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Brief: One hedge fund may shut an office in Asia permanently and have employees work from home. Another may dramatically shrink its Manhattan headquarters. Meanwhile, industry titan Millennium Management has a 50-point checklist for reopening offices that includes air filtration and an application process for staff who want to come in. Around town, rivals are discussing procuring infrared temperature scanners for entryways and plexiglass dividers to slide between desks. If Wall Street’s big banks are adopting off-the-rack approaches to reopening skyscrapers to armies of employees, the asset management industry’s solutions are much more bespoke. Interviews with almost a dozen industry players show their plans are idiosyncratic and may go to new extremes. It reflects their need to protect star traders at any cost, but also the reality that they have less control over buildings shared with other tenants.
Brief: Asset managers will have to explain how they ignored the risk to their investments posed by a pandemic like Covid-19, under the new UK Stewardship Code that came into force this year. BlackRock, Fidelity International, Standard Life Aberdeen, Schroders and Legal & General Investment Management are among the leading companies that say they did not raise pandemic risk in discussions with companies or take it into account in investment decisions. Under the new code, asset managers are required to publish a report detailing “how they have identified and responded to market-wide and systemic risks” and “how they aligned their investments accordingly”. Even though the new code applies only from the start of the year, the Financial Reporting Council, the regulator that oversees the code, says that companies will be expected to say whether they took any account of pandemic risk before the outbreak.
Brief: A cluster of big name hedge funds have started betting against French companies, moving in after the lifting of a short-selling ban imposed earlier this year to calm financial markets, an analysis of regulatory filings showed. France joined Italy, Spain, Belgium, Austria and Greece in dropping short-selling bans last week. They had banned the practice for many stocks two months ago to curb extreme stock market volatility caused by economic uncertainty that has resulted from the coronavirus lockdowns. Hedge funds engage in so-called “short-selling” by borrowing a stock from an institutional investor, such as a pension fund, and selling it back when the shares fall, pocketing the profit… Citadel, Marshall Wace and Millennium are among hedge funds that have taken out short positions on French companies over the past week, with Peugeot (PEUP.PA) and Air France-KLM (AIRF.PA) among the most prominent targets. British hedge fund Sandbar Asset Management took the opportunity to double its short position in Air France to 1.2% of the company’s equity capital on May 20, from 0.6% on March 17.
Brief: Rich Chinese investors are finding luxury real estate is a good hiding place from the economic fallout of the coronavirus. Across China and in some of their familiar hunting grounds in Asia, wealthy buyers are snapping up top-end housing, in many cases to guard their wealth against anticipated inflation and a weakening yuan. The rush to add real estate has led to a jump in upmarket housing prices in China, while offering some support for Asian property markets hit hard by the pandemic. "It's been flat-out," said Monika Tu, founder of Black Diamondz, an Australian company that caters to Chinese buyers of luxury real estate. Since March, Tu has sold A$85 million (S$79.3 million) of prime property, with about half the sales to Chinese clients who were in Australia when the pandemic hit. That's a 25 per cent jump from earlier in the year. The homes, priced between A$7.25 million and A$19.5 million, are all in Sydney's well-heeled, ocean-front suburbs such as Point Piper.
Brief: The novel coronavirus outbreak and economic fallout is proving to be a bonanza for whistleblower lawyers as the U.S. securities regulator cracks down on a range of related misconduct from companies touting sham cures to misuse of federal aid. The Securities and Exchange Commission (SEC) fielded about 4,000 complaints from mid-March to mid-May, a 35% increase on the year-ago period, Steven Peikin, the agency’s co-head of enforcement, said this month as cases of COVID-19, the respiratory illness caused by the coronavirus, shot up… Getnick said a broad range of misconduct related to the COVID-19 outbreak, such as loan fraud, price-gouging, counterfeit or substandard medical goods, or healthcare fraud, could potentially find their way into the SEC’s remit, due to the breadth of U.S. securities law.
Brief: Father-of-six Nicolas Bryon didn’t get much sleep in March but it wasn’t family duties keeping him up. As global markets crashed, the Sydney-based hedge-fund manager rose every hour to check on his positions and execute trades. After weeks of broken sleep, his Atlantic Pacific Australian Equity Fund was up 23.6% for March and April, making it one of the rare hedge funds globally that made money in both periods. The two wildly different months messed with even some of the biggest money managers. In March, several bears reaped fortunes by betting on falling markets, only to lose money in April when government stimulus revived stocks. Globally, just 13% of hedge funds made money in both months, according to data compiled by Bloomberg. A number of those that did exhibited similar traits: an ability to trade across different geographies or asset classes and a hyper-vigilance toward monitoring positions.
Brief: UBS Group AG is setting aside hundreds of millions of dollars of its own money to invest in fintech companies, joining peers in financing startups that are upending traditional banking. The Swiss wealth manager is planning a corporate venture capital fund to make investments between $10 million and $20 million in dozens of companies, according to a person familiar with the matter. UBS plans to hold the stakes for at least five years, the person said, asking for anonymity because details haven’t been finalized. A UBS spokeswoman confirmed the bank is starting such a fund, while declining to comment on specifics. The venture fund comes just months after UBS named ING Groep NV’s Ralph Hamers, an outspoken champion of digital banking, to succeed Sergio Ermotti as chief executive officer from October. While wealth management -- UBS’s biggest business -- is traditionally a high-touch operation, with clients valuing personal contact, the coronavirus pandemic has accelerated a shift toward digital services.
