Brief : About 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, sits what was once the heart of the global financial industry’s back office. Before the pandemic, this cluster of glass-and-steel towers housed thousands of employees at firms like Goldman Sachs Group Inc. and UBS Group AG who played critical roles in everything from risk management to customer service and compliance. Now the buildings are eerily empty. And with case counts soaring across Bangalore and much of India, work-from-home arrangements that have sustained Wall Street’s back-office operations for months are coming under intense strain. A growing number of employees are either sick or scrambling to find critical medical supplies such as oxygen for relatives or friends. Standard Chartered Plc said last week that about 800 of its 20,000 staffers in India were infected. As many as 25% of employees in some teams at UBS are absent, said an executive at the firm who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and reward programs is running behind schedule, an executive said.
Brief: Fears of rising interest rates and warnings over bond valuations have made junk- and investment-grade rated bonds a popular short bet among hedge funds. Speculators are predicting fresh pain for the bond market, especially for longer-dated bonds with sovereign yields being tipped to rise due to an increase in inflation forecasts. This comes amid warnings from market experts regarding the “over-extended” valuations of CCC-rated bonds, the riskiest class of debt. Global high-yield bonds worth as much as $55 billion are on loan to traders seeking to profit if prices drop, according to data from IHS Markit Ltd., by a narrow margin the largest balance since the fall of 2008. This compares with about $35 billion at the start of the year. In the euro-denominated investment-grade market, roughly $30 billion equivalent of bonds have been borrowed, the largest loan balance since early 2014. “I would expect that list to get bigger as spreads tighten and/or people get worried about rates rising,” said Tim Winstone, a portfolio manager at Janus Henderson, which oversees 294 billion pounds ($409 billion). “At these levels of valuations, I’m not surprised more people, such as hedge funds, are setting shorts.”
Brief: A new report from technology-focused investment bank ICON Corporate Finance, has revealed record-breaking tech deal activity in the first quarter of 2021, up 28 per cent on Q1 2020, with 268 deals announced. Evidencing resilience within the sector and a huge appetite for Vertical and Enterprise Software organisations, ICON believes M&A activity is yet to see its peak, and could easily surpass the UK total of 711 tech M&A deals completed last year. Digital transformation, fast-tracked by lockdowns across the world, has created a plethora of new digital solution providers that are grabbing the attention of overseas PE backed acquirers. Among these, UK Vertical Software providers are proving flavour of the month as PE houses look to buy, build and eventually sell. Corporate acquirers too are playing their part in an effort to gain an edge over rivals or to provide new revenue streams. The result has been valuations rising to near record levels. ICON believes that Digital Transformation across all industry sectors, including Vertical and Enterprise Software will continue to accelerate, boosted in no small part by appetite from overseas investors. Last year a record-breaking 48% of all UK deals involved cross-border backing, a figure which could yet be surpassed in 2021.
Brief: Canada's labour market lost 207,000 jobs last month as a spike in COVID-19 variant cases led to renewed public health restrictions and raised concerns about longer-term economic consequences from the pandemic. The unemployment rate rose to 8.1 per cent from 7.5 per cent in March, Statistics Canada reported. It would have been 10.5 per cent had it included in calculations Canadians who wanted to work but didn’t search for a job. Ontario led the way on losses regionally with a drop of 153,000, and British Columbia witnessed its first decrease in employment since a historic one-month plunge in the labour market in April 2020. Nationally, losses were heavier in full-time than part-time work, with retail and young workers hit hardest as a resurgence of the virus and its variants forced a new round of restrictions and lockdowns. With lockdowns continuing into May, CIBC senior economist Royce Mendes said more losses this month are possible. Leah Nord, senior director of workforce strategies with the Canadian Chamber of Commerce, said the latest setback in the labour market will carry a long-term impact on the workers and businesses affected, particularly in high-touch sectors that are falling further behind.
Brief: Abu Dhabi state investor Mubadala's total income rose nearly 36% to a record high last year, driven by growth in its public equities portfolio and funds while it accelerated investment during the COVID-19 pandemic. Mubadala Investment Co posted total comprehensive income attributable to the owner of 72 billion dirhams ($19.60 billion), up from 53 billion dirhams a year earlier, it said in a statement. Comprehensive income includes net income and unrealised gains such as hedges on financial instruments or foreign currency transactions. Assets under management rose 4.8% to 894 billion dirhams. It also invested 108 billion dirhams of capital in 2020, the most it has invested in a single year. Deals included 4.3 billion dirhams in Reliance Industries-owned Jio, 2.7 billion dirhams in private equity investor Silver Lake and 7.5 billion dirhams through partnerships with CVC, Citadel, iSquared Capital and Apax Partners. "We navigated our portfolio through the dramatic macroeconomic decline of early 2020 and decided to accelerate the pace of our capital deployment, ending the year with record profit and growth," said Mubadala CEO Khaldoon al-Mubarak.
