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Brief: Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic. The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors. “Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.” While cutting losers to buy winners is an age-old investment proposition, the Covid-19 pandemic may create even more openings than the past crises that became bonanzas for real estate investors. The mass exodus of Americans from public spaces has hammered already-weak retailers and their landlords, crippled business travel, crushed restaurants unable to fill all of their tables, and sown chaos for office towers whose tenants may never need as much space again.
Brief: Stocks may be back up, but revenue is down at publicly traded asset managers, according to analysis by Casey Quirk. The Deloitte-owned asset management consultant reported that median revenue fell 6.4 percent in the second quarter among listed traditional asset management firms. Compared with this time last year, median revenue slid 7.1 percent. According to Casey Quirk, this decline was driven in part by investors moving assets to cheaper bond and cash funds amid continued uncertainty about how the Covid-19 pandemic would impact the economy. Fee discounting also contributed, with average realized fees declining 2.2 percent in the second quarter and 3.7 percent year-over-year. “Capital markets are mostly returning to pre-pandemic crisis levels, yet asset manager financials are still feeling the impact from the brief and severe slump earlier in 2020,” the consulting firm said in a statement Monday. Operating margins also continued a “a mostly downward trend” for listed asset managers, according to Casey Quirk. The consultant reported that median margins in the second quarter were 27 percent, compared with 29 percent in 2019.
Brief: The Financial Conduct Authority (FCA) is investigating more than 150 Coronavirus-related scams since the outbreak began, according to official figures. The data, obtained under the Freedom of Information (FOI) Act by the Parliament Street think tank’s cyber research team, reveals the extent to which financial services organisations and banks have been targeted by financial criminals during the pandemic. The total number of suspected scams reported to the FCA over the last five months is 165. The types of scams that have been circulated during this time include email, phone calls, text messages, letters, and social media. In one of the scams, fraudsters pretended to be from HM Revenue and Customs (HMRC) and targeted company owners seeking Covid-19 relief grants to help manage their finances throughout the crisis. Other scams included a targeted effort to steal the log-in credentials of HSBC customers with business accounts, and seeking to obtain the passport details of financial services workers. Experts have warned that the rise in sophisticated Covid-19 related scams could leave financial services firms open to the risk of financial crime, especially with increasingly stringent Anti-Money Laundering (AML) legislation in the pipeline.
Brief: Japan’s biggest lender is planning to raise funds from individual investors to help smaller companies and hospitals tackle the Covid-19 pandemic. Mitsubishi UFJ Financial Group Inc. intends to issue sustainability bonds totaling as much as 150 billion yen ($1.42 billion) in September, after receiving requests from retail investors, according to Isamu Murofushi, a spokesman. The pandemic is boosting global sales of notes that aim to help governments, companies and other institutions get through the pandemic. Proceeds of MUFG’s debt sale will be used to help small-to-mid sized companies and hospitals fight the virus impact, as well as drugmakers developing vaccines and medicines, Murofushi said.
Brief: The rehiring of temporarily laid-off workers will continue to bolster the U.S. labor market’s recovery in the months ahead, but Goldman Sachs Group Inc. expects almost a quarter of those layoffs to become permanent. In the early months of the pandemic, employers shed more than 22 million people from their payrolls. The staggering figure had a small silver lining: the majority of those layoffs were billed as temporary. More than 18 million people were classified as temporarily unemployed in April, the most on record. When state economies began to reopen, the rehiring of many of those workers helped drive the labor market’s rebound in May, June and July. And with more than 9.2 million unemployed still on temporary layoff, “the labor market seems poised for additional large job gains later this year,” Joseph Briggs, an economist at Goldman Sachs, wrote in a research note on Friday. In some ways, the staggering number of temporarily laid off workers could be a tailwind for the recovery. These workers tend to face better hiring prospects, and transitions to permanent unemployment remain relatively low. In fact, Goldman expects rehires to account for most of the 5.6 million net job gains they anticipate later this year.
Brief: Last week, Institutional Investor held a virtual roundtable for healthcare funds. As always, we polled the audience on business practices, portfolio moves, and their expectations for the future. One question focused on the article of dogma that I’ve encountered nearly every day since the East Coast locked down March 12: Allocators will not place capital with managers they had not physically met. Here’s what we asked: “In terms of allocating assets to new managers, what best describes your expectations for an extended Covid-19 travel lockdown?... Contrary to conventional wisdom — and, the data show, the pre-Covid reality — nearly 60 percent of healthcare investors believe that we are about to enter a time where mandates will flow to managers that allocators and consultants have not met in person.
Brief: The Federal Reserve has used only a fraction of the $600 billion in an emergency lending program for small and medium businesses struggling with the Covid pandemic, according to a congressional watchdog report. Eligible lenders participating in the Main Street program have issued $496.8 million in loans, of which $472 million is Federal Reserve money, or about 0.07% of the central bank’s lending capacity as of Wednesday, according to the report issued Friday. “The Main Street Lending Program has seen modest initial activity thus far,” according to a monthly report from the Congressional Oversight Commission, the panel in charge of overseeing the Treasury Department and Federal Reserve responses to the coronavirus pandemic. “Some of the Main Street Lending Program’s modest activity may be because some businesses accessed the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), while others are able to rely on existing credit lines or other sources of liquidity,” the report said. The watchdog panel noted several other reasons why businesses may not be seeking the funding: only 160 of the 522 lenders registered with the program have publicized that they are accepting loan applications with new customers; businesses are unfamiliar with the program; and that the eligibility rules are complex and may exclude some businesses that wish to participate.
Brief: Wells Fargo & Co resumed job cuts in early August after it paused layoffs in March because of the COVID-19 pandemic, a spokeswoman said on Friday. The lender said in July it would launch a broad cost-cutting initiative this year as the bank braces for massive loan losses caused by the pandemic and continues to work through expensive regulatory and operational problems tied to a long-running sales scandal. Layoffs, branch closures and cuts to third-party spending are on the table, the bank’s executives had then said. “We expect to reduce the size of our workforce through a combination of attrition, the elimination of open roles, and job displacements,” a spokeswoman said in an email, adding that Wells Fargo was working to bring its expenses more in line with its peers and create a company that is more “nimble”. The bank will provide severance and career assistance to affected staff. Big U.S. banks had postponed decisions about staff cuts when the virus outbreak first began to take hold, with executives saying they are unsure how long the outbreak would hurt the economy and worried about being unprepared if business suddenly snaps back.
Brief: The skyscrapers are mostly empty, the tourists are home and talk of New York’s decay is back. For the city’s real-estate barons, it’s time to put an end to it. A loose coalition of New York’s top property owners and managers is busily working the phones, pressing many of the city’s biggest employers -- including powerhouses like Goldman Sachs, Blackstone and BlackRock -- to speed up the return of workers. Their argument: It’s safe, and the eateries and shops that make Manhattan special can’t hold out much longer. Some are calling it the patriotic thing to do. “I’ve been really pushing the CEOs to bring people back into the office,” said Jeff Blau, the head of Related Cos., the developer behind the Hudson Yards project. “I’ve been using a little bit of guilt trip and a little bit of coaxing.” The reaction for now has been lukewarm. Behind the desperation lies fear of a vicious spiral. The longer commuters stay home, the more local businesses will disappear, and the less reason there is for anyone to return. Executives and firms who’ve made a fortune developing and owning the city’s towers are facing the prospect of a significant slump in demand and prices for offices and residential units. But the ramifications extend to all New Yorkers, Blau said. “I am watching the city decay as nobody is here,” he said. “Now is not the time to abandon the city and expect it to be in the same way you wanted it when you get back in a year from now.”
