown and Chief Investment Officer Adam Eagleston wrote in a letter to clients, seen by Bloomberg. Stocks that were “retail favorites” in 2020 could go still higher this year, they said, “buoyed by further fiscal stimulus and gains from prior winnings rolled forward.” The main contributors to the fund’s 2020 performance were its positions in green energy and electric vehicle-related stocks. According to the letter, some of the winners for the fund in 2020 included Nano One Materials Corp., Flux Power Holdings Inc., Maxar Technologies Inc., Workhorse Group Inc. Some 2020 “heartbreakers” included a position in AMC Entertainment Holdings Inc.’s debt and put options on GSX Techedu Inc. Formidable declined to disclose the size of assets under management. Brown previously served as managing partner of BBK Capital Partners and as senior vice president at Raymond James while Eagleston was formerly a portfolio manager at Driehaus Capital Management LLC.
Brief: The European fund industry saw a deluge of investment in 2020, with net inflows rising by around 61.6%, according to new figures from Refinitiv Lipper. Across the year, overall net inflows into European funds were estimated at 574.3 billion euros ($696 billion), up from 303.9 billion euros in 2019 and vastly outstripping the annual average of 192.7 billion euros between 2004 and 2019. Following a steep plunge in March as the coronavirus pandemic spread throughout the world, global stock markets recovered over the course of the year, due in part to unprecedented fiscaland monetary stimulus from governments and central banks and the later emergence of successful vaccines. The 2020 total also marks the second-highest inflows into mutual funds and ETFs (exchange-traded funds) in the history of the European fund industry. Mutual funds, which enjoyed 483.5 billion euros of inflows, are those which pool money from investors to allocate to stocks, bonds, money market instruments or other alternative assets. ETFs are baskets of securities that tend to track an underlying index and are listed on stock exchanges, trading throughout the day like ordinary stocks, and saw inflows of 90.8 billion euros in 2020.
Brief: For years, active managers blamed a seemingly endless bull market for the rise of low-cost passive investing. But after the market finally crashed last year, investors still favored passive strategies By the end of 2020, investors had pulled more than $250 billion out of active U.S. equity funds, according to Morningstar. Passive U.S. stock funds, meanwhile, bounced back from the March sell-off, attracting a net $9.4 billion over the calendar year. Passive strategies also held steady in Europe, according to Cerulli Associates. Citing Morningstar data, the asset management research and consulting firm said that investors fled actively managed funds at a higher rate in March, causing active strategies to lose 3 percent of their start-of-year assets under management. Passive funds, by comparison, lost 1 percent of their starting assets in March. “Passively managed funds weathered the market volatility of 2020, highlighting the need for active funds to deliver better and more consistent performances in order to slow the erosion of the marketplace,” Cerulli said in a January report. By the end of November, European equity index funds had attracted €91.4 billion ($111 billion) in net flows, according to Morningstar. Passive funds as a whole increased their market share to 20.3 percent of European long-term fund assets as of November, Morningstar said.
Brief :The world economy is facing a tougher start to 2021 than expected as coronavirus infections surge and it takes time to roll out vaccinations. While global growth is still on course to rebound quickly from the recession of last year at some point, it may take longer to ignite and not be as healthy as previously forecast. The World Bank already this month trimmed its prediction to 4% in 2021 and the International Monetary Fund will this week update its own outlook. Double-dip recessions are now expected in Japan, the euro area and U.K. as restrictions to curb the virus’s spread are enforced. Record cases in the U.S. are dragging on retail spending and hiring, prompting President Joe Biden’s new administration to seek an extra $1.9 trillion worth of fiscal stimulus. Only China has managed a V-shaped recovery after containing the disease early, but even there consumers remain wary with Beijing partly locked down. High frequency indicators tracked by Bloomberg Economics point to a troubling start to the year with advanced economies beginning on a weak note and emerging economies diverging. “That’s a reflection of the hard reality that, ahead of widespread distribution of the vaccine, a return to normality is an unlikely prospect,” said Tom Orlik, chief economist at Bloomberg Economics. It’s a stark outlook facing policy makers after $12 trillion worth of fiscal support and trillions in central bank money printing failed to cement a recovery. Those from the Federal Reserve meet this week.
Brief: AMC Entertainment Holdings Inc. got support from private investment firms including Oaktree Capital Management and Centerbridge Partners for a loan that will help the cinema chain avert bankruptcy, according to people with knowledge of the situation. Oaktree and Centerbridge, which specialize in lending to troubled companies, led firms providing the 400-million-pound loan (about $547 million) tied to AMC’s Odeon Cinemas in Europe, the people said, asking not to be identified discussing a private matter. The new loan will be used to refinance existing debt and provide liquidity to cash-strapped AMC, whose audiences have all but vanished amid the Covid-19 pandemic. The deal is part of $917 million of funds assembled since mid-December by the world’s largest movie theater chain as it tries to stay solvent until vaccines bring back customers. Talks are underway with creditors about more financing and waivers, and while AMC said it has enough cash to stay in business through July, company filings show it still may face default claims from lenders and landlords. Representatives for Leawood, Kansas-based AMC didn’t immediately provide a comment. Oaktree and Centerbridge declined to comment. “Success breeds success,” AMC Chief Executive Officer Adam Aron said in an interview Monday. “The reason bankruptcy was on the table was because people were afraid that we would run out of cash. Now that we’ve raised so much cash, bankruptcy is no longer an option.”
Brief: The world’s 20 best-performing hedge funds earned $63.5 billion for clients in 2020, setting a record for the last 10 years during a chaotic time when technology oriented stocks led a dramatic rebound from a pandemic induced sell-off, LCH Investments data show. As a group, the most successful managers earned half of the $127 billion that all hedge funds made last year, LCH Investments, a fund of funds firm that tracks returns and is part of the Edmond de Rothschild group, reported. Despite the pandemic that triggered a historic stock market sell-off in March, shut down large sectors of the economy and swallowed up millions of jobs, the 20 best hedge funds topped their 2019 returns of $59.3 billion. That was despite 2020 not being as profitable as the previous year for hedge funds as a whole, which saw earnings fall from $178 billion in 2019. The average hedge fund returned 11.6% in 2020, according to Hedge Fund Research data, lagging behind the S&P 500 index’ 16% gain. “The net gains generated by the top 20 managers for their investors of $63.5 billion were the highest in a decade. In that sense, 2020 was the year of the hedge fund,” Rick Sopher, LCH’s chairman, said in a statement. Last year’s biggest earners include Chase Coleman’s Tiger Global, which earned $10.4 billion, Israel Englander’s Millennium, which earned $10.2 billion and Steve Mandel’s Lone Pine with $9.1 billion. Andreas Halvorsen’s Viking Global Investors earned $7.0 billion and Ken Griffin’s Citadel earned $6.2 billion, according to LCH data.