Brief: Canadian banks, whose dividends yields climbed during the financial crisis, are again gaining favor with investors, as their pledges to maintain payouts gives them an edge over global counterparts who have shunned them. Canadian banks are currently offering dividend yields of 5.7% versus U.S. banks’ 4.2% and European lenders’ 1.7%, according to Datastream. Dividends are seen as evidence of good financial health and encourage loyalty from investors, particularly in the current low-yield environment. Canadian lenders have seen the smallest declines in share prices versus peers in Europe and the United States in the past three months. “Globally, there continues to be a pursuit for yield … and there are simply not many places where you can get yield anymore,” said Kash Pashootan, Chief Executive Officer of First Avenue Investment Counsel.
Brief: The remote-working environment is forcing investment consultants to rethink the way they assess money managers on behalf of institutional investors, leading to concerns over the ability of firms to get onto all-important recommended lists. The coronavirus pandemic and subsequent lockdowns worldwide have not stopped investment strategy search activity. And with institutional investors back up and running when it comes to hiring — and perhaps terminating — managers as they pick over market opportunities, consultants now have to keep up with any changes within existing relationships, and in some cases familiarize themselves with new firms and strategies, in a virtual manner. "Can we build the same level of conviction virtually? The answer is probably no, but it's not quite as bad as we feared," said Nick Samuels, London-based head of manager research at investment consultant Redington Ltd. "It's a little more efficient, you can get through more in a shorter space of time, and we don't have the travel time we used to, which can instead be used by meeting more people, or further desk-based quantitative work."
Brief: Asset allocators are likely to have the upper hand over managers in any near-term commitments to private capital funds, if recent history is any indication. Preqin data from 2009 indicates that limited partners were better able to negotiate lower fees and other favorable terms in the wake of the 2008 financial crisis. In the 2009 survey of private equity investors, 43 percent said the balance of power had shifted toward LPs, while just 2 percent believed that general partners had gained power. Thirty-six percent said their position had not changed, while the rest reported that they weren’t investing in private equity at the moment. “The few LPs with fresh capital to commit found themselves in a stronger position to negotiate fund terms and conditions in their favor,” Preqin analyst Ashish Chauhan wrote in a new blog post discussing the 2009 data. “Some fund managers were able to compete for this investor capital by offering more LP-friendly terms and conditions.”
Brief: U.S. prosecutors have charged the recently ousted owner of a Hollywood movie distributor with defrauding a federal coronavirus Prosecutors said William Sadleir, 66, diverted much of the $1.7 million of loans he received on May 1 from the Paycheck Protection Program for personal expenses. He allegedly did this after falsely telling JPMorgan Chase & Co and the Small Business Administration the funds were meant for his former company Aviron Group, which had terminated him in December and where he has no current role. The PPP was meant “to help small businesses stay afloat during the financial crisis, and we will act swiftly against those who abuse the program for their own personal gain,” U.S. Attorney Nick Hanna in Los Angeles said in a statement. Sadleir was also accused of having previously induced the closed-end BlackRock Multi-Sector Income Trust Fund to invest $75 million in Aviron to support its films.
Brief: Sculptor Capital Management’s (SCU.N) credit funds drew inflows from investors even as losses piled up at its SCU Credit Opportunities fund after weeks of coronavirus-fueled market swings.Credit funds operated by Sculptor, formerly known as Och-Ziff Capital Management, received around $1 billion in new money in recent weeks, a person familiar with the fund said.Those inflows come despite a rocky March in which the fund badly underperformed its peers. The SCU Credit Opportunities Fund, part of Sculptor’s $6 billion lineup of credit portfolios, was down 19.2% in the year to date through April after a 21.5% drop in March, according to investors in the fund.By contrast, the credit-sensitive HFRI Event Driven Index was down 9.32% in the same time frame.A representative for Sculptor, which manages a total of $35 billion in assets for pension funds and other wealthy clients and is one of the industry’s few publicly-listed firms, declined to comment.
Brief: As the hedge funds once clustered in London’s Mayfair negotiate gyrating markets, they are facing a new line of investor questioning: who has contracted COVID-19? With billions sometimes riding on the performance of one star manager, or a small constellation of talent, investor interest in delving into the medical status of staff — a realm considered by many private — is perhaps understandable during a pandemic. “The important thing for managers is planning – what do they intend to do on the basis of when, not if, they get the virus,” said one of three investors who told Reuters they wanted to be informed about any coronavirus infections at the hedge funds they invest with. But most of Britain’s hedge fund managers have no protocol for divulging such details and there are no specific legal requirements for them to do so, according to Samuel Brooks, a partner at law firm Macfarlanes… They say they would only tell investors if their top managers fell seriously ill, but not necessarily inform them of a mild infection, or if lower-ranking staff became sick, according to interviews.
Brief: Some of the world's biggest investors are worried that a second wave of coronavirus could derail the global stock market recovery, with many anxious about further lockdowns being put in place as a result. A poll of global investors, which manage more than $17tn collectively, found that 70% of hedge funds and long-only investors are “somewhat worried” or “very worried” about another outbreak of the disease, which has so far killed more than 320,000 globally and caused near economic paralysis. Respondents to the survey, conducted by online opinion sharing platform Procensus, also put a 34% probability on their region entering full lockdown again. The poll found that 34% are now prioritising data signals on infection rates and a second wave of Covid-19 cases, over news of a vaccine being developed. More than 30% of investors said they do not expect a vaccine to be ready on a global scale until 2022 at the earliest. However, others are more optimistic with 22% expecting a vaccine will be available by the second quarter of 2021.