Brief: The pandemic has battered real estate investment trusts that focus on retail stores, with Bank of America Corp. analysts calling the second quarter the toughest ever for landlords in the modern era of REITs. Before the outbreak of Covid-19, store closings had been running at a slower pace than in 2019 — but now they’ve almost eclipsed last year’s total with still more than four months to go in 2020, the analysts said Thursday in a research report. The 9,544 of closures that Bank of America has tallied this year compares with 9,670 in all of 2019. The jump in shuttered stores is weighing on real estate investments tied to malls and strip centers. Even with rent collections ticking up last month, mall REITs lost 11.6 percent in the third quarter through August 19, the report shows, while strip REITs tumbled 10.3 percent. “Accelerated bankruptcies and store closings will still push occupancy lower into 2021,” the Bank of America analysts said in the report. “While near term investor focus is on rent collection, we look to leasing activity as a signpost of normalizing conditions.”
Brief: In the aftermath of March’s coronavirus crash, numerous fund managers and data providers determined that companies with high ESG scores outperformed during the rapid sell-off — and a surge of money followed into funds focused on environmental, social, and governance issues. A new academic study, however, raises questions about the link between ESG considerations and stock performance during crises. Researchers from Canada’s University of Waterloo, Tilburg University in the Netherlands, and New York University’s Stern School of Business challenged the “widespread claims by fund managers, ESG data purveyors, and the financial press” that companies with high ESG scores were better situated in the pandemic. In particular, the authors — Elizabeth Demers, Jurian Hendrikse, Philip Joos, and Bauch Lev — cited reports from BlackRock, Morningstar, and MSCI, which all found that ESG funds outperformed during the crash. BlackRock, for instance, reported its sustainable funds achieved better risk-adjusted returns during the first quarter, while 24 of 26 ESG-tilted index funds tracked by Morningstar also outperformedtheir “closest conventional counterparts,” according to the analytics firm.
Brief: That is Jeffrey Talpins, the founder of Element Capital, in an Aug. 18 letter to his clients, cited by the Financial Times (paywall), explaining his decision to reposition his $16 billion hedge fund for a potential downturn in the market after an unprecedented rebound in equities in the U.S. and Europe since March. Talpins wrote that “less aggressive fiscal and monetary support” will eventually help lead to a slump from the stratospheric moves that stock benchmarks have enjoyed thus far since March. Bearish investors have pointed to a lack of political will for additional coronavirus relief for embattled American workers and a market that has gotten well ahead of its skis, in terms of equity valuations set against expectations for corporate earnings in the coming months and years. On Thursday, U.S. initial weekly jobless benefit claims rose in mid-August and topped 1 million again, potentially pointing to an increase in layoffs after a summer surge in the coronavirus epidemic or perhaps to more people applying for benefits after President Trump temporarily added $300 in extra federal payouts through a controversial executive order. Despite signs of weakness in the economy, the stock market has been primarily led higher by a handful of technology and e-commerce-related stocks that have enjoyed a boost from the COVID-19 pandemic, helping the broader market defy gravity.
Brief: Some of the biggest money managers are vexed by the same paradox troubling everyone else: U.S. stocks are near an all-time high, but the world still seems to be falling apart. Any number of looming threats could bring the historic rally in U.S. equities to a screeching halt, top hedge fund and mutual fund managers said. They include uncertainty over school re-openings, the November elections, tensions with China and the effect of monetary policy on inflation. While the S&P 500 has surged more than 50% from its March low, that happened with unemployment in double digits and the federal government struggling to contain Covid-19. The equity rally also has lifted the index’s price-to-earnings ratio to 26, compared with an average of 18 over the past decade. All of this leaves some market insiders wary of calling this a recovery. “There’s this massive disconnect between fundamentals and markets,” said Brian Payne, investment officer at the Teachers’ Retirement System of Illinois. “There’s just too much capital chasing investments, the Fed is flooding markets and that leverage isn’t going to the real economy. As we approach the election and concerns over a ‘blue sweep’ grow, that could be the inflection point where people’s bullish sentiment turns bearish.” Chris Rokos’s multibillion-dollar hedge fund is modestly bullish in the short-term but sees volatility ahead, as the market underestimates the potential for bigger moves over the next couple of months.
Brief: UBS Group AG is overhauling the legal structure at its key wealth management unit in a move that will cut costs and free up billions of dollars for lending in higher-growth markets. The project -- known as Rigi after a famous Swiss peak -- will see the bank transfer large customer deposits out of its Swiss entity into the bank’s main UBS AG legal unit, people familiar with the matter said, asking not to be identified as the plans are private. The change will allow the bank to boost loans outside Switzerland, the people said. Rigi partially rolls back measures from the 2008 financial crisis, when Switzerland told UBS to create separate legal entities that would be insulated in the event of a surprise bankruptcy. Moving the deposits would help the bank toward its target of lending between $20 billion and $30 billion a year to wealthy clients outside its home market, the people said. “We are making changes to our legal entity structure in order to improve the overall efficiency of the Group,” a UBS spokesperson said in an emailed statement… In the aftermath of the financial crisis, UBS wealth-management clients who held their money in Switzerland, even if they lived elsewhere, had their funds placed at the bank’s ringfenced local entity. Most international clients with deposits in Switzerland will now be under UBS AG. That will spread deposits more evenly throughout the group and is said to satisfy regulators, one of the people said.
Brief: For the first time in years, the plurality of investors plan to put more money in hedge funds, not less. Forty-four percent of hedge fund investors surveyed by Preqin in June said they intended to increase their commitments to hedge funds over the next year — nearly double the proportion from a year ago. This group far outweighs the 28 percent intending to downsize their hedge fund allocations. These findings mark a sharp change from the last four years, when investors were more likely to lower their hedge fund allocations than raise them. “Volatile markets have increased appetite for hedge funds,” Preqin said in its mid-year report on alternative assets. But nearly half of surveyed investors were disappointed by their hedge fund managers’ performance over the last year. Forty-seven percent said their portfolios had performed worse than expected, while just 6 percent reported exceeding them. Despite this, investors were more optimistic about hedge funds than they were about any other alternative asset class. Thirty-nine percent predicted that hedge funds would perform better over the next year, compared to 28 percent who thought hedge funds would perform worse.