Brief: Bridgewater Associates founder Ray Dalio wrote on Twitter on Sunday that the United States is still in a “terrible financial state” and remains “terribly divided”, but added he liked what he heard from President Joe Biden at his inauguration. The hedge fund billionaire wrote that the question was whether the president and both parties in Congress would work together “for peace and prosperity that addresses the big wealth, values, and opportunity gaps we’re now seeing.” Dalio has previously criticized here a widening wealth gap and under-investment in public education in the United States, which he has linked to lower high school graduation rates, greater disparity in test scores, and lower teacher pay.
Brief: The world is witnessing the greatest rise in inequality on record, with the poorest likely to feel the effects of the COVID-19 pandemic for years to come while the “mega rich” have already bounced back, according to Oxfam. That’s the conclusion from a report by the charity, which charts the wealth effects of the deepest slump since the Global Financial Crisis as widespread shutdowns of businesses lead to rising unemployment. “The pandemic has hurt people living in poverty far harder than the rich, and has had particularly severe impacts on women, Black people, Afro-descendants, indigenous peoples, and historically marginalized and oppressed communities around the world,” Oxfam said on Monday. “It is likely that almost every country will see an increase in inequality, the first time since records began.” The report follows in the footsteps of similar analysis by the World Bank, which has warned that the economic crisis is sending a new generation into poverty and debt turmoil. The International Monetary Fund has warned that developing nations may be set back by a decade. Oxfam is urging governments to do more to address inequality, including making tax policies more equitable and canceling developing countries’ debts. The study -- entitled ‘The Inequality Virus’ -- is being published in tandem with the World Economic Forum’s virtual conference, at which politicians and business executives are set to discuss the state of the global economy.
Brief: Not many people would want to leave a steady job to start a new business during a global pandemic. For former Fir Tree partner Aaron Stern, that kind of counterintuitive thinking is par for the course. Stern, who ran distressed, special situations, and event-driven investments at Fir Tree before launching Converium Capital Management last year, says he’s been a contrarian since his father introduced him to investing and let Stern manage the family’s college savings when Stern was still in his teens. “I’m a contrarian and problem solver by nature,” said Stern, in his first interview about Converium, a multistrategy and opportunistic manager based in Montreal. “I’m drawn to companies and situations that are going through changes. When something bad happens, the folks who are closest to the situation, the experts, tend to be the most negatively impacted and don’t want to touch it.” That creates a vacuum that investors like Stern can fill, and it’s a perspective that shapes the new firm’s investment philosophy, he said. Converium has the flexibility to make event-driven investments around the globe, depending on where the team sees opportunities at any particular time. Investments could include, among others, activist situations, distressed debt, and sovereign debt.
Brief : Some of New York’s biggest employers are urging local leaders to let them help with the Covid-19 vaccination effort, arguing that the slow rollout is putting the state’s economic recovery at risk. Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and KKR & Co. were among a few dozen companies that got on a call Thursday with the state’s vaccination czar, Larry Schwartz, to offer their services, according to people on the call. The firms said they can provide distribution and logistics, and could help persuade the Biden administration to boost New York’s vaccine allocation. “Our economy will not recover, and we won’t be able to get people back into the office, until we have good penetration of the vaccines,” Goldman Chief Executive Officer David Solomon said. Wall Street leaders, who have operated from largely empty office towers, are getting increasingly concerned about continued delays that threaten a return to normal operations. New York City has had to cancel thousands of appointments and temporarily suspend 15 community vaccination sites due to vaccine shortages and distributor delays. The city continues to administer the shots, but many hospitals and vaccine sites have stopped offering new appointments for first doses. Appointments for second doses are still being made.
Brief: Citadel Securities went from strength to strength in 2020, as the pandemic spurred wild swings across finance. To cap the tumult, Ken Griffin’s firm, one of the world’s biggest market makers, just posted record revenue -- some of it from a rapidly constructed Florida trading floor. Fourth-quarter net trading revenue of $1.7 billion brought the firm’s full-year total to $6.7 billion, almost double the previous high in 2018, according to a presentation to investors. The surge came after some of its traders decamped from Chicago and New York to set up shop in a Palm Beach hotel in late March as the pandemic upended lives and markets across the globe. The figures for the closely held firm are being disclosed to investors as part of a $2.5 billion loan Citadel Securities is seeking, with proceeds going to refinance debt and bolster trading capital. A representative of Chicago-based Citadel Securities declined to comment. The company’s success comes in a year that was defined by economic pain and despair for many, but will go down as one of the most lucrative environments in Wall Street history. Traders across investment banks profited from volatility sparked by the pandemic and an explosion in stock-market speculation by people cooped up at home on apps such as Robinhood Markets. Citadel Securities’ results also highlight how buttressed it is as a pure trading firm from the health catastrophe, which forced the biggest investment banks to set aside billions to cover future soured loans.
Brief: United Airlines may make the COVID-19 vaccine mandatory for employees, and other companies should do the same, United Chief Executive Officer Scott Kirby told workers at a meeting on Thursday, according to a transcript reviewed by Reuters. A United spokeswoman confirmed that the company was “strongly considering” making vaccines compulsory, though it isn’t a policy yet. “I think the right thing to do is for United Airlines, and for other companies, to require the vaccines and to make them mandatory,” Kirby said. “If others go along and are willing to start to mandate vaccines, you should probably expect United to be amongst the first wave of companies that do it.” CNBC had earlier reported the news of Kirby wanting to mandate the vaccine for employees. Private U.S. companies can require employees to get vaccinated against COVID-19, but are unlikely to do so because of the risks of legal and cultural backlash, experts have said. Companies are still in the early stages of navigating access and distribution of vaccines against the disease caused by the novel coronavirus, but inoculation is considered the key to safely resume operations at crowded warehouses, factory lines and on sales floors.
Brief: During his first full day in office, President Joe Biden on Thursday vowed a “full-scale wartime effort” to address the coronavirus pandemic, which includes a previously announced $1.9 trillion stimulus proposal that calls for spending on vaccine distribution, a $400 unemployment insurance supplement, and $1,400 stimulus checks. The new administration’s commitment to aggressively address COVID-19 came amid news that 900,000 Americans filed new unemployment claims last week — a slight drop from the week prior but an elevated figure otherwise not seen since last August. In a new interview, Democratic New York City mayoral candidate and former Citigroup vice chairman Ray McGuire applauded the Biden administration’s stimulus proposal but emphasized that the scale of the COVID-19 crisis will require additional government support beyond the nearly $2 trillion promised. Stimulus funds must target low-income people, especially those in communities of color that have suffered acutely from the pandemic, he said. “We welcome the assistance,” McGuire tells Yahoo Finance. “We will need more.” “We will need more in order for this country to make sure that it addresses the least of these Americans,” he says. “New Yorkers are suffering from the COVID economy [and] injustices across the system.” “We’ve got the existential crisis,” he adds. “This COVID pandemic has ripped and ripped through our communities and wrought havoc on many communities, especially disproportionately on Black and brown communities.”