Brief: Forget buy-and hold. Stuck at home and dreaming of a killing, bored retail traders are branching out into all manner of Wall Street exotica. Darting in and out of stock options, dabbling in complicated exchange-traded funds, devouring trading how-to books by the dozen -- all have become tools in the self-directed portfolio playbook. Locked down and socially distant with lots of time and (apparently) money to spare, they’re leveraging zero-percent brokerage fees in new and surprising ways. Big shock: Wall Street says it will end badly. “Obviously you’re exposing yourself, depending on how you’re doing it, to catastrophic loss,” said Brian Nick, chief investment strategist at Nuveen. “If you get a lot of investors in either individual securities, companies or investment strategies that they may not have experience with, it could lead to unhappy investors down the road.” Whatever the advisability, individual investors have been a rising force in the $6 trillion stock rebound. Contrary to old-school theories that mom and pop bail at times of market crisis, they piled in this year, lured by free trading and, probably, boredom, with casinos closed and sports betting halted.
Brief: Hedge funds concentrated their portfolios even further into growth stocks including Amazon.com Inc (AMZN.O) and Microsoft Corp (MSFT.O) in the first quarter of 2020 as the COVID-19 pandemic pummeled U.S. markets, Goldman Sachs analysts said in a report. The two American multinationals saw the largest increase in hedge fund holdings, according to an analysis by the bank of 822 funds with 1.8 trillion in gross equity positions. Along with Facebook Inc (FB.O), Alphabet Inc’s Google (GOOGL.O) and China’s Alibaba (BABA.N), they have been hedge funds’ top five long positions for seven consecutive quarters, the report said. Goldman Sachs said the focus on growth stocks, which tend to outperform the overall market, had supported recent hedge fund performance as Wall Street witnessed one of the quickest turns to a bear market amid a near-collapse in business activity.
Brief: As the global economy contends with the biggest growth slowdown in decades, an Invesco fund manager has flipped his positions. Alessio de Longis, a New York-based fund manager at the $1.3 billion Invesco Oppenheimer Global Allocation Fund, said he is now underweight traditional haven currencies -- including the yen and the Swiss franc -- which are overvalued relative to their peers. He’s considering adding more exposure to the euro, Canadian dollar, Swedish krona and Norwegian krone since those are likely to carry more upside potential when growth prospects pick up. These currencies may get a boost as central banks and governments globally unleash billions of dollars in stimulus and rate cuts to counteract the crisis. Even though the outlook is grim at the moment, de Longis believes much of the current economic gloom has already been priced in.
Brief: Elevator queues, mandatory masks and staggered start times may await Toronto’s office workers when they start venturing back to North America’s second-largest financial centre. These are among the measures Cadillac Fairview Corp. Ltd. is pursuing as the commercial property firm prepares for a “measured” return of workers to downtown buildings. The company is landlord to some of Canada’s largest banks as the owner of office towers such as TD Centre and RBC Centre. “It’s going to be a gradual but steady climb back to normalcy,” Sal Iacono, Cadillac Fairview’s executive vice-president of operations, said in an interview. Ontario has been easing restrictions on business as the COVID-19 pandemic, which has killed nearly 2,000 people in the province, finally eases. Office workers should brace for dramatic changes, with numerous precautions to protect them and the public. Cadillac Fairview, owned by the Ontario Teachers’ Pension Plan which oversees 70 properties in Canada including the Toronto Eaton Centre shopping mall, is just one of the city’s large landlords adopting new measures to make returning to work safe.
Brief: Goldman Sachs is bullish on the world’s hardest-hit stock market. Down more than 48% this year when measured in dollars, Brazilian stocks will benefit from growing appetite for risky assets and a recovery in commodities prices during the second half of 2020, strategists led by Kamakshya Trivedi wrote in a report dated May 20. “Brazilian equities are an ideal bounceback candidate,” the strategists said. They recommended investors go long the benchmark Ibovespa index with a target of 90,000 points, or about 9% above current levels. Investors have fled from Brazilian stocks and its currency this year as the Covid-19 pandemic battered the economy and worsened the nation’s already-fragile fiscal outlook. Assets have been further undermined by political turbulence and a lack of confidence in President Jair Bolsonaro as he downplays the coronavirus threat even as Brazil becomes the world’s hotspot for new infections.
Brief: The 2008 financial crisis exposed many deficiencies in corporate governance practices in the alternative funds industry. Not only was it revealed that a lot of offshore boards failed to prevent managers from succumbing to style drift and investment mandate breaches, but when the crisis hit, many directors simply permitted firms arbitrarily to impose gates and suspend redemptions without proper consideration being given to the best interests of investors. Many were left trapped in funds for long periods as a result. As markets stabilised, investors made it clear that some directors had neglected their fiduciary responsibilities and promptly demanded reform. Twelve years on from the financial crisis, Covid-19 is causing a different set of challenges.
Brief: Forescout Technologies Inc (FSCT.O) sued Advent International Corp on Wednesday, after the private equity firm pulled out of a deal to buy the U.S. cybersecurity company for $1.9 billion.Forescout shares fell 5.2% to close at $19.84.Companies are walking away from acquisitions agreed to before the global coronavirus outbreak as economies suffer from lockdowns and recovery prospects are unclear.Forescout asked the Delaware Court of Chancery to force Advent to complete the deal after the buyout firm notified it last Friday it would back out. The agreement was signed in early February and scheduled to close on Monday.In a statement, Advent responded that it had informed Forescout of the company’s failure to maintain operations and financial resources as required under the agreement.
Brief: The largest managers will tighten their grip on private capital markets during the coronavirus pandemic, according to PitchBook. “Covid-19’s impact on in-person due diligence is thwarting fundraising attempts by nearly every GP and further exacerbating the bifurcation between mega-fund managers and everybody else,” Wylie Fernyhough, a senior analyst for private equity at PitchBook, wrote in a new report analyzing fundraising trends. “Business travel and in-person due diligence will likely be inadvisable for LPs for several months, meaning mega-funds and more established firms will continue to assume the lion’s share of capital.” According to the report, private equity firms Thoma Bravo, Silver Lake Management, New Mountain Capital, and Francisco Partners have either launched mega-buyout funds — defined by PitchBook as vehicles targeting $5 billion or more — or are nearing first closes in spite of the coronavirus pandemic. Smaller firms, meanwhile, “have had to push out fundraising efforts indefinitely,” according to Fernyhough.