Brief: For women in the financial services industry, the Covid-19 pandemic exacerbated the challenges they face in their jobs, resulting in a significant exodus from the field. In a survey conducted by Accenture, a global technology and business consulting firm, 29 percent of women working in financial services said they left their job either permanently or temporarily during the pandemic, while 34 percent of women who hadn’t left their jobs said they were considering leaving their current firms. Almost half of the women who were considering leaving their firms held entry-level positions, meaning they have fewer than five years of industry experience. In an already male-dominated sector, improving gender diversity is a priority for many firms, but current initiatives may not have been effective enough to combat the pandemic’s toll on non-male employees. Across all career levels — senior, supervisory, and entry-level — over half of the women in the survey said they faced “increased pressure” as the main caregivers in their households, a dynamic they attributed to the pandemic. Among the most affected by the pandemic were executive and senior management respondents, 59 percent of whom believed the pandemic had adversely affected their career progression. As Gema Zamarro, a professor at the University of Arkansas, senior economist at the University of Southern California Dornsife Center for Economic and Social Research, and mother of two kids, summed it up: “You’re doing three jobs: mom, teacher, and your own work.”
Brief : As U.S. retailers celebrate a boom lifting one of the pandemic’s hardest-hit sectors, scars left by a year of bankruptcies and delayed vendor payments could threaten to undermine their recovery -- just as the crucial back-to-school shopping season begins. After watching their receivables mount last year, vendors of apparel and other goods demanded change. In order to ship, many began requiring payment upon delivery of the goods or even in advance, according to people with knowledge of the demands, which were made of distressed and healthy clients alike. For merchants, that’s a big cash drain at a time of great uncertainty. The shift comes after retailers spent much of last year delaying payments to preserve cash. Such maneuvers have long been used by struggling chains, but amid the pandemic, even more stable merchants like Macy’s Inc. and Gap Inc. followed suit. An analysis of company financial data showed such buyers took at least two weeks longer to pay their suppliers than the same period the prior year. Vendors are “shell-shocked” after a string of Covid-era bankruptcies left them with large losses, and more concerned about guaranteeing they’ll be paid, said Perry Mandarino, head of restructuring and investment banking at B. Riley. “Late payments are not being tolerated,” Mandarino said.
Brief: Financial institutions and their directors have to navigate a rapidly changing world, marked by new and emerging risks driven by cyber exposures based on the sector’s reliance on technology, a growing burden of compliance, and the turbulence of Covid-19, according to a new report Financial Services Risk Trends: An Insurer’s Perspective from Allianz Global Corporate & Specialty (AGCS). At the same time, the behaviour and culture of financial institutions is under growing scrutiny from a wide range of stakeholders in areas such as sustainability, employment practices, diversity and inclusion and executive pay. “The financial services sector faces a period of heightened risks. Covid-19 has caused one of the largest ever shocks to the global economy, triggering unprecedented economic and fiscal stimulus and record levels of government debt,” says Paul Schiavone, Global Industry Solutions Director Financial Services at AGCS. “Despite an improved economic outlook, considerable uncertainty remains. The threat of economic and market volatility still lies ahead while the sector is also increasingly needing to focus on so-called ‘non-financial’ risks such as cyber resilience, management of third parties and supply chains, as well as the impact of climate change and other Environmental Social and Governance (ESG) trends.”
Brief: Many are predicting a bright future for biotech firms involved in the production of Covid-19 vaccines as they are rolled out across the globe, but US President Joe Biden’s proposal that vaccine producers should temporarily waive patent protection has dampened this rosy outlook and is likely to result in significant pushback from firms in the sector. On Wednesday (5 May), Biden announced his support for waiving intellectual property rights for Covid-19 vaccines, bowing to increasingly pressure from within his own administration and other nations to help the rollout of the vaccine in less developed countries, such as India and South Africa. The news sent some pharmaceutical stocks plummeting. Moderna's stock was down 6.2% to $163 following the announcement while the Novavax share price fell 5% to $172, though Pfizer's stock price dropped only slightly. Healthcare shares in China were also affected by the news, with the CSI Health Care index falling nearly 4% to 15,727 points. Industry experts speculate that the decision was prompted in no small measure by Pfizer's Q1 earnings update, announced the same day, where it revealed it had recorded vaccine sales of $3.5bn in the first quarter of the year and expects full year sales of $26bn. As Jim Wood-Smith, CIO private clients & head of research at Hawksmoor Investment Management puts it, this situation raises "profound moral and financial problems".