Brief: Bainbridge Partners, a $900 million hedge fund firm that relies on algorithms to make its money, is now giving human traders a chance. The London-based money manager is investing $60 million in Andra Asset Management, which uses fundamental analysis to bet on small- and medium-sized companies in Europe, according to a company statement. Bainbridge will also get a stake in the firm co-founded by Sarunas Mazeikis and Jacob Brahms. While the investment is small, it may be another sign of a shift in sentiment in the industry following a volatile year that showed human stock pickers proving their mettle in a global crisis. Discretionary hedge funds such as Brevan Howard, Andurand Capital and BlueCrest posted record gains last year, while some of the best-known quant firms like Renaissance Technologies, Winton and Two Sigma suffered losses. Flesh-and-Blood Hedge Fund Traders Prevailed in 2020’s Tumult Mazeikis, who previous worked at Marble Bar Asset Management, and Brahms, a former employee at Artemis Investment Management, specialize in picking European small and mid-cap equities. Their Andra Absolute Return fund has gained about 17% since its launch in December 2019, according to the statement. “Because of their lower liquidity profile and reduced analyst coverage, small and mid-caps are usually more suited to a discretionary approach,” said Antoine Haddad, chief executive officer of Bainbridge.
Brief: According to newly released research by equity management platform Capdesk, 77 per cent of startup founders are saying that the Covid crisis has made them more likely to offer employee equity in their company. Capdesk is headquartered in London and works with European scale-ups including Secret Escapes, Curve, GoHenry, Privitar, Nutmeg and Gousto. The study found that among employees, founders and CEOs at private equity-backed UK startups and scale-ups, a majority of employees (80 per cent) and business owners (78 per cent) believe companies should be required by law to offer equity share schemes to their workforce. “After an extremely challenging year, it is encouraging to see something positive emerge: a fundamental shift towards distributing business wealth to more of those responsible for creating it,” said Christian Gabriel (pictured), CEO and co-founder of Capdesk. “Leaders are not only recognising the power of unlocking equity to drive their business and get through an economic crisis, but also the positive impact these actions can have on wider society,” he added. The research, which was conducted by Censuswide on behalf of Capdesk, consisted of opinion surveys completed by 200 founders, CEOs and business owners as well as 1,000 employees at private equity-backed startups and scale-ups across the UK in early December 2020. Listen to this interview with Christian Gabriel, co-founder and CEO of Capdesk and Private Equity Wire’s editor Karin Wasteson to find out more about why the pandemic has made it more likely CEOs will offer employee ownership, how it could improve business performance and in what way it might further the post-pandemic recovery.
Brief : The best measure of success for the new U.S. government of President Joe Biden will be the speed at which it rolls out COVID-19 vaccines, BlackRock Chief Executive Larry Fink said on Thursday. Speaking at online event organized by a business forum linked to Italy’s G20 presidency, Fink said he was confident the new administration would focus on sustainability in the first 90 days and smother any tensions with other countries. It’s about ... have America stand again for the principles of democracy ... and multilateralism ... and at the same time be aggressive and forthright in terms of the rollout of the vaccination,” the head of the world’s biggest asset manager said. Fink said it was a priority to rebalance the economy given the uneven impact of the pandemic across different sectors, but that could not happen until the population reached herd immunity and industries built on “aggregation” could be revived. “The economy will accelerate ... (once) we feel safe and secure again,” he said.
Brief: Amazon is offering its colossal operations network and advanced technologies to assist President Joe Biden in his vow to get 100 million COVID-19 vaccinations to Americans in his first 100 days in office. “We are prepared to leverage our operations, information technology, and communications capabilities and expertise to assist your administration’s vaccination efforts,” wrote the CEO of Amazon’s Worldwide Consumer division, Dave Clark, in a letter to Biden. “Our scale allows us to make a meaningful impact immediately in the fight against COVID-19, and we stand ready to assist you in this effort.” Amazon said that it has already arranged a licensed third-party occupational health care provider to give vaccines on-site at its facilities for its employees when they become available. Amazon has more than 800,000 employees in the United States, Clark wrote, most of whom essential workers who cannot work from home and should be vaccinated as soon as possible. Biden will sign 10 pandemic-related executive orders on Thursday, his second day in office, but the administration says efforts to supercharge the rollout of vaccines have been hampered by lack of co-operation from the Trump administration during the transition. They say they don’t have a complete understanding of the previous administration’s actions on vaccine distribution.
Brief: Deluged by client orders and often working from home, Goldman Sachs Group Inc.’s workforce generated 15% more revenue per employee during the tumult of 2020. But as the year wound down, the firm had spent an average of just 2% more on each person. Inside JPMorgan Chase & Co.’s investment bank, revenue per employee surged 22%. The figure for pay: up 1%. For months, the question has hung over the industry: How would investment banks reward workers hauling in a windfall during a pandemic spreading pain and economic disparity? The answer -- at least broadly -- is not so lavishly. While few big U.S. banks disclose figures revealing how they compensated Wall Street-oriented workforces, the few that do offered striking snapshots of restraint. Even companywide figures at major banks hint at similar trends. And no wonder: Earnings reports in recent days underscored anew how hard 2020’s tumult battered other business lines such as lending, where banks stockpiled tens of billions to cover bad loans. Despite the flurry of activity on Wall Street, total revenue at the nation’s six banking giants was little changed last year. The group boosted average pay per employee by a mere $271. Now those same firms are bracing for tougher times in Washington, where Democrats skeptical of large financial-industry paychecks are ascendant. From President Joe Biden’s recent picks of veteran watchdogs -- such as Gary Gensler for the Securities and Exchange Commission and Rohit Chopra for the Consumer Financial Protection Bureau -- to his focus on inequality, there are signs the industry faces both tougher scrutiny and regulation.
Brief: The coronavirus pandemic has brought considerable challenges to the way hedge funds and asset management firms do business, with far-reaching consequences for cybersecurity, data safety and business communications. The need for fully flexible working around the pandemic continues to change. Collaboration tools have been key to successful working environments as staff need to work in the same way and securely, regardless of location.In the early stages of the pandemic, the major tech challenges centred around endpoint security. Individuals may have been using personal devices for professional purposes, and the prevalent model was of decentralised security and centralised data. We no longer look to secure a network or server in the same way. Endpoint security is now key, and every device needs security protection. With so many entry points to firms' applications and data, managing the security at the end point has been at the forefront since early 2020 across the sector. These challenges have generally been overcome across the market, and RFA has been ahead of the curve with our MDR and AI tools. Most of our clients were already using an iteration of the cloud to harness their data, but some have advanced their programmes to embrace what the cloud can offer in terms of data management. RFA have always been supporters of a public or hybrid cloud offering, and by having our own Security Operations Centre (SOC) we offer an end-to-end secure cloud-based solution to our clients which has helped them – and us – during the upheaval of the past 12 months. The hedge fund community faced the challenges of 2020 head-on, and I have every confidence that it will do the same through 2021.