Brief: Investors pulled more than £100m from the Schroder Income fund in March and April of this year as UK companies began culling their dividends and leaving investors bereft of income amid the coronavirus crisis. Estimates from Morningstar showed the Schroder Income fund suffered the largest net outflows out of the Morningstar UK Equity Income sector in the two months, with £106m withdrawn from the portfolio. The Miton UK Multi-Cap Income fund, the Marlborough Multi-Cap Income fund and the Schroder Income Maximiser fund also saw large outflows of around £50m in March and April, while the Majedie UK Income fund saw £46m of net outflows. UK Equity Income funds have had a tough few months as companies scrapped payouts to shareholders during the crisis. The first major blow for income came as the UK’s biggest banks scrapped their payments for the rest of the year following pressure from the Bank of England to maintain a cash buffer to help them through the coronavirus crisis.
Brief: Northern Trust Corp. is shutting down a money-market mutual fund after volatility in March spurred redemptions that sent it below a regulatory threshold for maintaining liquidity. The $1.7 billion Northern Institutional Prime Obligations Portfolio will stop accepting new investments next month and start selling its holdings under a liquidation plan set for July 10, according to a filing Monday. As a prime fund, it can invest in riskier securities than traditional money-market funds, including commercial paper, the term for short-dated bank debt and corporate IOUs. “The Board of Trustees has determined, after consideration of a number of factors, that it is in the best interests of the Prime Obligations Portfolio and its shareholders that the portfolio be liquidated and terminated,” the company said in its filing with the U.S. Securities and Exchange Commission. A spokesman for Chicago-based Northern Trust didn’t immediately have a comment.
Brief: The world’s largest credit ETF has ballooned since the Federal Reserve said it will backstop the market. Total assets in BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, ticker LQD, touched a record $46.7 billion on Tuesday, according to data compiled by Bloomberg. That compares to $28.2 billion on March 19, just days before the central bank said it would purchase investment-grade corporate bonds and certain ETFs that tracked them. The Fed’s move spurred a rally in high-grade bond markets, where investors were shedding their holdings in an effort to raise cash amid dire economic data. The central bank’s pledge combined with the asset class’s strong fundamentals makes investment-grade bonds look appealing, according to Columbia Threadneedle’s Ed Al-Hussainy.
Brief: A hedge fund chief who had a bullish view of the stock market when social distancing restrictions began is now supporting the idea of herd immunity to coronavirus as states begin to reopen. Ricky Sandler, founder and CEO of Eminence Capital, recently told friends in a letter obtained by CNBC that he believes there should be a widespread attempt at protecting the vulnerable while large portions of the population develop herd immunity. Sandler, who lost billions on his stock market positions nearly two months ago, writes: “With proper coordination, I can envision Artists hosting virus relief concerts where young and healthy people go and hopefully get the virus and then the antibodies which allow them to donate blood to be used as a treatment or a prophylactic.” He went on to say that this proposal, which he calls “Plan B,” also would include “citizens that are comfortable go back to life as we know it with no restrictions.
Brief: When JPMorgan Chase & Co (JPM.N) staff return to offices in regions slowly re-opening from the coronavirus lockdown, some may be required to sit at common desks, or “hot desks,” a temporary seating arrangement that management hopes will make it easier to clean, according to a memo seen by Reuters. The memo, sent on Wednesday to staff in Europe, the Middle East and Africa, said the bank has no timeline for returning staff to offices, but that it is working on a plan that will limit the number of staff in buildings to about 50% at any one time. A JPMorgan spokesman verified the contents of the memo. That puts JPMorgan's plans in line with Goldman Sachs and other global banks, which are working out plans to return staff to offices while avoiding the kind of close social contact that could lead to a resurgence in the novel coronavirus.
Brief: What would seem like a sure win for elite investors - early bets on companies racing to make face masks, hand sanitizer and other coronavirus-related protective products - turned out to be a relatively unpopular strategy and one with surprisingly mixed results. Few hedge funds increased their holdings over the first quarter in companies associated with so-called personal protective equipment (PPE) such as 3M Co. (MMM.N), Kimberly-Clark Corp (KMB.N) and Honeywell International Inc (HON.N), according to a Reuters review of regulatory filings compiled by research firm Symmetric.io showing stock positions as of March 31. Hedge funds, on a net basis, sold off more than $760 million in those three stocks over the first quarter, according to Symmetric.io data, bringing the number of funds that own them down to 225 from 230.
Brief: Investors pulled more than USD85 billion out of hedge funds during March – some 2.7 per cent of total industry assets globally – amid growing fears over the economic impact of the coronavirus pandemic, new data from BarclayHedge shows. Investor redemptions skyrocketed from USD8.1 billion in February to USD85.6 billion the following month, with hedge funds in continental Europe the hardest hit, according to BarclayHedge’s Barclay Fund Flow Indicator. Continental European hedge fund managers suffered outflows of USD38.3 billion, while across the Atlantic US hedge funds recorded USD31.6 billion in redemptions. Funds in the UK meanwhile lost USD24.7 billion in redemptions. The withdrawals piled on further agony in what was a miserable Q1 for the hedge fund industry, with hedge fund strategies of all stripes suffering steep falls in performance during the market maelstrom.