Brief: Financial advisors have been more involved in managing client portfolios since the spread of the Covid-19 pandemic, according to a new report, even though most probably shouldn’t be. The average team potentially capable of creating custom portfolios for clients has an average of nine people and those practices are often supported by a centralized investment group, according to Cerulli. The majority of wealth management practices lack the personnel to properly manage investment portfolios. More than half of all practices, or 55%, rely on their own investment research and portfolio or model construction. But only an estimated 7% are capable of doing that effectively, according to Cerulli Associates, a Boston-based research and consulting firm. TAMPs, or turnkey asset management platforms, which help wealth managers outsource some or all of their investment management responsibilities, have been (albeit, self-servingly) railing against ill-equipped advisors managing portfolios. “That is not where the business is going. And TAMPs are here to really make the advisors way more valuable to the end client, to the investor,” AssetMark CEO Charles Goldman told RIA Intel about the busy but little-known corner of financial services. But a new survey published Wednesday suggests that advisors are generally not heeding the recommendations of researchers and others. Some are relying even less on third-party model portfolios this year.
Brief: Giant fund house Baillie Gifford saw its highest ever monthly inflows last month as investors piled nearly £1bn into its funds. Morningstar data, published yesterday (August 18), showed £991m was funnelled into Baillie Gifford throughout July in a sign its growth oriented house-style remained in favour with investors. Within their respective categories, many Baillie Gifford funds were among the very top sellers in the month too, as the asset manager’s popularity continued to grow. Philip Milton, chartered wealth manager at Philip J Milton & Company, said the firm’s popularity stemmed from the fact it had called the performance of US tech investments “so right”. He said: “It’s quite easy really. They are to be congratulated, though they are riding the ever extending index and it becomes more dangerous with every point.” Baillie Gifford was an early investor in US technology companies, backing the likes of Tesla, Amazon, Netflix and Alphabet (Google’s parent company) through a number of its funds. Such companies have boomed in the past few years and, more recently, thrived during the coronavirus-induced lockdown while other companies took a beating.
Brief: The convertible bond market is “quietly thriving” in the aftermath of the market shock brought about by the coronavirus crisis, says Man GLG, the long-running discretionary hedge fund management unit of Man Group. Convertibles’ primary market has seen record levels of new issuance this year – particularly in the US - with many first-time issuers entering the fray, while at the same time the asset has cheapened to levels not seen for some years, Man GLG said in a commentary this week. This flurry of activity offers investors “a potentially attractive entry point” into the market, boosting convertible bonds and broadening the opportunity set, according to Danilo Rippa, Man GLG’s head of multi-strategy credit and convertibles, and analyst Chris Smith. After the coronavirus crisis tore through global financial markets, converts are now seen to offer downside risk mitigation, a cheap entry point and improving liquidity, they said. Man GLG’s research noted that during the Q1 market meltdown, global convertibles fell 15.6 per cent, while global equities plummeted 33.6 per cent, with the decline in global convertibles equating to 46.5 per cent the fall in global equities. The subsequent market rally in Q2 saw global convertibles advance 17.5 per cent, as global equities surged 37.5 per cent. As a result, global convertibles were able to capture 46.7 per cent of the move higher in equities.
Brief: A stock market hitting record highs in a pandemic might seem out of touch, but St. Louis Federal Reserve President James Bullard says Wall Street has got it right and he expects the United States to do better than many forecasters anticipate as businesses and households learn to manage coronavirus risks. Though the situation seems chaotic, with federal, state and local officials laying out competing ideas about what activities are safe and under what conditions, Bullard said that shows adaptation in process, and will allow the country to fine-tune behavior and economic activity to what a “persistent” health threat allows. “I think Wall Street has called this about right so far,” he said, noting how firms like Wal-Mart, with its mandatory masking and other rules, have found ways to operate that others will copy. “There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside...So I think we are going to do somewhat better,” Bullard said in an interview with Reuters. “I expect more businesses to be able to operate and more of the economy to be able to run...successfully in the second half of 2020.”
Brief: Canada’s largest pension fund says some of the “radical changes” in consumer behaviors enforced during the pandemic lockdown are here to stay. The Canada Pension Plan Investment Board’s thought leadership lab sees permanent changes to consumer behavior as a result of the global pandemic. The era after Covid-19 will be defined by wider adoption of e-commerce among older consumers, as well as by long-term impacts on health-care and privacy policy, all of which will impact investment portfolios, it says. “The world will be different after Covid-19. For long-term investors, this will mean both new risks and new opportunities as we transition to recovery,” CPPIB portfolio managers Caitlin Walsh and Ruby Grewal wrote in the report. Gains in adoption of e-commerce have been patchy, according to the report. While the U.S. and Europe appear to be rapidly catching up to China, not all merchants are reaping the benefits with big players like Amazon.com Inc. and Walmart Inc. having enormous advantages over smaller retailers with more limited selections and unscalable infrastructure, Walsh and Grewal said.
Brief: The world’s biggest exchange-traded fund tracking oil is facing U.S. regulatory action after it took a series of extreme steps to survive the historic crude selloff earlier this year. The Securities and Exchange Commission has issued the United States Oil Fund ETF, known as USO, with a Wells Notice about the intended measures, according to a filing on Wednesday. The fund was being probed over whether it had adequately disclosed risks to investors after it was forced to dramatically reshuffle the mix of futures contracts it tracked during the market turmoil. That helped protect the ETF, but meant deviating from its past investment strategy. The notice states that the SEC has made a preliminary decision to recommend an enforcement action against the ETF, its Chief Executive Officer John Love and United States Commodity Funds, the company which manages USO. The decision relates to disclosures made in late April and early May. USCF, USO and Love said they intend to vigorously contest any allegations. Judy Burns, an SEC spokesperson, declined to comment. It’s the latest dramatic twist in the story of USO, which was at the center of the storm as crude prices plunged earlier this year. As volatility swept the market, it issued six disclosures in less than two months announcing changes to the fund’s investment strategy, and temporarily halted new share creations -- potentially untethering itself from the contracts it was tracking.
Brief: Oaktree Capital Management is being more conservative than usual with its credit portfolio — particularly after investors piled back into debt and equity following the government’s emergency support for markets during the pandemic. “We see reason to be cautious,” Armen Panossian, Oaktree’s head of performing credit, and Danielle Poli, who leads the product specialist group, said in the asset manager’s credit report for the second quarter. “It is easy to envision a panic scenario in which these investors are shaken by bad news around economic performance and therefore choose to quickly exit the markets.” Some countries and U.S. states are seeing alarming increases in Covid-19 cases after reopening their economies — with some regions reverting to lockdown, Oaktree pointed out. The firm worries that these “fits and starts” have caused companies to file for bankruptcy and said it expects many industries to see several years of stress as they reassess costs such as real estate. “Liquidity injected into the markets by central banks has allowed investors to look past the ‘valley’ of lost output during the pandemic,” Panossian and Poli wrote. “Today’s pricing of risk assets indicates an expectation for a quick economic recovery.” Oaktree, the Los Angeles-based investment firm cofounded by Howard Marks, is protecting capital in anticipation of market volatility while seeking to reserve capital should buying opportunities suddenly emerge, according to the report. In public markets, that means rotating out of companies and sectors that have outperformed.