Brief: The latest Enterprise Software M&A report from Hampleton Partners, an international technology mergers and acquisitions adviser, reveals that the number of deals targeting enterprise software assets has jumped, with 836 deals recorded in the second half of 2020 compared to 641 deals in the first half of the year. Total transaction value disclosed across all deals in the space was also sky-high, reaching USD112 billion – the highest amount on record. Valuation multiples remain healthy but have dipped slightly: the trailing 30-month median EV/S multiple came in at 3.4x, while the EV/EBITDA came in at 14x. This is possibly because the pandemic motivated sellers to decrease pricing to a more appetising level for buyers earlier this year. Meanwhile, the second half of 2020 saw the highest recorded share of private equity and financial buyer transactions: 38 per cent of all deals were carried out by financial buyers, up from 34 per cent in 2018 and 33 per cent in 2019. Miro Parizek, founder, Hampleton Partners, says: “The new circumstances and challenges around Covid-19 have created opportunities for software services.
Brief: State Street Corp. is preparing to lay off staff, a plan revealed about a month after media reports that the firm is considering a sale of its asset management business. During an earnings call on January 19, State Street’s chief financial officer said that the firm is eliminating about 1,200 positions, mostly in middle management. Last month, Bloomberg and the Wall Street Journal reported that the firm was exploring options for its State Street Global Advisors, including a possible sale of the more than $3 trillion asset manager to UBS Group. The roles State Street plans to eliminate are primarily a result of changes to its operating model and business process, as well as automation, Brendan Paul, a spokesperson for the firm said in an email Wednesday. According to Paul, the employees whose roles have been eliminated will be entered into State Street’s talent pool and may be “redeployed” to new roles. “At the onset of the pandemic, we committed to suspending headcount reductions through 2020 in order to provide our employees with some security during a time of tremendous economic uncertainty,” Paul said. At that time, the company built an internal talent network, which helped to keep more than 3,000 employees working for State Street in 2020, Paul said. State Street expects to spend $82 million on employee severance charges, its financial highlights report shows. During the earnings call, State Street’s president and chief executive officer Ronald O’Hanley declined to comment on “market rumors,” but he did say that the firm’s asset management business is strong thanks to organic growth. “We see the world evolving, and therefore we need to think about how to add capabilities, both product and distribution capabilities, or distribution access to this,” O’Hanley said. He added that the firm would “continue to look at inorganic activities” for State Street Global Advisors.
Brief : Long-term US Treasury yields are predicted to rise even higher with a steeper yield curve as the economic outlook improves, with President-elect Joe Biden set to inject fresh fiscal stimulus after his inauguration on Wednesday. Last week, yields on US 10-year debt reached their highest levels since March, rising to 1.17 per cent as expectations of a return to higher inflation and economic growth prompted investors to sell longer-dated government debt. The yield curve also steepened to levels not seen since 2016, according to ratings agency S&P. Investor optimism was sparked initially by the outcome of run-off elections in Georgia favouring the Democratic Party, which is expected to help Biden push through a planned USD1.9 trillion relief package to support the US economy while vaccines are rolled out. Support for the stimulus package came from Biden’s nominee for Treasury Secretary, former Federal Reserve chair Janet Yellen, who said the “smartest thing we can do is act big” as she outlined the plan before the Senate finance committee on Tuesday. If passed by Congress, relief would include direct payments of USD1,400 to all Americans, in addition to USD440 billion aid for small businesses, and USD415 billion for fighting the virus. Brad Tank, CIO of fixed income at US-based asset manager Neuberger Berman, says that yields have risen rapidly in 2021, and are likely to keep going up. Tank says that so far there has been a “fairly orderly adjustment of bond prices to improved growth and inflation expectations”. US 10-year Treasury yields have doubled since August and currently hover around 1.10 per cent yield, with almost 20 basis points of that increase coming since the start of this year.
Brief: Morgan Stanley boosted both its short and long-term operating targets on Wednesday after coronavirus-induced volatility in financial markets helped the Wall Street bank post a quarterly profit that sailed past estimates. The company also confirmed plans to buy back $10 billion of shares this year, more than three times the figures announced by its retail banking peers, as it wrapped up results for U.S. lenders, which pointed to a modest rebound in the economy. “We are in the growth phase of this company for the next decade,” Morgan Stanley Chief Executive Officer James Gorman told analysts on a conference call. Morgan Stanley increased its two-year target for return on tangible equity to 14%-16%, from an earlier forecast of 13%-15%. The metric measures how well a bank is using its capital to produce profit. The company also raised its longer term target for the same metric to more than 17%, from its previous outlook of 15%-17%.
Brief: The annus horribilis that was 2020 in which payouts from UK companies were slashed by more than 40%, could be a positive development if it leads to a more sustainable dividends market, according to UK fund managers. The idea of a positive reset for UK dividends was part of a cautiously optimistic response to the latest dividend figures. While managers acknowledged they are the lowest since 2011, they also pointed to signs of a slight recovery in Q4 and the hope that the vaccine rollout will spark a recovery in both earnings and dividends over the next year and beyond. According to the UK Dividend Monitor produced by Link Group, UK dividends fell by 44% in 2020 to £61.1 billion, effectively wiping off eight years of growth. The headline dividend figures were the lowest since 2011. Unsurprisingly, Covid-19 accounted for £39.5 billion of the cuts with 67% of companies either cancelling or reducing their dividends between Q2 and Q4. Link’s figures also show that the financial services sector was by far the most affected sector in 2020 with £16.6 billion of dividends either cut or cancelled between April and December, equivalent to two-fifths of the Covid-related cuts.
Brief: Private-equity investors in southern Africa are closing deals again after a virus-induced lull, tapping a cash pile that stood at more than 30 billion rand ($2 billion) in June, according to an industry association. Businesses in the education, health care and retail sectors operating online are among the top picks for investors seeking to take advantage of market gaps amplified by the Covid-19 pandemic, Tanya van Lill, chief executive officer of the Southern African Venture Capital and Private Equity Association, said by phone. “From a venture-capital perspective, we are seeing a lot of activity in East Africa and West Africa, specifically in Nigeria and Kenya, where there has been investment in the fintech, agritech and insuretech space,” Van Lill said. “From a private-equity perspective, it’s fairly equal across the continent, though we are seeing a lot of activity in North Africa.” Prior to the pandemic, private-equity capital was increasingly allocated to infrastructure and energy projects in the region. However, lockdown restrictions imposed as a result of the virus meant firms couldn’t get on the ground to perform due diligence processes and close deals. They also battled to raise funds and sell out of investments, Van Lill said.
Brief: The success of short sellers during the pandemic appears tied to their health-care expertise and information processing skills, according to a paper from researchers in Germany and Australia. The Covid-19 pandemic is a “health-care crisis by nature,” making health-care-related information valuable across industries and a competitive edge for some short sellers, said Karlsruhe Institute of Technology researchers Levy Schattmann and Jan-Oliver Strych and University of Sydney business school professor Joakim Westerholm in a paper this month. They found short sellers with health-care expertise outperformed a control group that lacked it in their general market trading. The study drew from a German sample of daily short-selling data from November 1, 2012 through June. The researchers covered 266 different short sellers and 214 different stocks, “including a range of well-known brokers and hedge funds like J.P. Morgan or Renaissance Technologies,” according to the paper. As volatile markets moved fast last year as a result of the Covid-19 pandemic, short sellers’ health-care expertise and ability to process aggregate information became more important to producing superior returns than having insight into specific companies, the researchers found.