Brief: Traditional long/short fund Lighthaven Capital has committed to help in the fight against coronavirus by donating 25 per cent of its performance fees to fund research into Covid-19. Here, Founder and CIO Eric Cheung explains how a forward-thinking outlook is key to the firm’s investment philosophy… Back in 2018, the warning signs that the US stock market was getting toppish were picked up on by Eric Chung, CIO and founder of San Francisco-based Lighthaven Capital Management, a traditional equity long/short fund. At the time, Chung noticed that the Shiller P/E ration of the S&P 500 was as high as it had ever been, other than during the ‘Dot Com’ boom. “That gave us some pause and we readied ourselves in the event there was some catalyst for a downturn. One such catalyst was the US China trade war. We hedged significantly in 2018 which helped us when the market fell in Q4; we ended the year up over 26 per cent,” says Chung.
Brief: A small group of hedge funds managed to overcome the fast and furious market rout in March as the coronavirus pandemic sent countries around the world into a lockdown. For them, the sell-off brought riches that some haven’t seen since … well, since the last financial crisis. Notably, these profits were derived from a wide variety of investment approaches, from macro and credit to long/short equity and oil. The crisis beaters were the exceptions. Most hedge funds, including those run by industry titans such as Ray Dalio and Michael Hintze, failed in their mission to protect investors from the market turmoil. Three in every four hedge funds lost money, with some down as much as 40% in March, according to data compiled by Bloomberg.
Brief: Asset managers have been warned they must rapidly adapt their business models to claw back investor flows and profits lost as a result of the Covid-19 pandemic, with businesses advised to ramp up their digital distribution capabilities, accelerate cost saving plans and bolster their range of alternative assets. According to a report by Boston Consulting Group, asset managers are facing a “new chapter of economic turmoil in 2020 which is likely to prompt a winner-takes-all phenomenon” not seen since the aftermath of the global financial crisis. “Overall, the market storm of early 2020 has only intensified the industry’s challenges, as asset managers find themselves in uncharted territory,” said Lubasha Heredia, a New York–based BCG partner and co-author of the report.
Brief: JPMorgan CEO Jamie Dimon said in a memo to stakeholders on Tuesday that the coronavirus pandemic is a "wake-up call" to build an "inclusive economy" that recognizes the financial situations of all parties involved.Dimon said: "This crisis must serve as a wake-up call and a call to action for business and government to think, act, and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."The bank chief said he looked forward to sharing more ideas on how to create an "inclusive economy" that is stronger, more resilient, and offers "widespread access to opportunity." Dimon said: "From the reopening of small businesses to the rehiring of workers, let's leverage this moment to think creatively about how we can mobilize to address so many issues that inhibit the creation of an inclusive economy and fray our social fabric."
Brief: American financial conditions have loosened at the fastest pace since at least 1990, belying mounting investor skepticism that a V-shaped economic recovery will follow the pandemic-induced crash. A Bloomberg measure of market health across bond, stock and liquidity indexes has staged a revival like never before -- bouncing back to early March levels, when recorded coronavirus cases globally were around 90,000 versus more than 4.8 million today. All told, this gauge of animal spirits has improved from the nadir by 5.4 standard deviations in just 37 trading days, a feat that took 50 days back in 2008. Explaining why investors are getting their mojo back is the easy part. Thank historic policy stimulus, indications that the collapse in the investment and consumption cycle has bottomed, as well as the global race for an experimental vaccine.
Brief: More than two-thirds of professional investors doubt that the stock market jump off the March lows is the start of a legitimate new bull market, according to the Bank of America Fund Manager Survey for May. Amid a surge that has seen the S&P 500 rise 32% since the March 23 trough, some 68% of survey respondents called the move a “bear market rally.” The term implies that even though the surge tops the 20% benchmark that would signal a new bull market, the fundamentals tell a more pessimistic story. The Bank of America poll is among the most widely followed surveys of investors on Wall Street. That said, respondents still see the near-term “pain trade,” or the one that catches most investors off guard, as the market going higher. Current sentiment is consistent with an S&P 500 level of 3,020, or about 2.3% higher than Monday’s close, according to Michael Hartnett, chief investment strategist at Bank of America Global Research.
Brief: Citigroup Inc (C.N) said on Tuesday that is launching a new business unit within its corporate and investment bank dedicated to environmental sustainability to strengthen its commitment to an area that has grown increasingly important to corporate clients and investors. The New York-based company said its Sustainability & Corporate Transitions group will be led by Banking, Capital Markets and Advisory (BCMA) Chief Strategy Officer Bridget Fawcett and Keith Tuffley, who has lead the unit’s sustainability efforts so far. “The current Covid crisis will elevate the importance of ESG to our clients, as they increasingly focus on more sustainable and resilient strategies and on recovery plans that help drive the just transition to a net-zero emissions future,” global BCMA heads Tyler Dickson and Manolo Falcó said in a memo to bankers sent on Tuesday. Companies have become more focused on environmental, social and governance (ESG) factors in recent years as activists and investors put pressure on them and companies that put these considerations at the forefront are rewarded.
Brief: BlackRock Inc. Chief Executive Officer Larry Fink said he told President Donald Trump the U.S. needs to spend on infrastructure to generate jobs, as the country navigates the next steps to rescue a coronavirus-addled economy. “I’ve told the U.S. president, and I’ve told this to many other politicians now, that an infrastructure build is really important,” Fink said Thursday in a live-streamed interview with Sergio Rial, CEO of Banco Santander SA’s Brazil unit. The U.S. government has rolled out unprecedented spending to shore up the economy, but business leaders and politicians are already focusing on what new revival efforts should look like. Trump tweeted in March that a $2 trillion infrastructure bill would be a good way to create jobs. Fink also said in the interview that BlackRock, the world’s largest asset manager, has been talking with central banks in the midst of the dual public health and financial crisis.