Brief: The pile of the murkiest trades at global banks, long the bane of regulators, got much bigger during Covid-19. Lenders including Barclays Plc, Citigroup Inc., BNP Paribas SA and Societe Generale SA reported a surge of more than 20% in their most opaque assets during the chaotic first half of 2020, Bloomberg calculations show. The banks are now sitting on hard-to-value trades that they say are worth about $250 billion, including categories that gained notoriety during the financial crisis, such as complex debt securities. There’s no single, clear-cut explanation for the jump in these so-called Level 3 assets. For some, the surge was a natural consequence of pandemic turmoil: safer assets became difficult to price as markets froze, and risk managers had to shunt them into a different category, according to analysts and people familiar with the situation. Others are likely to have added to their riskiest bets after seeing the potential for a windfall in the chaos, said Jerome Legras, managing partner at Axiom Alternative Investments. “Banks need a little bit of complexity to actually make a lot of money,” said Legras, who oversees about 1.6 billion euros ($1.9 billion) at Paris-based Axiom, including bank debts. “Clearly, there is a link with record profits.” Either way, for many of the lenders, the increase since the end of December was the biggest in half a decade. As European banks don’t report quarterly Level 3 figures, Bloomberg News used six-month figures for comparison.
Brief: Employees at global asset manager Carlyle Group have been told to avoid public transport when offices reopen around the world. They must avoid public transport on their commute, and if they use public transport over weekends, they should work from home for 14 days, according to one report. Staff are expected to walk, bike or drive to the company’s offices, including in New York and Washington, D.C. as it looks to control the spread of the coronavirus and avoid staff outbreaks. Carlyle Group CG, -0.13% said that returning to its 31 offices globally would be “entirely voluntary” and the measures around public transport were to protect its staff. “Our global policy, which includes encouraging workers not to use public transportation, is designed to protect the health and well-being of every colleague,” it said. “As the situation continues to evolve, we are asking everyone to take an approach that works for their personal situation,” it added. Offices at many of the world’s biggest financial institutions have been near empty throughout the coronavirus outbreak, and many firms are looking at ways to permanently keep staff working remotely to some extent.
Brief: Brigade Capital Management LP told a federal judge it can’t return $175 million that Citigroup Inc. says it paid as part of a $900 million error because the money went to other funds, while the bank says Brigade is the only one of dozens of lenders that has “flat out” refused to return the money. Citigroup, which sued the money manager on Monday, wired payments to about 40 funds that use Brigade as their investment or collateral manager, and knows Brigade itself isn’t one of the lenders and doesn’t have the money it’s seeking, Brigade said in a legal filing Tuesday. The bank has asked the court to order the firm to return its share of the $900 million it inadvertently wired to Revlon Inc. lenders, some of which are locked in a bitter fight with the struggling cosmetics giant. Citigroup has recouped less than half of the money, which it blamed on a clerical error, and some lenders are refusing to pay, saying Revlon was in default on a loan and should have repaid them anyway, according to people with knowledge of the matter. But at a hearing on Tuesday before U.S. District Judge Jesse Furman, a lawyer for the bank said Brigade is the only lender that has declined outright, while others have given the payments back and Citigroup is in talks with still others.
Brief: The S&P 500 index hit an all-time high on Tuesday, completing its recovery from the stock market crash after the onset of the coronavirus crisis in February. The index was up at 3,394.99 points at 09:48 a.m. ET, topping the high of 3,393.52 hit on Feb. 19 and further underlining the disconnect between a rally driven by trillions in official stimulus and a recession-hit U.S. economy. The tech-heavy Nasdaq Composite in June was the first of the three major U.S. stock indexes to reclaim record highs as investors gravitated to stocks including Amazon.com and Netflix seen as stay-at-home winners from COVID-19 lockdowns. It has taken the benchmark S&P 500 about two months longer as surging COVID-19 cases sparked fears of another round of shutdowns that would again cripple business activity. On the day, the S&P 500 gained 0.4% putting it up about 55% from March’s lows. The Nasdaq gained 0.6% to hit a record high and the Dow Jones Industrials, which is still about 6% off its February highs, added 0.1%.
Brief: Managers from Pacific Investment Management Co., Amundi SA and BlueBay Asset Management LLP are sticking with, or even adding to, bets on banks’ CoCos, after prices of the bond-stock hybrid whipsawed during the pandemic. Initial fears about the economic wreckage wrought by the coronavirus sent prices into free-fall in March, pushing yields close to a record 15%, according to a Bloomberg Barclays index. Since then the bonds, which are also known as Additional Tier 1 debt, have recovered to about 5.6%, rewarding portfolio managers that bought more of them during the market volatility. The securities’ appeal lies in their higher-than-average interest to compensate investors for the risk of holding notes that stand first in line for losses if the issuer goes bust. In an era of central bankers keeping growth on life support with base rates at, or even below, zero, more investors are prepared to consider buying them. At the same time, they’re not as risky as they once were. A decade-long drive by banks to build up capital buffers to absorb losses after the 2008-2009 financial crisis, has also attracted investors. “AT1s of European banks still look incredibly cheap,” said James MacDonald, a co-manager of BlueBay’s $1.16 billion Financial Capital Bond Fund, which invests in the bonds. “Banks have become much safer since the previous crisis, and that’s not fully reflected in spreads yet.”
Brief: Jeff Smith has become the latest activist investor to go on the hunt for a mystery company to acquire Smith’s Starboard Value launched a blank-check company Tuesday, and said it plans raise as much as $345 million to buy and fix up a company, leveraging its experience as an activist investor. Starboard Value Acquisition Corp. will seek to raise $300 million by issuing 30 million units at $10 apiece, according to a filing. The value may increase by $45 million if underwriters exercise an over-allotment option, the filing shows. The firm is following at least two other activist investors into the space. In July, Bill Ackman’s Pershing Square Capital Management raised $4 billion for a blank-check company. Dan Loeb’s Third Point launched one in 2018 and agreed to acquire payment provider Global Blue -- despite revising the terms of the deal in the wake of the Covid-19 crisis. Blank check companies, also known as special purpose acquisition companies, or SPACs, raise money on the public markets to make a purchase within a set period of time, usually about two years. They don’t identify a target until shares are trading.
Brief: Even as hedge funds have increasingly invested in large vaccine developers since Covid-19 shut global economies in March, they’ve mostly sat on the sidelines as the stocks of small and mid-cap companies working on a vaccine rallied by more than 1,000 percent this year. Although hedge funds clearly missed out on a big opportunity, their lack of exposure to these stocks may also be a healthy show of restraint, according to Jon Caplis, CEO of hedge fund research and analytics firm PivotalPath. The research firm’s index of small and mid-cap vaccine developers has increased 1,191.1 percent this year through July. Hedge fund managers told PivotalPath that valuations of these stocks have been too high given that in the end there will be very few companies that win the vaccine race. Caplis said the intelligence he’s gotten from hedge funds has been consistent. Back in April and May, they said that the stocks had rallied so much that there was a lot of downside risk in betting on any one company’s success. PivotalPath’s quantitative analysis also showed that hedge funds held a negligible amount of these stocks.