Brief: Qatar Investment Authority is generating strong returns on a multi-billion dollar bet it made on distressed debt and highly rated bonds at the start of the COVID-19 crisis, two sources familiar with its move said. QIA, a sovereign wealth fund with assets of $300 billion, owns department store owner Harrods and stakes in Barclays and prime properties such as Canary Wharf in London, bet that investment grade bonds would rebound from lows hit in March, investing in both sovereigns and corporates, they said. It was not alone in such a shift, as sovereign wealth funds invested a net $4.5 billion across U.S. fixed income in the third quarter of 2020, the most since at least the end of 2017, latest data from eVestment shows. The S&P 500 Investment Grade Corporate Bond Index has gained about 20% since hitting a low of 417.88 in mid-March. And in a departure from its previous portfolio purchases, QIA also put significant sums into so-called distressed credit, including funds that help struggling companies.
Brief : Goldman Sachs Group Inc dwarfed Wall Street estimates as its fourth-quarter profit more than doubled, powered by another blowout performance at its trading business and a surge in fees from underwriting a series of blockbuster IPOs. Revenue from global markets, which houses the bank’s trading business, registered its best annual performance in a decade as investors churned their portfolios at the end of a roller-coaster year for financial markets amid the COVID-19 pandemic. Trading, Goldman’s main revenue-generating engine, surged 43% annually. On a quarterly basis, revenue from the unit jumped 23% to $4.27 billion. Investment banking revenue jumped 27% to $2.61 billion during the quarter, driven mainly by equity underwriting, which was up 195% from the same period last year. Equities trading and investment banking revenues both comfortably beat forecasts, Oppenheimer analyst Chris Kotowski said. “It was an exceptionally strong quarter,” he said. The bank’s shares surged 2.6% in early trading, adding to a 20% gain in the past year. Goldman’s shares hit a record high of $307.87 last week, giving it a market cap of over $100 billion. Total revenue climbed 18% to $11.74 billion. The bank’s net earnings applicable to common shareholders rose to $4.36 billion, or $12.08 per share, in the quarter ended Dec. 31. Analysts had expected a profit of $7.47 per share on average, according to IBES data from Refinitiv.
Brief: The coronavirus has exposed the “catastrophic effects” of ignoring long-term risks such as pandemics, and the economic and political consequences could cause more crises for years to come, according to the World Economic Forum. The WEF’s annual survey of global risks lists infectious disease and livelihood crises as the top “clear and present dangers” over the next two years. Knock-on effects such as asset bubbles and price instability lead concerns over three to five years. The WEF said most countries struggled with crisis management during the pandemic, despite some remarkable examples of determination and cooperation. That highlights how leaders need to prepare better for whatever the next major shock turns out to be. “The immediate human and economic cost of COVID-19 is severe,” the WEF said in the report. “The ramifications -- in the form of social unrest, political fragmentation and geopolitical tensions -- will shape the effectiveness of our responses to the other key threats of the next decade.” While the impact of the pandemic is dominant at the moment, other events will likely come to the fore, according to the survey. As in previous years, extreme weather is seen as the most-likely risk, just ahead of a failure on climate action. Infectious diseases make the top five for the first time in at least a decade. Digital inequality and the concentration of digital power are also seen as major concerns, with WEF Managing Director Saadia Zahidi warning of a global “bifurcation in terms of growth and development.”
Brief: A report by the Association for Financial Markets in Europe (AFME) and PwC reveals that an equity shortfall of up to EUR600 billion threatens Europe’s economic recovery despite the significant public support measures and private capital made available across Europe to support economies during the pandemic.AFME is calling on the European Commission and members states to introduce measures to bolster Europe’s equity and hybrid markets and expand funding avenues for businesses, further enabling Europe’s economic recovery In a report published today (19th) in partnership with PwC, AFME warns that Europe needs to bridge a gap of EUR450-600 billion in equity needed to prevent widespread business defaults and job losses as Covid-19 state support measures are gradually reduced. The report Recapitalising EU businesses post Covid-19 reveals that despite the support provided by governments and the private sector since the start of the pandemic, 10 per cent of European companies have cash reserves to only last six months. The pan-European trade association is calling on authorities to explore and develop further short-term measures to support Europe’s equity and hybrid markets and accelerate the Capital Markets Union to help fund the recovery. Unless urgent action is taken, a spike in insolvencies could start as early as this month and threaten the EU’s recovery prospects, AFME warns.
Brief: Investors have been flocking to hedge funds, an area of alternative investing viewed as a volatility dampener and portfolio diversifier, as markets move toward a post-pandemic world, according to JPMorgan Chase & Co. J.P. Morgan Asset Management saw record capital flowing into its hedge funds during the last two weeks of 2020 and into the first half of January, according to Anton Pil, the global head of the bank’s alternative investing arm. Investors are viewing hedge funds as a counterweight to stretched valuations in equities, embracing them as a diversification strategy on the expectation that they will produce more yield than fixed income, Pil said in a phone interview. “They’ve done something which took a long time,” he said of hedge funds, an asset class that had been out of favor with investors. “They delivered returns that have a low correlation to both fixed income and equity,” Pil explained, while generally providing “pretty significant excess returns over cash.” J.P. Morgan Asset Management’s hedge fund strategies last year produced returns ranging from high single digits to more than 20 percent, Pil said. Investors, meanwhile, face tough challenges finding yield, with the firm forecasting that a traditional portfolio consisting of 60 percent stocks and 40 percent bonds will return 4.2 percent annually over the next 10 to 15 years. The best opportunities for alternative investing have shifted significantly over the past year, according to J.P. Morgan Asset Management’s 2021 Global Alternatives Outlook report, which is expected to be released Tuesday. While hedge funds remain among the “opportunity set” laid out by bank’s alternative asset management arm for the next 12 to 18 months, subordinated credit and real assets have now entered that framework, as well.
Brief: M&A valuations are soaring, with rich valuations and intense competition for many digital or technology-based assets driving global deals activity, according to PwC's latest Global M&A Industry Trends analysis. Covering the last six months of 2020, the analysis examines global deals activity and incorporates insights from PwC's deals industry specialists to identify the key trends driving M&A activity, and anticipated investment hotspots in 2021. In spite of the uncertainty created by COVID-19, the second half of 2020 saw a surge in M&A activity. "Covid-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalisation and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen — creating a highly competitive landscape for the right deals," says Brian Levy, PwC's Global Deals Industries Leader, Partner, PwC US. Dealmaking jumped in the second half of the year with total global deal volumes and values increasing by 18 per cent and 94 per cent, respectively compared to the first half of the year. In addition, both deal volumes and deal values were up compared to the last six months of 2019. The higher deal values in the second half of 2020 were partly due to an increase in megadeals (USD5 billion+). Overall, 56 megadeals were announced in the second half of 2020, compared to 27 in the first half of the year. The technology and telecom sub-sectors saw the highest growth in deal volumes and values in the second half of 2020, with technology deal volumes up 34 per cent and values up 118 per cent. Telecom deal volumes were up 15 per cent and values significantly up by almost 300 per cent due to three telecom megadeals.