Brief: Bain Capital is planning to raise about $9 billion for its next flagship global buyout fund, as the U.S. alternative asset manager seeks to tap demand from yield-hungry investors, people familiar with the matter said. The Boston-based firm has started discussions with new and existing investors about the fund, which it aims to close later this year, according to the people, who asked not to be identified because the information is private. Bain’s last flagship fund closed in 2017 at $9.4 billion, which included $8 billion from investors and another $1.4 billion from the firm’s own partners. Similar internal commitments could increase the eventual size of the new fund by a further 10% to 15%, the people said. Buyout firms have been on a fundraising spree as institutional investors reach for better returns in an environment of low interest rates and poor performance from stock-picking fund managers.
Brief: Europe’s trading and hedge fund firms are calling for a removal of the temporary short selling bans issued in several countries from March, in response to the market volatility triggered by the coronavirus pandemic. The trade bodies calling for the repeal represent hundreds of top firms — including the likes of Citco, Man Group, State Street, Guotai Junan Securities, Citadel Securities Europe, Bridgewater Associates and Marshall Wace — who say a removal of the ban is crucial to improving market efficiency and preventing further damage to investor portfolios as a result of the pandemic Their plea comes after the European Securities and Markets Authority said on 15 April that the short-selling ban would remain across Austria, Belgium, France, Greece and Spain until 18 May, with the possibility of a further extension.
Brief: With the broader hedge fund industry facing multiple challenges around rising costs, squeezed profits, and a shifting regulatory backdrop, the prime brokerage sector will need to juggle future disruptions and sweeping changes in client activity as a result of the coronavirus pandemic. In a new market commentary, Anthony Bennett, head of prime brokerage at Capco, a global technology and management consultancy dedicated to the financial services industry, examined the potentially far-reaching fallout of the Covid-19 crisis on the hedge funds/PB relationship, with future success possibly hinging on the degree of diversification within a PB’s business. Gauging perspectives through recent conversations with leading prime brokers, Bennett suggested primes have largely weathered Q1’s historic volatility and de-risking and “passed the initial tests” of the recent crisis.
Brief: A prominent American hedge fund has emerged among a pack of suitors eyeing a deal to prop up Virgin Atlantic Airways as it races to secure the funds it needs to survive the COVID-19 crisis. Sky News has learnt that New York-based Davidson Kempner Capital Management is one of the prospective investors which held talks with Virgin Atlantic bosses this week. The airline, which is seeking more than £500m in debt and equity funding following a collapse in revenue, wants to stitch together a deal this month. Sources said that Davidson Kempner was on a list of financial investors in discussions with Virgin Atlantic which also includes Apollo Global Management, Cerberus Capital Management and Greybull Capital, the former owner of Monarch Airlines. Davidson Kempner, which manages well over $30bn in assets, is among the hedge funds negotiating a financial restructuring of the US department store chain Neiman Marcus.
Brief: Selwood Asset Management, one of the fastest growing hedge fund firms in London, is enticing new clients with a type of fee structure that hasn’t been seen in the industry since the last financial crisis. The firm will waive its cut of some new clients’ profits until assets in its flagship fund reach their previous peak, a threshold known as the high-water mark, according to people with knowledge of the matter. That means Selwood won’t collect a performance fee until the fund has gained 8%, said the people, who asked not to be identified because the information is private. Selwood typically charges performance fees ranging from 13.5% to 30% for its main fund. Discounts like this are rare even for existing clients in an industry that’s notorious for charging high fees. Selwood, whose assets have grown to about $3.5 billion from $85 million at its launch in late 2015, is trying to raise as much as $250 million to take advantage of trading opportunities created by the coronavirus sell-off, the people said. New investors will have to lock their money up in the fund for as long as 12 months. A representative of Selwood declined to comment.
Brief: PresidentDonald Trump and his administration are confident that the U.S. economy will quickly rebound after the coronavirus pandemic is contained — but some experts are not so sure. Count hedge fund billionaire Ray Dalio among the skeptics. “We’re not going to go back to normal,” Dalio tellsCNBC Make It. But he also has hope. “Soon we are going to reconsider how we are going to divide the pie and there are reasons that it won’t be good for capitalists,” Dalio says. Dalio sees the closest parallel to the world’s current economic situation as the Great Depression, which lasted from 1929 well into the 1930s, and is regarded as the worst economic crisis in American history. Much like with the Great Depression, Dalio predicts that the impending downturn will require a recovery period that could last several years, even as long as five years, he says.
Brief: Jefferies Financial Group Inc. is spinning out its systematic hedge fund Quantport, with some staff leaving the firm. Jefferies may retain an interest in the new venture, and the shakeup was in the works before the pandemic, according to a person familiar with the matter. The New York-based fund, which had regulatory assets under management of $3.7 billion as of January, started as part of Jefferies’ proprietary trading desk, before overseeing external money from 2010. Led by Vlad Portnoy, it trades market-neutral strategies in equities and futures. The news was reported earlier by eFinancial Careers. The past few years have seen a number of systematic funds shut as growing competition and muted market swings eroded gains from their strategies. This year’s historic volatility has also been challenging, as the fallout from the coronavirus upended the price patterns underpinning many quant models.