Brief: Sculptor Capital Management’s flagship hedge fund is finally beginning to turn around. The firm’s multistrategy vehicle scored its first quarter of net inflows since 2014, marking the end of years of client withdrawals that totaled about $30 billion. The fund and its associated portfolios attracted a net $78 million of fresh cash, bringing total assets in those products to $10.9 billion as of March 31, the firm said in a statement Wednesday. The results, achieved in the last months of Chief Executive Officer Robert Shafir’s tenure, are a vindication of his promise and efforts to reverse the asset bleed. Last month, Chief Investment Officer Jimmy Levin succeeded him. Addressing the hedge fund inflows on Sculptor’s earnings call Thursday, Levin said that the new cash came from a broad range of investors. “It’s from all types of allocators all around the world: consultant-advised, non-consultant advised, institutional, non-institutional,” he said. “It’s been a bit of everything, which is why we described it as feeling healthy.”
Brief: Citadel Securities’ outsize role in the capital markers has gotten the attention of regulators. Gary Gensler, the new chairman of the Securities and Exchange Commission, honed in on Citadel in prepared remarks to be delivered to a Thursday hearing of the House Financial Services Committee, which is looking into the GameStop trading fracas in January. The GameStop debacle resulted in sharp price hikes in so-called meme stocks, leading to restrictions on trading by broker dealers and resulting in losses among hedge funds and retail investors alike. In the process, the trading frenzy also raised questions about market structure and those who benefit from it. Citadel Securities, a market maker, emerged as a key player in January’s market events because of its acknowledged role in buying order flow from Robinhood, a retail trading app, whose customers sent GameStop shares temporarily soaring from $20 to $480. Payment for order flow is a controversial practice and has been banned in Canada and the U.K. In the U.S., Robinhood has already settled one SEC enforcement action on the practice.
Brief : Uncertainty about the speed and sustainability of the economic recovery are at the forefront of industry concerns, Funds Europe research shows. The finding comes at a time when firms are designing strategies for growth and innovation after the Covid-19 pandemic. The research, conducted in association with Caceis, ranges cross many themes in asset management. We found that decision makers also feel challenged by the continuing pressure of adapting to regulations, for example rules to do with ESG. Technology is also a pain point, with managers feeling a need to redesign technology ‘stacks’ and communication interfaces because they want to fulfil the digital needs of the funds industry for current and future generations. The survey had a total of 172 responses from investment fund professionals and was conducted online during February 2021. The report confirms that ESG and climate change is moving to the forefront of the regulatory and policy agenda in Europe. As a component of the European Commission’s Sustainable Finance Action Plan, the Sustainable Finance Disclosure Regulation (SFDR) requires fund managers, financial advisers, and some other categories of regulated firms with activities in the EU, to disclose information on ESG implications of their investment strategies to investors.
Brief: Kroll, a provider of services and digital products related to governance, risk and transparency, has revealed the number of data breaches reported to the FCA fell by 30 per cent between 2019-2020. This is a direct contradiction to Kroll’s own data which, looking at all industries, showed a 56 per cent average rise in incidents over the same timeframe, with the financial services industry being slightly above that average. Freedom of Information data obtained by Kroll from the FCA shows that the number of reportable cyber incidents where company or personal data was potentially compromised or breached dropped 30 per cent to 76 in 2020, compared to 108 during the same time period in 2019. In reality, the number of data breaches is expected to be far higher, with Kroll’s proprietary data showing that during the same period the overall number of incidents impacting UK organisations rose 56 per cent, leading to an increase in consumer notifications of more than 41 per cent when compared to 2019. This disparity between official FCA statistics and the reality of the current cyber threat landscape means the increase in the sophistication and volume of attacks is in danger of going unaddressed, and is likely to be linked with changes to data breach reporting as a result of GDPR.