Brief: London-based asset manager Schroders has permanently embraced flexible working across its business. In a statement issued today, Schroder said that the move will allow employees to adopt working practices that “best meet client responsibilities, business requirements and their individual working patterns, while also ensuring that we still have face-to-face interaction to maintain our culture of collaboration, innovation and strong productivity”. The statement added that Schroders continues to see many benefits in people coming to the office and “this will remain an important part of our approach to flexible working”. Emma Holden, Schroders’ global head of human resources, said: “Schroders embraced flexible working long before lockdown and the investments we have made in remote-working technology over the years meant our business has not missed a beat since March. "But in the space of a few months, we have made 20 years progress in attitudes towards flexible working, and we are going to continue with this momentum.
Brief: The coronavirus crisis has hurt earnings, spending, and caused never-before-seen unemployment levels in the U.S. But a new survey from advisory firm Willis Towers Watson finds that most companies are planning to give employees raises and bonuses next year. Willis Towers Watson surveyed U.S. industries about their 2021 compensation plans and found that companies are projecting salary increases of 2.8% on average — across all levels of employees, hourly and salaried. According to the survey, this year saw a 2.7% increase, slightly below the projected 3%. The standard over the past decade has been around 3%. This year 14% of companies elected not to plan pay increases, and many industries are tightening their belts this year. The financial services industry, Reuters reports, expects to see bonuses slashed and job cuts with only investment bankers doing well as companies scramble to raise money. However, Willis Towers Watson's findings indicate that only 7% of companies plan to forgo raises next year, which the company calls "an indication that many organizations are projecting a turn toward normalcy in 2021…
Brief: A Joe Biden and Kamala Harris victory in the US presidential election will be “disastrous”, veteran investor Mark Mobius has warned. Mobius, who left Franklin Templeton after more than 30 years in 2018 to set up Mobius Capital Partners, told Financial News that US President Donald Trump’s stance of lifting coronavirus lockdowns will kickstart economic recovery. “It [a Biden-Harris win] would be disastrous,” said Mobius. When asked whether a Trump win would boost the stock market, Mobius said: “Yes, definitely. His goal is to get people back to work, reduce unemployment and generally boost the economy.” Trump is somewhat losing ground to Biden, the former US vice president. Fifty per cent of US registered voters say they would vote for Biden if the election were held now, while 41% back Trump, according to the latest Wall Street Journal/NBC News poll. The coronavirus crisis has battered the world’s largest economies that froze into lockdown over the past couple of months. Last week, the UK stumbled into the “largest recession on record” because of the pandemic, which has killed nearly 47,000 people in the country. “Unless they [Britain] are able to end the shutdown policies and also end the erratic policy moves, the recession will continue and economic recovery will be difficult,” Mobius said. Meanwhile, the US economy shrank at a 32.9% annual rate between April and June — the country’s deepest decline since the government began keeping records in 1947.
Brief: Jim Momtazee, a former dealmaker at U.S. buyout firm KKR & Co Inc (KKR.N), has launched his own firm to pursue private equity deals in the healthcare sector. Momtazee, who spent 21 years at KKR and led its Americas healthcare team for a decade, said in a statement he formed Patient Square Capital together with Maria Walker, a former partner at consulting firm KPMG. The move comes as the outbreak of the novel coronavirus has strained some healthcare providers, while spurring growth in some sectors such as telemedicine and vaccine production. Patient Square Capital plans to look for deals across the healthcare industry, including technology-enabled services, biopharmaceuticals, the pharmaceutical value chain, medical devices, diagnostics, providers, digital health and consumer health, the statement said. “We’re going to be broad-based in our focus on all aspects of healthcare, bringing depth of knowledge, scale, expertise, and long-term view to our investments,” Momtazee told Reuters in an interview. Prior to leaving KKR last year, Momtazee worked on some of the buyout firm’s biggest healthcare deals, including the $33 billion take-private of U.S. hospital operator HCA Healthcare Inc (HCA.N), as well as the acquisition of contract research firm PRA International for $1.3 billion in 2013.
Brief: In mid-July, investors representing nearly $1 trillion in assets joined with a bipartisan group of former legislators, regulatory agency heads, investors and other leaders to call on the Federal Reserve and other financial regulators to address and act on climate change as a systemic risk. They wrote: "We call on you to immediately consider whether decisions being made right now could inadvertently exacerbate the climate crisis. Additionally, we ask you to implement a broader range of actions to explicitly integrate climate change across your mandates. Such actions are needed to protect the economy from any further disruptive shocks." The ongoing response to the COVID-19 pandemic has underscored the critical importance of financial regulators — particularly the Fed — in keeping the economy stable and resilient in the face of systemic disruptions. Yet, as the Fed has pumped trillions of dollars into keeping our markets afloat through efforts like the Main Street Lending Program and by broadening the tent of corporate bond purchases, there are growing questions about the climate impacts of these decisions and the embedded financial risks that they expose our markets to.
Brief: America is in bad shape. While the rest of the world seems to be moving past the Coronavirus, the US is still experiencing record deaths nationwide. Americans continue to struggle just to get bills paid, while Washington debates semantics surrounding mail-in voting. The disconnect between Main Street and Wall Street continues to grow larger, to the point that when (not if!) the stock market bubble pops, it will be nothing short of disastrous for the large majority of the population. Let’s start with what we know. President Trump recently signed four executive orders aimed at Coronavirus-related economic relief. Most notable are the orders that extend unemployment benefits and the federal eviction moratorium. Firstly, Trump’s unemployment order specifies USD44 billion in funding to extend enhanced unemployment benefits to a USD400 weekly payment for those already collecting state benefits. How soon this will be implemented or how many people stand to benefit remains unclear, as states must both request the assistance and have a system in place to deliver it. There are a myriad of issues concerning this requirement, most important being the fact that state systems are objectively not prepared for the volume that such benefit distribution would entail. Associations representing states have estimated that it will take at least five months to enact changes of this scale.
Brief: The U.S. stock market looks like “Wile E. Coyote, running off the edge of a cliff,” according to asset manager GMO’s James Montier. According to Montier, the U.S. stock market has priced in all the good news it possibly can, which suggests little upside for value investors right now. This is a reversal from his and colleagues’ previously bullish position on the markets in March. “There is no margin of safety in the pricing of U.S. stocks today,” Montier, who works in asset allocation at GMO, wrote in a new white paper, adding that the U.S. stock market “appears to be absurd.” The rally narrative is that investors are linking the Federal Reserve’s balance sheet expansion and the equity markets, Montier wrote. By performing quantitative easing, the Federal Reserve would lower the bond yield, and as a result, drive up the stock market, as the thinking goes. Montier is skeptical, however, of a “clear link” between bond yields and equity valuations. Quantitative easing hasn’t previously lowered bond yields. He pointed to 10-year bond yields during three recent quantitative easing programs: January 2009 to August 2010, November 2010 to June 2011, and September 2012 through October 2014. During each of those time frames, yields rose.