Brief: Wall Street power player Rob Arnott — the founder of influential money manager Research Affiliates who is known to challenge conventional thinking in markets — is out with a double barreled warning to market bulls who continue to print money during the pandemic on the back of gobs of fiscal and monetary stimulus. First, don’t forget the long-term ramifications of government spending. At some point, that money is going to have to be paid back and Mr. Market won’t dig that. And secondarily, remember the health of Main Street remains detached from the bullish realities of Wall Street this past year during the health crisis. “Applying the word stimulus to spending large quantities of money on a fiscal basis that we don’t already have — creating new money from the central bank — it all feels good. Stimulus, think of it as a little bit like heroin. I have heard that heroin feels good, but it doesn’t do you a lot of good long-term,” explained Arnott on Yahoo Finance Live. The reduced spending from the lockdowns paired with the fiscal and monetary so-called stimulus, pours money into the markets. There is no alternative. With zero yields you may as well go into the markets at any price creating bubbles. And when fiscal and monetary stimulus don’t promote spending in the macro economy, it does into Wall Street and not Main Street.” Arnott founded Research Affiliates in 2002 and it has about $145 billion in assets under management.
Brief : President-elect Joe Biden has picked a pair of veteran regulators strongly backed by progressive Democrats to lead two key Wall Street watchdogs, signaling that his administration is planning tough oversight after four years of light-touch policies under appointees of President Donald Trump. Former Commodity Futures Trading Commission Chairman Gary Gensler will be nominated to lead the Securities and Exchange Commission and Federal Trade Commission member Rohit Chopra is being tapped to lead the Consumer Financial Protection Bureau, Biden’s transition team said Monday… The selections follow weeks of intra-party wrangling over the financial regulation posts between moderate Democrats and those on the party’s left wing who want to see a sharp departure from business-friendly policies advanced during the Trump administration. They are bad news for the banking industry, which has been bracing for the prospect of stiffer rules since Biden was elected in November. Gensler, 63, is a former Goldman Sachs Group Inc. partner who gained a reputation as a Wall Street scourge when he engaged in bruising battles while advancing derivatives regulation at the CFTC during the Obama administration. Chopra, 38, is an acolyte of Massachusetts Senator Elizabeth Warren who helped her set up the CFPB before she ran for office.
Brief: Investment in biotech is booming. In Europe, the biotechnology and healthcare sector accounted for 20% of overall private equity investment in the first half of 2020, according to data from funds trade body Invest Europe. Investors in the field are faced not only with financial and ethical dilemmas, but the risks posed by the presence of bad actors. Andrew Hessel, a microbiologist, tells the latest issue of Funds Europe that, as with all developing technologies, the risks entailed are ever-evolving. “The core of the technology is agnostic, it’s human intention,” he says. “There’s always the potential for harm.” Hessel is chairman of Genome Project-write, a collaborative research effort focusing on large-scale synthesis and editing of genomes. A geneticist himself, he says molecular science is evolving dramatically, with scientists able to write genetic code to their own design, for example, and the programming of synthesised viruses to destroy cancer cells using computer-aided design. 20 years on since scientists sequenced the human genome, and concepts such as designer babies are no longer science-fiction. Agustin Mohedas, senior research analyst specialising in biotechnology at Janus Henderson, highlights that a moral line in the ground has been drawn when it comes to ‘biohacking’ embryos.
Brief: K2 Advisors, the hedge fund investing unit of Franklin Templeton, says active-management alpha will be critical to hedge funds’ success this year, as the global economy mounts a tentative recovery from the coronavirus pandemic. Brooks Ritchey and Robert Christian, co-heads of investment research and management at K2, said the Covid-driven economic slowdown appears to be nearing an end, as individuals and corporations have been able to weather the economic storm partly due to “enormous stimulus” from governments. But they warned that vaccination challenges, virus mutations, subsequent waves of new infections, and renewed lockdowns could derail the recovery. That, in turn, could keep volatility and dispersion elevated, creating opportunities for active management. K2 Advisors’ first-quarter Q1 hedge fund strategy outlook suggested inflation “will inevitably surface” if earnings, growth and sentiment jump the gun on the recovery, though a period of reflation without inflation could boost equities. “Our underlying hedge fund managers are identifying many opportunities, both on the long and short side, and think that active-management alpha will be key to success in 2021 as beta-driven momentum slows,” the pair observed in the commentary.
Brief: To find out how finance executives are getting through the pandemic, Bloomberg Markets asked three leaders about some of their habits and recommendations. Here are their responses. Lori Heinel: Deputy global chief investment officer, State Street Global Advisors What is your morning routine? I’m generally awake at 5 a.m. On a good day, I hop on the stationary bike or elliptical trainer while I am reading through the news or catching the morning broadcast. What did you get to do during the pandemic that you wouldn’t have done otherwise? I’ve been doing a lot more cooking—baking bread, trying new recipes, and cooking (and delivering) meals for family members and close friends. Where are you most eager to travel for nonwork reasons? I can’t wait to go to Colorado or Utah to ski! A very close second is Iceland. When the pandemic is over, how will your life be different than it was before? I’ve learned to slow down a bit. I got a bird feeder a few months back, and every time I look out the window, watching the birds dive in, seeing the different species, it makes me smile.
Brief: China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a rough coronavirus-stricken 2020 in remarkably good shape and remained poised to expand further this year even as the global pandemic rages unabated. Gross domestic product grew 2.3% in 2020, official data showed on Monday, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic. And China is expected to continue to power ahead of its peers this year, with GDP set to expand at the fastest pace in a decade at 8.4%, according to a Reuters poll. The world’s second-largest economy has surprised many with the speed of its recovery from the coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts. Beijing’s strict virus curbs enabled it to largely contain the COVID-19 outbreak much quicker than most countries, while government-led policy stimulus and local manufacturers stepping up production to supply goods to many countries crippled by the pandemic have also helped fire up momentum. GDP expanded 6.5% year-on-year in the fourth quarter, data from the National Bureau of Statistics showed, quicker than the 6.1% forecast by economists in a Reuters poll, and followed the third quarter’s solid 4.9% growth.