Brief: The program, which has run out of cash and refunded by Congress twice before, was scheduled to expire May 31. It’s not yet known if lawmakers will approve another round of funding. The SBA said in a statement it will still fund applications that have been approved. New applications made through Community Financial Institutions, which are financial lenders that serve underserved communities, would also be funded. More than half the loans and nearly a third of the loan money were distributed this year. The average loan size was $46,000, less than half the $101,000 average loan in 2020. That is a sign that smaller companies unable to get loans last year were now getting funding. Companies have been drawn to the loans because they promised forgiveness if the money is used for payroll and other essentials. But, while the PPP helped save many companies devastated by the pandemic, the Biden administration has estimated that more than 400,000 U.S. businesses have permanently closed due to the virus.
Brief: U.S. inflation is unlikely to get out of control despite the unprecedented government spending that’s been authorized in response to the coronavirus pandemic, Federal Reserve Bank of Chicago President Charles Evans said. “I think the risk of this scenario is remote,” Evans said Wednesday in remarks prepared for a virtual speech. The Chicago Fed chief, who has long been one of the central bank’s biggest worriers about inflation being too low, was responding to critics of the Biden administration’s fiscal programs, which include not only Republicans but also some economists associated with the Democratic party. Most of Evans’s colleagues at the Fed, including Chair Jerome Powell, have pushed back forcefully against such criticisms in recent months. Instead, they’ve highlighted the importance of the fiscal support in speeding the labor market back to full employment. “With these developments, my outlook for growth and unemployment is much more positive today than it was just a few months ago,” Evans said, referring to the measures.
Brief: Bridgewater Associates’ main strategies posted strong gains in April, putting them solidly in the black for the year. The strong monthly performance also capped a double-digit gain for the 12 months following the sharp losses Bridgewater suffered at the beginning of the pandemic. Bridgewater’s flagship Pure Alpha macro strategy, sometimes referred to as PA 18 Percent, was up 5.34 percent in April and 4 percent year-to-date, according to a person familiar with the results as well as a private database. PA 12 Percent, which takes on less risk than the main Pure Alpha strategy, was up 3.5 percent for the month and 2.8 percent for the year. Pure Alpha has now posted a 14.23 percent gain over the past 12 months. All Weather, the firm’s beta strategy, was up 4.38 percent in April and 1.35 percent year-to-date. It was also up 18.81 percent over the past 12 months. Bridgewater, the world’s largest hedge fund firm which is headed by Ray Dalio, generally points out that clients employ Pure Alpha as an overlay strategy, placing it on top of the benchmark of their choosing. For example, in the 12 months through April 30, the S&P 500 was up 47.7 percent, while Pure Alpha was up an additional 14.23 percent.
Brief: For the first time in history, global venture investments surpassed USD100 billion in Q1 2021. According to the research data analysed and published by Sijoitusrahastot, worldwide VC funding in Q1 2021 rose by 94 per cent YoY to USD125 billion. During the period, two unicorns on average were created daily, raising the quarterly total to 112. Based on a CNBC report citing Ernst & Young, VC funding in the US during the quarter hit USD64 billion. It was the highest quarterly figure on record, and it was equivalent to 43 per cent of total VC funding raised in 2020. Late-stage funding dominated the global VC market accounting for 68 per cent of the total. The segment, together with technology growth, soared by 122 per cent to USD85.6 billion. Some 79 per cent of the funds went into rounds worth at least USD100 million, up from 63 per cent in Q1 2021. Early-stage funding shot up by 63 per cent YoY to USD35.5 billion. Seed and angel investment held steady at USD4.1 billion while acquisitions rose by 44 per cent YoY to 631 deals worth USD57.1 billion. In Europe, total funding rose by 130 per cent YoY from USD9.3 billion to a record USD21.4 billion. Late-stage and technology funding surged 202 per cent to USD14.3 billion. Early-stage funding rose by 62 per cent YoY to USD5.8 billion. There were a record 54 rounds worth at least USD100 million as well as two billion-dollar rounds by Klarna and Cazoo.