Brief: Cash is king in times of crisis, according to Brookfield Asset Management Inc.’s chief executive officer, and the alternative-asset manager has more than US$60 billion to weather the coronavirus pandemic. If a business isn’t prepared for situations like the COVID-19 outbreak that’s rattled markets, it’s often too late once such a crisis hits, Bruce Flatt said in a letter to shareholders Thursday. “In reflecting on what really matters to our business, it is liquidity, liquidity and liquidity, in that order,” he wrote in the letter. “The most damaging thing for any business owner is to find yourself out of business and unable to participate in the recovery, or in a position of needing to issue shares which dilute the owners, and therefore make it impossible to ever recover from undue dilution at the wrong time.”
Brief: Billionaire Michael Hintze’s CQS is spinning off its nascent equities hedge-fund business into a stand-alone firm as it focuses on core credit strategies that have been hammered by the pandemic. Paul Graham, the firm’s head of equities, will leave CQS to lead the spinoff as chief executive officer, according to people with knowledge of the matter. CQS will take an equity stake in the business and allocate some capital to it, said the people, asking not to be identified because the information is private. The abrupt move comes after sharp losses at the firm’s main hedge funds in March amid the virus-fueled sell-off. Its long-short equities business hasn’t yet started a fund and the firm was recently looking to build out its share-trading offerings under plans initiated by former CEO Xavier Rolet.
Brief: The co-founder of one of the biggest players in private equity said the industry is in “reasonably good shape” and there will be opportunities to buy companies in the coming months. David Rubenstein, a co-founder of the Carlyle Group, said on CNBC’s “Closing Bell” that his firm and other private equity companies are waiting on the right opportunities as the economic impact of the pandemic puts stress on companies around the world. “We have a fair amount dry powder, as do the other large private equity firms. We see a lot of opportunities,” Rubenstein said. “But we don’t think that, if you don’t move in a week or two or three or a month, that you’re going to miss the best opportunities.”
Brief: Johnson’s latest projections have 2020 incentive compensation at traditional asset management declining by 20 to 25 percent. The pay cuts come as assets under management have fallen across the board, with investors fleeing stocks and bonds and rushing into money market funds or cash. Hedge funds, whose average performance is down less than the overall markets, have also suffered asset declines. Their incentive compensation is expected to be down between 15 and 20 percent this year from 2019. Johnson noted that while macro and event-driven funds have been able to capitalize on the market impact of the pandemic, most strategies have taken a hit. Assets are at a multi-year low, according to the firm. Private equity, which has the highest paid professionals in asset management following rapid growth in recent years, will also undergo pay cuts. Johnson Associates expects large private equity firms to cut incentive compensation by 5 to 10 percent, compared to 2019.
Brief: Billionaire hedge fund investor David Tepper told CNBC on Wednesday the stock market is one of the most overpriced he’s ever seen, only behind 1999. His comments sent stocks to a session low. He also said some Big Tech stocks like Amazon, Facebook and Alphabet may be “fully valued.” Before Wednesday’s sell-off, it was “maybe the second-most overvalued stock market I’ve ever seen,” Tepper said on CNBC’s “Halftime Report.” “I would say ’99 was more overvalued.” “The market is pretty high and the Fed has put a lot of money in here,” the founder of Appaloosa Management said. “There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.” The S&P 500′s forward price-earnings ratio based on estimates for the next 12 months has ballooned to above 20, a level not seen since 2002.
Brief: Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. are using fake excuses to renege on buying a 20% stake in American Express Global Business Travel, according to a lawsuit unsealed in the U.S.A unit of Centares Management LLC claims Carlyle’s losses from the coronavirus left it with a whopping case of buyer’s remorse and prompted its attempt to scrap the stock purchase, which had valued the travel entity at $5 billion when it was announced in 2019. Centares leads a group of investors in the deal, including the Qatar Investment Authority and several Carlyle entities. “The Carlyle Group’s losses do not provide defendants with a basis to withdraw from the transaction,” Juweel Investors Ltd., a subsidiary of New York-based Centares, said in the lawsuit unsealed Monday in Delaware Chancery Court. The investment fund “cobbled together a series of pretextual and transparently false excuses to justify their refusal to close” the deal, Juweel said.
Brief: The UK government’s plans to ease lockdown restrictions may have caused confusion and criticism, but some of the world’s largest investment banks have a clear message to their London employees — stay at home. According to internal memos seen by Financial News and people familiar with the matter, banks including Citigroup, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley have told employees that their current remote working arrangements, which have forced them to radically overhaul their staff base, will remain in place for the foreseeable future.Others including Barclays and Deutsche Bank will ask a small proportion of staff to return in the coming weeks. Investment banks with huge, global operations are grappling with how to get their employees back into the office safely as various local authorities loosen restrictions on their populations, but Prime Minister Boris Johnson’s lockdown exit plan has largely failed to prompt any changes at finance firms.
Brief: Wall Street bonuses for 2020 could fall by as much as 25%-30% due to the deep cuts to revenues recorded by banks and hedge funds earlier this year as a result of the novel coronavirus, according to a report published Wednesday by compensation consulting firm Johnson Associates Inc. While most compensation is expected to be down, 2020 is likely to be a year with “wide, wide variations in incentive outcomes between stronger and weaker competitors,” according to the report by Alan Johnson, whose predictions are closely watched by financial professionals. The outbreak of the novel coronavirus has led to widespread shutdowns in the U.S. economy, causing gross domestic product to decline at a 4.8% annualized rate in the first quarter and forcing some 33.5 million Americans to file for unemployment benefits.
Brief: One of my favourite memes recently is the one where the world is sending us back to our rooms to reflect on what we’ve done. The act of being sent back to our rooms, to a place where we have to reset and reprioritise is an opportunity that many business leaders are seizing. Although you might think that the “nice to have” of inclusion and diversity would drop off the business agenda in a time of crisis, it is gaining more traction at firms that want to ensure they innovate and reposition themselves for recovery. Decades of research has shown that diversity brings greater levels of innovation, fosters creativity and improves financial performance. Multiple voices lead to new ideas, services and products and encourage out-of-the-box thinking.