Brief: All UK companies should test staff for coronavirus every week in order to bring more people back to their offices, according to the boss of one of the UK’s most influential business lobby groups. Karan Bilimoria, the president of the Confederation of British Industry - the body which represents 190,000 businesses, together employing nearly seven million employees - told Financial News that the government should offer free Covid-19 testing to the UK’s entire population. The move would encourage more people back to the workplace, and help spur a recovery in the UK economy which plunged into its largest recession on record this week. “Even if the government offered free testing to every member of the population of a country of 66 million people every two weeks, that would be a fraction of what we're spending on all these other [coronavirus] measures,” Bilimoria, who is also the founder and chairman of Cobra Beer, told FN. The UK government has so far spent nearly £190bn to deal with repercussions of the coronavirus crisis, according to Treasury figures from July.
Brief: Saudi Arabia’s sovereign wealth fund has paid back a $10 billion bridge loan two months ahead of schedule, according to people familiar with the matter. The Public Investment Fund has fully repaid the loan, which was due in October, the people said, asking not to be identified because the information is private. It had signed the loan last year to raise funds while it waited for the proceeds of the sale of its nearly $70 billion stake in Saudi Basic Industries Corp., which closed in June. Saudi Arabia has been pushed into a deep budget deficit by the coronavirus pandemic and oil-price slump, forcing the kingdom to hike taxes and increase the government debt ceiling to 50% of economic output. The PIF is a key part of a plan by Crown Prince Mohammed bin Salman to transform the economy and wean it off a reliance on petroleum revenues. A group of 10 banks provided the loan: Bank of America Corp., BNP Paribas SA, Citigroup Inc., Credit Agricole SA, HSBC Holdings Plc, JPMorgan Chase & Co., Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc., Standard Chartered Plc and Sumitomo Mitsui Banking Corp. A spokesman for the PIF confirmed it had been repaid ahead of schedule, without providing further details.
Brief: U.S. corporate defined benefit plans face higher liabilities in the coming months as the impact of the COVID-19 pandemic becomes apparent, according to a report from Moody's. The report released Thursday is one of a series of in-depth sector reports from the credit agency and says rising pension liabilities will put more pressure on cash flow in sectors hardest hit by the pandemic, particularly in the airline and auto industries. With discount rates plummeting to what Moody's said is an all-time low of 2.26% as of July 31, the 50 companies with DB plans sampled by Moody's will see their adjusted debts rise by $120 billion. The report also said that while the CARES Act provides some short-term relief for corporations with DB plans, the help is limited. The Coronavirus Aid, Relief and Economic Security Act, signed by President Donald Trump on March 27, provides companies the option of a one-year holiday from making 2020 pension contributions, with interest accrued, until Jan. 1, 2021.
Brief: Private equity deals saw a late-July surge and whether this is part of a recovery or due to a backlog of deals that were impossible to close in April, May or June, EY Global is advising funds to make adjustments for the post-COVID world now to capitalize on the moment. To that end, Andres Saenz, private equity leader on EY Global’s markets leadership team, said the need to carry out a full-swing overhaul to step up digital transformation and rethink investments under the “new normal” are now part of nearly every conversation held with investors. Currently, there is US$2.6tn in “dry powder” private equity capital globally ready to release and a pool of private limited partners eager to the pull the trigger on investment as economies begin to exit the pandemic’s initial shock. Saenz was speaking Wednesday during Mexico’s annual private equity event, hosted virtually by Amexcap, which groups 120 member private equity funds with total committed resources of US$60bn, of which 54% has already been invested in projects and companies in sectors such as energy, infrastructure and real estate.
Brief: In the immediate wake of COVID-19, Global 2000 companies moved to slash funding for emerging technologies, such as automation, artificial intelligence (AI), blockchain, and 5G, according to new KPMG International research. However, many executives are optimistic emerging technology spending will likely increase in the next 12 months, as enterprises recognize COVID-19 creates a burning platform to accelerate digital transformation and stimulate long-term growth. Enterprise reboot, a new report from KPMG International and HFS Research, surveyed 900 technology executives* to explore the current and future state of emerging technologies and demonstrates a dramatic shift in how businesses are approaching emerging technology now versus just a few months ago before the onset of COVID-19. “This crisis isn’t affecting all industries equally, but for many of the industries facing crisis, managing the transition to a digital business model is imperative. However, doing so is made more complicated in a time where investments are critical, but cash must be preserved,” said Cliff Justice, KPMG global lead for Intelligent Automation and US lead for Digital Capabilities. Specifically, 59 percent of executives surveyed say that COVID-19 has created an impetus to accelerate their digital transformation initiatives, yet approximately four in 10 say they will halt investment in emerging technology altogether as a result of COVID-19.
Brief: Amid one of the greatest credit booms ever, a key player in the financial world has been conspicuously absent. Private equity firms that would usually jump at the chance to go on a debt-fueled buying spree are only just tip-toeing back to the market. In theory, business should be flourishing. Borrowing rates are close to record lows and investors are gorging on everything from rescue loans to shareholder payouts due in large part to historic support from the Federal Reserve. Banks are also ready to open the checkbooks after selling billions of dollars of debt for buyouts and acquisitions they feared they’d be stuck with as credit markets froze in March. Yet sponsors that slammed the brakes on deals, citing too much uncertainty on how long the coronavirus outbreak will last, have been sitting it out until now. “Two months ago, most of our clients who would have been thinking about acquisition financings, whether they’re corporate or sponsor, were tending to their own existing portfolios,” said John McAuley, head of North American leveraged finance at Citigroup Inc. “Now these companies and sponsors are looking at the opportunity set and being more proactive.”
Brief: Brookfield Asset Management Inc. said it raised a record $23 billion during the second quarter and expects to accelerate the pace of investments after the disruption caused by Covid-19. The Toronto-based alternative asset manager said it has $77 billion in cash, securities and other available capital, including uncalled capital commitments from clients. That figure includes $12 billion raised in its latest distressed debt fund by its Oaktree Capital Management unit. When that fund is closed, it should be the largest ever raised for distressed debt investing, Brookfield Chief Executive Officer Bruce Flatt said in a letter to shareholders. “While we do not expect full recovery of the global economy until well into 2021, we believe the worst is over, and our own businesses are slowly recovering,” said Flatt. “We have been keeping our powder dry, waiting for opportunities we believe will come.” Flatt said that while the quarter was busy for raising capital, its three flagship funds are now 50% committed and that the firm expects to start raising money again for their next vintages in 2021. “We are being patient with our capital, but we expect the pace of investment to increase over the next 12 months as opportunities present themselves,” Flatt said.
Brief: Some of Britain’s biggest financial and legal firms have stepped up support for staff and customers suffering domestic abuse after the coronavirus lockdown shed new light on the scale of a problem affecting millions nationwide. Legislation now progressing through parliament suggests this is costing Britain 66 billion pounds ($86 billion) a year, with official figures estimating around 2 million people, mainly women aged 16 to 74, suffer some form of domestic abuse. The Domestic Abuse Bill will introduce a statutory definition that includes physical violence but also emotional, coercive and economic abuse, after extensive lobbying by the charity Surviving Economic Abuse and the financial sector. As the coronavirus pandemic forces millions to work from home and calls to helplines surge, Lloyds Banking Group (LLOY.L) and NatWest Group NWG.L have teamed up with charities SafeLives and Surviving Economic Abuse to offer financial as well as practical aid to victims. And with remote working increasing social isolation, some firms are also striving to help staff.