Brief: Prophet Capital Asset Management LP, an investor in loans and structured credit securities with $2.5 billion in assets, has restructured a hedge fund that had been rocked by March’s market turmoil, a company executive said on Friday. Reuters reported in March that Prophet Capital, based in New York and Austin, Texas, had temporarily blocked investor withdrawals from its Prophet Opportunity Partners LP fund with a view to ultimately dissolving it, amid extreme volatility sparked by the onset of the coronavirus. The fund primarily held high-yield collateralized loan obligations (CLO), which were hard hit amid fears over the widespread risk of corporate loan defaults stemming from pandemic lockdowns. The CLO market has since rebounded dramatically, allowing Prophet Capital to raise new cash for the fund and let investors redeem their money, said the firm’s partner David Rosenblum. Effective Jan. 1, the fund has allowed investors three options: to cash out at net asset value, remain invested but sell their legacy assets over time, or reinvest with a two-year lockup that would make it easier to manage the fund through times of extreme volatility, said Rosenblum. The restructuring underscores how default rates in the leveraged loan market have been far lower than feared, thanks largely to extraordinary interventions by the U.S. Federal Reserve.
Brief : Wall Street’s worst fears about the fallout from Covid-19 are receding. Three of the biggest U.S. lenders -- JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. -- cut their combined reserves for losses on loans by more than $5 billion, helping fourth-quarter profit top estimates even as they faced headwinds from low interest rates. While posting results Friday, executives expressed guarded optimism about fiscal stimulus and rising vaccinations during a pandemic in which delinquencies have remained low. Still, the banks warned the economy isn’t out of the woods yet. Six of the largest U.S. banks urgently set aside more than $35 billion to cover loan losses in the first half of 2020 with the message that they simply had no idea what to expect. Now, banking chiefs are pointing to prospects for a rebound this year. Unprecedented action from the Federal Reserve and lawmakers have allayed the worst-case scenarios. “We’ve seen further improvement on both GDP and unemployment,” Citigroup Chief Financial Officer Mark Mason told reporters on a conference call, referring to gross domestic product. There are a lot of favorable indicators that “make for a more positive outlook in 2020 and hopefully a continued, stable recovery,” he said. Beyond vaccines, he pointed to more clarity on the next U.S. presidential administration and prospects for additional stimulus.
Brief: KKR & Co.’s Henry McVey is advising investors to buy “tail risk” protection against the potential for low-probability events, like the dollar losing its status as the world’s reserve currency or a sudden spike in interest rates. The strategy is a form of financial insurance that typically pays off in the event of sudden selloffs, such as the pandemic-driven market chaos of last year. While McVey anticipates the current mix of economic trends and policy will drive a strong rebound in growth, he’s wary after the recent run-up in asset prices and the increase in Treasury yields. “There are two or three things that could go wrong against a generally constructive backdrop,” KKR’s head of global macro and asset allocation said in an interview on Bloomberg Television. Besides the potential loss of confidence in the dollar and a disorderly increase in rates, McVey also highlighted the “black swan” risk of a major disappointment in corporate earnings that could make investors re-evaluate equities. However, he thinks the probabilities remain low. Tail-risk hedging is a small industry that includes LongTail Alpha in Newport Beach, California, and Universa Investments, a Miami-based firm advised by Nassim Taleb, the former options trader who wrote the 2007 bestseller “The Black Swan.” The LongTail Alpha hedge fund gained 10-fold in March, rewarding investors who bought protection against a market collapse.
Brief: The ‘social premium’ for investing in companies with good or improving social practices is rising, according to new research from US-based asset manager Federated Hermes. In 2020, social factors were found to add up to 17 basis points each month to returns, which is two basis points higher than the result of a previous study in 2018. Lewis Grant, senior global equities portfolio manager at Federated Hermes, says that this increase reflects the fact that 2020 was a “huge turning point in society that brought some really difficult and ingrained issues to the fore”. The impact of the coronavirus pandemic and the growth of the Black Lives Matter movement after the death of George Floyd at the hands of police in the US, both helped accelerated the trend toward social investing. “We were already seeing an increase in the importance of social factors. I think that's just what's happening in the world,” says Grant. General sustainable funds have grown rapidly in recent years, with sustainable investment now accounting for a third of all assets under management in the US. When Federated Hermes first started researching the topic of sustainability premia several years ago, Grant says they did not find any statistical relationship between returns and social factors at all, only for governance factors. Social factors include a company’s treatment of its staff, rates of employee turnover, health and safety in the workplace, and supply chain standards.
Brief: Following the initial uplift from the announcement of a Covid-19 vaccine, markets have slowed, caught between optimism for the 2021 outlook and short-term concerns around the second wave impact. However, we expect a positive kick-off for risk assets in 2021, with conditions ripe for a co-ordinated acceleration of global growth. Over the next three to six months, as vaccine rollouts allow economic activity to resume, the return of growth and inflation will offer a temporary relief from the global economy's long-term state of 'Japanification'. This macro reflation scenario has been confirmed week after week by economic data and is supported by the promise of ongoing accommodative support from central banks. Nevertheless, we do not expect the reflation to evolve in a straight line, with Brexit a potential bump along the road, and investors need to be mindful of ongoing volatility. Moreover, if we head into 2021 with a strong rally, this will be difficult to sustain - and investors will have to be quick to capitalise. The ongoing global recovery fuels a pick-up in global trade and especially Asian exports, similar to the previous 'reflation' episode in 2016-17. The global pandemic drove a wedge between equity sectors, starkly separating winners from losers. The technology and online retail sectors outperformed during the pandemic, as working from home and e-commerce accelerated demand for these firms.
Brief: Standard Chartered Plc is preparing further job cuts as the emerging markets lender continues a restructuring that was postponed by the onset of the pandemic. The London-headquartered bank is expected to cut several hundred staff next month across its global businesses, with the reductions focused on more junior employees, according to people familiar with the matter. The bank has about 85,000 employees around the world. Job cuts restarted in the second half of last year as Standard Chartered, like other major lenders, faced pressure to curtail costs to cope with the impact of the pandemic. It’s one of a handful of large European banks who have resumed job reductions in the past months including HSBC Holdings Plc and Deutsche Bank AG. “A number of roles are being made redundant in line with our commitment to transforming the bank to ensure its future competitiveness, work that has been underway for the last few years,” Standard Chartered said in a statement. In July, the company said it was making a “small number of roles” redundant. Since then, several senior managers have left, including Didier von Daeniken, the head of its private banking arm. Standard Chartered Chief Financial Officer Andy Halford said in October that the firm needed to improve returns and its goal of achieving a 10% return on equity had been pushed back by Covid. The lender has said it will consider resuming dividend payments to investors after the Bank of England started to relax pandemic-related curbs in December.