Brief: BDT Capital Partners raised $9.1 billion for its third investment fund, exceeding the amount it had initially sought, according to a regulatory filing Tuesday. The fund has about 200 investors and will focus on buying stakes in family-owned businesses, said a person familiar with the strategy who asked not to be identified because the information is private. More than 90% of the investors have their own businesses or significant family office operations, and about a third are based outside the U.S., the person said. Byron Trott founded Chicago-based BDT in 2009, after an investment-banking career that included working with Warren Buffett and the Pritzker and Koch families, as well as other prominent investors. The firm has about $25 billion under management. So far, the coronavirus pandemic hasn’t stopped private equity firms from raising fresh funds. On Monday, U.K.-based Hg said it would stop accepting new money after bringing in $11 billion for three buyout funds, and KKR & Co. said last week that it had raised $10 billion over the past two months. In all, private equity firms are sitting on about $1.5 trillion of capital to invest…
Brief: London-based hedge fund Cheyne Capital is planning a new vehicle to buy up debt that’s been excessively punished by the coronavirus selloff, the latest in a number of investment firms targeting distressed credit. The firm is seeking to raise 300 million euros ($325 million) and will launch the fund as soon as next month, according to people with knowledge of the matter. Cheyne will buy up bonds and loans that it deems are now cheap and sell them once they’ve recovered, said the people, who asked not to be identified because the information is private. A spokeswoman for Cheyne declined to comment on the new vehicle. Investment firms around the globe that target distressed debt are seeking to make the most of the chaos wrought by the coronavirus pandemic by setting up new funds. Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are among those who are raising capital to invest in discounted debt.
Brief: JPMorgan Chase & Co.’s asset-management arm has launched a new fund to take advantage of dislocations in the public and private real estate credit markets, according to a person familiar with the matter. JPMorgan Asset Management is looking to raise $2 billion to $3 billion from institutional investors for the Real Estate Credit Opportunity Fund, according to the person, who asked not to be identified because the information is private. The vehicle will target 10% to 15% net returns investing in bonds and pools of loans tied to commercial real estate, according to documents viewed by Bloomberg. The fund will invest in strategies including structured credit, rescue loan origination and both performing and non-performing loan acquisition, the documents said. A JPMorgan Asset Management spokesman declined to comment.
Brief: Covid-19 is threatening another mergers and acquisitions process. Kohlberg & Co. is trying to back out of its $550m agreement to buy Decopac, claiming the company has suffered a material adverse effect, according to a lawsuit. Snow Phipps, a New York middle market private equity firm, has sued Kohlberg, alleging the firm has acted in bad faith, has breached its stock purchase agreement to buy Decopac and refused to secure financing on the terms it initially set out, according to a lawsuit filed 17 April in Chancery Court in Delaware. Snow Phipps is seeking specific performance to make Kohlberg complete the sale, the filing said. Kohlberg, of Mount Kisco, NY, agreed on 6 March to buy Decopac, which supplies and markets cake decorating products. Snow Phipps claims that Kohlberg knew about Covid-19 and the seriousness of the virus when it signed the agreement.
Brief: Assets under management at Allianz SE fell 6.2% in the first quarter, as subsidiary Pacific Investment Management Co. recorded net outflows of €43 billion ($47.5 billion). Total AUM was €2.13 trillion as of March 31, an increase of 1.4% for the year, an update said Tuesday. Group revenue grew 20% for the quarter and 5.7% for the year, to €42.6 billion. Net income dropped 17.9% for the quarter and fell 27.7% for the year ended March 31, to €1.48 billion. Third-party assets under management — made up of Allianz Global Investors and PIMCO — fell 7.7% in the first quarter to €1.56 trillion. Third-party AUM grew 0.6% for the year. Third-party net outflows were €46.4 billion in the first quarter. That compared to €20 billion and €18 billion in net inflows for the quarters ended Dec. 31 and March 31, 2019, respectively.
Brief: SkyBridge Capital, the investment firm founded by Anthony Scaramucci, is turning to some of the biggest names in the hedge fund industry to boost returns after its portfolio lost almost a quarter of its value this year. The firm is investing $100 million each in Ray Dalio’s Bridgewater Associates and Howard Marks’s Oaktree Capital Group, according to a letter sent to clients on Monday. The fund-of-funds will allocate an additional $90 million to Dan Loeb’s Third Point. Scaramucci said all three performed well in the last financial crisis and in other periods of market dislocation. “We believe our investors will be better served -- in good and bad markets -- by greater diversification across different strategies and across different managers,” he wrote. “We learned hard lessons in March, and we are taking decisive corrective action.” SkyBridge’s flagship fund lost nearly 24% in the first four months of the year. After investing heavily in credit hedge funds, the fund posted most of the losses in March as the coronavirus fueled a market sell-off. Clients have asked to redeem 9.3% of capital for June 30, an amount Scaramucci called “manageable.”
Brief: TIAA-CREFis offering a voluntary separation program for 75% of its U.S. employees, which includes employees ofNuveen, TIAA's investment manager.The 25% of employees not eligible for the program "involve certain groups that are involved in processes and technology necessary to conduct business, and some critical client support roles," TIAA said in an emailed statement. The program offers 45 to 91 weeks' salary, depending on length of service and salary, 100% of last year's bonus and six months of outplacement assistance, the email said. "As we navigate through these unprecedented times, we are exploring a variety of measures to reduce costs while managing our business and continuing to serve our clients. As part of that process, we have introduced a voluntary separation program for our employees, which is designed to give our people the ability to decide what's best for them," the company said in the statement…
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