Brief: State Street Global Advisors thinks that the economy can only outlast and outwit the new SARS coronavirus for so long. It’s going to take agreed-upon medical treatments greenlit by the FDA, or a vaccine, to put this pandemic to bed. “It will be challenging to sustain investor confidence through the end of the year unless (there is successful) development of a vaccine or an effective, scalable medical treatment...so that the most vulnerable populations can benefit by the end of 2020 or early 2021,” says State Street Global Advisors global CIO Richard Lacaille. “There will be no complete recovery without a medical solution to Covid-19.” He defines the recovery stages in three phases, with the first two all backstopped by unprecedented global stimulus from Treasury and central banks everywhere. We are now in phase two. For phase two to be successful, lockdowns have to be lifted, meaning restrictions have to be removed. The longer restrictions remain, the longer doubts remain; and the longer doubts remain, the less likely it is that businesses will rehire and reinvest. Foreign investors in the U.S. would also cash out if this continues.
Brief: An outdoor lunch meeting felt like a major event recently for venture capitalist and former endowment chief Carrie Thome, even though, as she joked, their only exposure was eye contact. Months in the pandemic, institutional asset management remains in effective lockdown. Consultants — perhaps the top road warriors of all — were banned from work travel by company edict as of mid-July, a sampling told Institutional Investor recently in a private poll. Two-thirds of pension funds, endowments, foundations, and other allocators’ offices remained totally closed. Even among those allowing some staff in, all but a handful had strict capacity restrictions in place. A few executives — those with keys and young families at home — have guilty confessed to sneaking into their officially shuttered offices, just to get some work done in the peace and quiet. “No one else is here… I had to get away from my kids,” one pension chief told II. “Plus my desk has multiple monitors set up, which really helps productivity.” And visits from outsiders? Forget about it. Just a single respondent — an allocator in the already-distanced state of Hawaii — said their office is open and, pending a temperature check, conducting in-person meetings. But nearly 90 percent of the 57 respondents couldn’t visit anyway: organizations banned work travel.
Brief: Covid-19 hasn’t dampened investors’ return expectations over the next five years, according to a global survey from New York–based Schroder Investment Management Ltd. The survey found that investors were expecting an average return of 10.9% over the next five years. Investors in the Americas had the highest expectations, predicting returns of 13.2%. Europeans were less optimistic, predicting returns of 9.4%. By country, investors in the U.S. were the most optimistic, expecting an average return of 15.4%, followed by investors in Indonesia (14.8%) and Argentina (14.6%). Japanese investors were the least optimistic, expecting an average return of 6%, followed by Swiss (7%) and Italian (7.9%) investors. Globally, investors didn’t appear particularly concerned about the lasting economic effects of Covid-19. Only 6% expected the economic impact of the virus to persist for more than four years, while 21% expected the impact to last more than two years. The pandemic did, however, cause many investors to make changes to their portfolios. Twenty-eight per cent said they made substantial changes, while 25% said they made some changes.
Brief: The coronavirus pandemic has led to an unprecedented slowdown in the global economy. The U.S. gross domestic product (GDP) fell by 33% on an annual basis in the second quarter, more than triple its previous worst quarter. The eurozone fared even worse: Its GDP contracted by 40% on an annual basis during the second quarter. In the midst of this global slowdown and ongoing geopolitical uncertainty, the alternative assets industry remains healthy. Yield-hungry investors are continuing to pour capital into alternatives with assets under management now exceeding $10 trillion according to Preqin, the alternative assets industry's foremost provider of financial data and analytics. In a survey conducted last November by Preqin, the majority of alternative asset investors said they were satisfied with their portfolio’s performance last year. Nine out of 10 (87%) private equity (PE) investors said their investments met or exceeded their return expectations last year. About the same percentage (86%) of PE investors said they intend to commit at least the same amount of capital to PE this year as they did last year.
Brief: Venture capital firm Amadeus Capital Partners is planning to raise three funds with a combined target of about $400 million for tech investments in industries including enterprise software, artificial intelligence and cybersecurity, people with knowledge of the matter said. The two largest funds have targets of $150 million each, said two people familiar with the plans, who asked not to be identified because the fundraising isn’t yet public. They are in the pre-marketing stage and the British firm will start raising money in the autumn, one of the people said. The pan-European Scale Fund, led by managing partner Andrea Traversone, will look for investments in cybersecurity, enterprise software, health tech and artificial intelligence, with a particular focus on companies using AI to uncover new types of materials, one of the people said. Amadeus has a track record in these areas, including its recent exit from an early investment in cybersecurity company ForeScout Technologies Inc., now listed on the Nasdaq with a market value of $1.44 billion. The Latam Sustainable Growth fund will focus on Latin American companies in the fintech, edtech and software-as-a-service sectors, the person said. The fund will be headed by Pat Burtis and newly hired partner Kai Schmitz. The firm already has an office in Bogota and portfolio companies, Creditas and Descomplica, in Brazil.
Brief: The COVID-19 pandemic has hit Black Americans especially hard after decades of social and economic injustices, but it also presents an opportunity for systemic change, said financier Robert Smith, the wealthiest African-American according to Forbes. In a video interview with Reuters, the CEO of private equity firm Vista Equity Partners said companies that profited from the Transatlantic slave trade should consider making reparations to African-Americans. “I think that’s going to be a political decision that’s going to have to be made and decided upon. But I think corporations have to also think about, well, what is the right thing to do?” Smith said in a video interview. Corporations “can bring their expertise and capital to repair the communities that they are directly associated with in the industries in which they cover,” he added. “I think that has to be a very, a very thoughtful approach. But I think action needs to be taken.”
Brief: The pandemic has created an unexpected boom in one corner of finance: surveillance. As traders continue to work from home, banks are beefing up their efforts to monitor staff and root out any misconduct, according to NICE Actimize, which makes compliance, risk and financial-crime software. There’s been a surge of interest in advanced technology, such as machine learning, that can help employers catch unusual employee behavior, said Chris Wooten, an executive vice president at the company. “With employees shifting to remote work, there was an increase in both the types of communications to be monitored and the types of behavior that could raise concerns,” he said in an email. “We saw communications channels expand from what was traditionally just office phones and trading turrets, to include personal mobile phones and unified communications platforms such as Microsoft Teams.” Of 140 financial institutions surveyed by NICE Actimize, 76% of respondents said they expect monitoring and surveillance will increase over the next three years. Almost 20% said those measures would apply to all employees. “Clearly this reflects the investments that financial institutions are making now, or will be making in the future,” Wooten said.
Brief: Jeffrey Gundlach said he thinks Donald Trump will win re-election because polls showing otherwise don’t reflect the true support for the president.