Brief: The pandemic has upended the U.S. economy and it has also had a far-reaching effect on Silicon Valley, the venture capital industry and the entrepreneurial ecosystem in America. According to PitchBook’s 2021 US Venture Capital Outlook report that was released late last month, the Bay area’s share of total VC count in the U.S. will fall below 20% for the first time in history, while other cities around the country grab larger amounts of equity capital for their home-grown innovators. In 2020, $27.4 billion of venture capital was raised in the U.S., PitchBook reports. Of the total, 22.7% of the dealmaking occurred in the Bay Area, and 39.4% of deal value was invested in Bay area-headquartered companies. “The Covid-19 pandemic and subsequent exodus from San Francisco will only exacerbate this trend,” said PitchBook’s analyst Kyle Stanford. He notes that Silicon Valley’s share of venture capital deal count in the U.S. has fallen every year since 2006. The forces driving the continued shift: the rise of remote work during the pandemic, the high cost of living in the Valley, and the fact it’s become more expensive to finance start-ups in the Bay area. Another factor is the fact that many investors have left — either temporarily working from home or relocating all together. For example, 8VC has made 70% of its investments in California-headquartered companies, yet it moved its own headquarters from San Francisco to Austin in November.
Brief :BlackRock Inc’s, quarterly results topped analysts’ expectations on Thursday, buoyed by a rising stock market that boosted the firm’s assets under management to a record high $8.68 trillion, further widening its lead against peers. The firm drew $127 billion of total net inflows in the fourth quarter as investors poured money into its various business, including its exchange-traded funds, as well as active funds that aim to beat the market. “We begin 2021 well-positioned and intend to keep investing in our business to drive long-term growth and to lead the evolution of the asset management industry,” BlackRock’s chief executive, Larry Fink, said in a statement. Financial markets rallied in the fourth quarter, building on sharp gains of the prior two quarters, as accommodative global central bank policy and improving growth prospects helped lift investors’ risk appetite. While rallying stock markets provided a powerful boost to BlackRock’s results, the profit report showed outsized growth in inflows at a time when the rest of the industry is expected to struggle with redemptions.
Brief: The incoming US administration led by Joe Biden will be a “crucial” factor looming large over the healthcare industry this year, with planned reforms heralding potentially far-reaching implications for healthcare stocks and drug prices, Rhenman & Partners Asset Management said this week. Rhenman’s flagship Healthcare Equity Long/Short hedge fund gained 17.1 per cent in its main euro-denominated IC1 share class last year, bolstered by a 4.8 per cent monthly return in December. The strategy – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company stocks – made profits in each of those sectors last month, with medical technology and biotechnology companies bringing in the biggest gains. In an update this week, the Stockholm-based global healthcare-focused hedge fund said once the fall-out from the coronavirus pandemic is brought under control, the Biden administration’s proposed healthcare reforms will come under closer re-examination this year. While the Senate is now controlled by the Democrats, Rhenman believes major new healthcare reforms may prove tricky to push through with a weak majority.
Brief: Wells Fargo & Co Chief Executive Charlie Scharf will give investors more details on his long-awaited turnaround plan for the scandal-plagued bank this week. Although Wall Street expects Wells Fargo to report a 38% profit decline on Friday against the backdrop of the coronavirus pandemic, investors have become more bullish in anticipation of details about expansive cost-cutting plans. Wells Fargo shares have jumped 45% since Scharf teased a strategic update in October, outperforming JPMorgan Chase & Co and Bank of America Corp. Wells Fargo management has promised transformation since its 2016 fraudulent account scandal with little to show for the effort, but it feels different now, Raymond James analyst David Long said. Scharf’s “really changed the internal attitude to make improving the bank’s governance the number one priority,” Long said. Scharf started making changes shortly after taking the helm in October 2019, though he has not yet provided firm targets or timelines for progress. He installed a slew of external leaders, overhauled the reporting segments, and began to shed non-core businesses. He also implemented weekly and monthly reviews to increase oversight and address regulator concerns more efficiently.
Brief: London retained its position as the top European destination for tech venture capital in 2020, with levels near the record amount of the year before despite the impact of COVID-19, according to research by Dealroom.co and London & Partners. Start-ups and growth companies attracted $10.5 billion worth of funding, accounting for more than a quarter of all investment into Europe and three times the level in Paris, Berlin and Stockholm, the research found. Some of the largest deals involving London companies included a $500 million funding round for London fintech firm Revolut, a $400 million deal for electric vehicle maker Arrival and two funding rounds totalling $527 million for renewable energy firm Octopus Energy. The British capital is also home to more unicorns - start-ups with a valuation exceeding $1 billion - than anywhere else in Europe. At 43, it has more than Paris, Berlin and Amsterdam combined, according to the research. Dealroom said it had identified 81 potential future unicorns headquartered in the city. Eileen Burbidge, partner at London VC firm Passion Capital, said activity quickly rebounded after the shock of the pandemic in the first half.
Brief: What began as a desperate year for startups, characterized by mass layoffs as the pandemic took hold, has turned into a record venture capital funding haul. Despite the economic tumult wrought by the coronavirus, startup investing in the U.S. reached a record high of $130 billion in 2020, according to a new Money Tree report from PricewaterhouseCoopers/CB Insights. Companies like Instacart Inc. and Stripe Inc. helped drive the surge by raising hundreds of millions apiece, even though the total number of funding rounds was lower than in 2019. The year also saw an uptick in funding for several cities outside the Bay Area, long the center of the startup universe. Venture capital funding in 2020 rose 14% from 2019, according to the report, which includes private equity and debt investments as well. Last year also saw an increase in megarounds, meaning deals larger than $100 million, even as the number of funding rounds decreased, particularly for very young startups. The largest deals were a $1.9 billion infusion into Space Exploration Technologies Corp. and $1.5 billion in funding for Epic Games Inc., both giant funding rounds that were emblematic of the increasing muscle of private equity and mutual funds willing to write large checks to late-stage tech companies. In 2016, megarounds represented just 25% of the total money invested. That number increased to 49% in 2020—higher than ever—the report found. Large corporate players, including SoftBank Group Corp., Google Ventures and Uber Technologies Inc. also helped drive the rush to fund large startups.
Brief: Renaissance Technologies’ famed Medallion fund, available only to current and former partners, had one of its best years ever, surging 76 percent, according to one of its investors. But it was a different story for outsiders who are only able to invest in other RenTec funds — two of which had their worst years ever. The Renaissance Institutional Equities Fund, which launched in July of 2005, lost 22.62 percent through December 25, according to HSBC’s weekly scoreboard of hedge fund performance. A newer fund, Renaissance Institutional Diversified Alpha, fell even more: It fell 33.58 percent through the same time period, HSBC reported. Those two funds’ performance was so poor that they made HSBC’s top 20 losers list for 2020. Renaissance launched RIDA in February of 2012, and 2020 was its worst year since then, the report said. Renaissance declined to comment. Last year wasn’t RIEF’s first bout with turbulence. The fund was launched as a way for outsiders to partake of RenTec’s special sauce, as Medallion had only been available to insiders for several years by then. But RIEF fared poorly during the financial crisis: The fund fell 16 percent in 2008 and 6.17 percent in 2009. Its longest drawdown was between May of 2007 and April of 2009, a period when it fell 35.73 percent, according to HSBC. But until last year RIEF had produced double-digit returns for most of the past decade. Still, the earlier losses dragged down its annualized return, which is now only 8.05 percent. That’s below the Standard & Poor’s 500 stock index’s annualized return of 9.6 percent during the same time period.
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