“Will Joe Biden beat Donald Trump in November? I don’t think so,” Gundlach said during a webcast Tuesday for his company’s closed-end funds. “I’d bet against that. I think the polls are very, very squishy because of the highly toxic political environment in which we live.” On Biden’s choice of Senator Kamala Harris as his running mate, Gundlach said she is “a little too charismatic.” “I don’t think it’s a good pick,” he said. “She might be a little bit dominant with her personality.” Gundlach said much can happen between now and Election Day. “I think there’s a lot of time here, there’s going to be a lot of twists and turns,” he said. Gundlach, who predicted Trump’s win in 2016, has criticized Biden’s electoral chances -- and that of other Democratic candidates. In January, he said he didn’t think Biden would win the Democratic nomination and in March he called him “unelectable.”
Brief: Impax Asset Management says there will be “winners and losers” in the economic transition to a more sustainable economy, as trends continue to be accelerated in the post-pandemic rebuilding process. In a new report, the asset management firm notes that policy makers are unlikely to return to the “old normal” as they move from lockdown to rebuilding. As a result, Impax says that investment opportunities will open up in industrial automation advances, digitalisation acceleration and health, safety and well-being. Risks associated with human capital management, diversity, climate change and biodiversity are “becoming relevant to fundamental analysis across sectors”. The report also identifies four structural changes that will continue to disrupt business as we know it. These include a heightened awareness of systems-level risks; the exposure of supply chain vulnerabilities; social distancing measures changing behaviour; and an acceleration towards a digital economy.
Brief: Employees in the asset management industry can thank the broad market recovery for saving their compensation from the deepest cuts, but there still will be plenty of paycheck pain. Year-end incentive pay at traditional asset managers and hedge funds is expected to fall between 10 percent and 15 percent compared to 2019, according to consultant Johnson Associates’ second-quarter analysis, Private equity staffers will fare better, especially at the large brand-name firms, which benefit from economies of scale. Bonuses for such employees is expected to decline 5 percent to 10 percent relative to last year. But the smaller and mid-sized PE firms will likely make deeper cuts in comp, lopping 15 percent or more from year-end bonuses. While traditional managers have suffered as investors move to lower-fee products like bond funds, hedge funds are still reeling from net outflows on the back of disappointing performance. The largest private equity funds have enormous amounts of cash to invest, but face portfolio company defaults. Alan Johnson, head of the compensation and consulting firm, said PE outfits benefit from leverage when markets are up. “Now they’re on the other side of leverage and it hurts,” Johnson told Institutional Investor.
Brief: SVB Financial Group (NASDAQ: SIVB), the parent company of Silicon Valley Bank, today released the "Family Offices Investing in Venture Capital - Global Trends & Insights Report" in partnership with Campden Wealth Research. The report looks at family offices' investment levels, performance, expectations, barriers toward venture investments, and their expectations for how the market will evolve amid COVID-19. "In the last decade, family offices have emerged as a significant source of capital fueling innovation globally. They are increasingly more open and active in venture, particularly in early-stage companies through direct investments and funds," said John China, President of SVB Capital. "Our research with Campden Wealth shows that family offices are seeing favorable returns in the asset class, and they are acting as strategic advisors and champions to the startups they invest in. We expect to see more family office investors in the venture ecosystem, collaborating and syndicating with like-minded investors and providing a differentiated pool of capital to founders." "We are facing uncertain times due to COVID-19 and an encroaching global recession. In response, family offices are showing their strength as nimble, responsive, and patient investors, often with cash reserves to carry them through turbulent times," said Dr. Rebecca Gooch, Director of Research at Campden Wealth.
Brief: From the historic stock market sell-off and volatility surge that wreaked havoc on investment portfolios during March to the continued working-from-home practices which have thrown up various operational obstacles spanning technology, cybersecurity and infrastructure, the coronavirus crisis has upended all corners of the hedge fund industry. For hedge fund chief operating officers, the pandemic has brought its own unique set of challenges. Managers of all sizes and strategies implemented extensive business contingency plans for home working in order to continue operations. But as firms slowly begin to return to the office following more than four months of lockdown, the concept of a “new normal” continues to be somewhat vague and undefined.
Brief: During the depths of the coronavirus crisis in Europe in late March, Sergio Ermotti remembers sitting in his home study in Lugano, Switzerland, reflecting on the latest financial meltdown to engulf his career as a banker. “If I go through my last eight years, we had a lot of mini-earthquakes, but never of the magnitude of what we are seeing now,” the 60-year-old UBS Group AG chief executive says. “This is a crisis that is driven by fear in a different way…this time it’s not just about people losing their assets or savings, it’s about their life, it’s about their families. It’s so profound, so different.” Switzerland’s largest bank is weathering the crisis relatively well, considering its share price is down only 10 per cent this year, a more modest fall than any other global lender apart from Wall Street’s Morgan Stanley. This is no accident. Both have built wealth management arms that boast more than US$2 trillion of client assets, generating consistent fees from the wealthy and super-rich desperate for advice on how to trade the pandemic.
Brief: While the amount raised and invested by private equity funds capped six years of unprecedented growth in 2019, the health and financial crisis brought about by Covid-19 has put paid to the idea that the good times might continue into the new decade. Certain trends – such as increasingly picky LPs and the incorporation of ESG, P2P, buy and build and extension of share ownership – should intensify in the aftermath of the pandemic, while others – the surge in the value of multiples, jumbo funds, increase in leverage – are likely to fade or disappear completely. It might seem like an age ago, but back before the coronavirus – and its attendant consequences for the world of investment – hit, the PE industry seemed to be in decent shape. But while capital amassed remained at a high level, a plateau had, in fact, been reached and the industry was almost certainly entering the end of a cycle.
Brief: Rhenman & Partners Asset Management, a Stockholm-based hedge fund firm which invests in global healthcare stocks, is optimistic about a post-US election market bounce, and points to “intense activity” among vaccine developers working on a treatment for Covid-19. The firm’s Rhenman Healthcare Equity Long/Short Fund – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company stocks – was down in July. But Henrik Rhenman, founding partner and chief investment officer, believes the traditional uncertainty that typically looms over the healthcare sector ahead of every US presidential election will give way to a strong uptick in November and December. Rhenman Healthcare Equity Long/Short slipped 3.7 per cent in July in its euro-denominated class and is down roughly 0.5 per cent for the year so far, while its dollar share class was up 1.1 per cent last month.
Brief: Trading the Covid-19 curve can prove challenging. With global case counts still rising, investors should consider buying into countries that have gotten a better handle on the virus than others, ETF Trends CEO Tom Lydon told CNBC’s “ETF Edge” on Monday. “Take Europe,” Lydon said. “Areas like Italy are not doing well with the coronavirus and their markets aren’t doing well. [In] contrast, northern Europe, the Nordic regions, are actually doing really well.” The iShares MSCI Denmark ETF (EDEN), for one, is up nearly 18% year to date. That fund is heavily weighted toward health-care and industrial stocks, with pharmaceutical play Novo Nordisk accounting for more than 18% of the portfolio.