Brief : Ken Griffin’s Citadel expects to have most of its U.S. employees back in its offices in New York, Chicago and Greenwich, Connecticut, by June 1, according to a person familiar with the matter. The $38 billion hedge fund, Citadel, and market-maker Citadel Securities anticipate that regular in-office operations in those locales will resume by that date, said the person, who asked not to be identified. Operations in Texas, meanwhile, will get back to normal in mid-May. Citadel’s expectation for workers’ return is earlier than some of its hedge fund peers, with many employees expressing an eagerness to get back to their desks. Bridgewater Associates and Two Sigma Investments plan to have employees back in offices in September while still allowing them to work remotely a few days a week. Major financial firms are stepping up efforts to bring workers back as Covid-19 vaccines become more broadly available and in-person schooling resumes. Goldman Sachs Group Inc. plans to tell staff they should be prepared to work from offices by mid-June, and JPMorgan Chase & Co. told employees to expect a return in early July.
Brief: Vanguard Group is adopting a hybrid work model for the majority of its staff, making it the latest company to rethink the primacy of offices in the aftermath of the pandemic. The world’s second-biggest asset manager plans to allow many employees to work remotely on Mondays and Fridays. With a staff of 17,300, Vanguard’s move represents a middle ground that other financial firms are seeking. “The pandemic has affected so many aspects of our lives, and how we work is one of them,” the company said in an emailed statement. “Vanguard will pursue a working model that will blend increased flexibility with the known benefits of in-person collaboration.” As Covid-19 vaccines become more readily available and cities reopen, U.S. companies are grappling with whether to bring employees back to offices full-time or embrace remote arrangements for the long haul. Vanguard, based in Valley Forge, Pennsylvania, joins money managers Two Sigma Investments and Bridgewater Associates in planning to allow employees to continue to work remotely at least part-time.
Brief: As global economies prepare to unlock, potentially driving up inflation and interest rates, hedge funds’ low sensitivity to rate moves can help bolster investors’ portfolio performance, says K2 Advisors, the hedge fund investing unit of Franklin Templeton. With economic growth tipped to trend higher, fuelling inflation, hedge fund strategies can deliver a diversifier to certain fixed income assets that may face a squeeze during inflationary or rising rate environments, said Brooks Ritchey, K2’s co-head of investment research and management. Hedge funds and other alternative investment strategies have traditionally been seen to thrive against equities and fixed income in low interest rate environments. But falling Covid cases and an accelerating vaccine roll-out across developed markets may now send consumer and industrial demand soaring, pushing global inflation trends and interest rates higher – carrying a knock-on effect for bonds and equities. As a result, hedge funds now look “particularly interesting” as a fixed income diversifier, Ritchey explained. “These strategies help to diversify one’s portfolio in a rising rate environment given the resultant increase in performance dispersion across regions, sectors and asset classes,” Ritchey wrote in a note on Tuesday.
Brief: The world’s most powerful economies agreed to back plans for so-called vaccine passports in a bid to pull the travel and tourism industry out of a pandemic-fueled slump. Tourism ministers from the Group of 20 threw their weight behind the new certificates, stressing that a resumption of normal activity for the sector is crucial to global economic recovery, according to Italian Tourism Minister Massimo Garavaglia. A virtual gathering on Tuesday, the first such meeting under the Italian presidency of the forum, backed efforts for safe mobility, coordinating with initiatives including the European Union’s Digital Green Certificate. That document will show the bearer has been fully vaccinated, has immunity via recovery, or recently tested negative. Garavaglia told a press conference in Rome that he had requested, and obtained from European Union Commissioner Thierry Breton, a commitment to accelerate introduction of the EU green certificate as much as possible. “Tourism will be the key to recovery once the pandemic is defeated,” Garavaglia said. Travel and tourism has been one of the industries hit hardest by restrictions on activity to contain the coronavirus.
Brief: Foreign ministers from the Group of Seven wealthy industrialized nations gathered Tuesday in London for their first face-to-face meeting in more than two years, to grapple with how to respond to the military coup in Myanmar and whether to challenge or coax a surging China. Host nation Britain was keen to show that the rich countries' club still has clout in a fast-changing world, and has warned that the increasingly aggressive stances of Russia, China and Iran pose a challenge to democratic societies and the international rule of law. U.K. Foreign Secretary Dominic Raab said the meeting “demonstrates diplomacy is back.” The two days of talks involving top diplomats from the U.K., the United States, Canada, France, Germany, Italy and Japan also were to discuss the humanitarian crisis in Syria, the Tigray crisis in Ethiopia and the precarious situation in Afghanistan, where U.S. troops and their NATO allies are winding down a two-decade deployment. The U.K. Foreign Office said the group would also discuss “Russia’s ongoing malign activity,” including Moscow's earlier troop buildup on the border with Ukraine and the imprisonment of opposition politician Alexei Navalny.
Brief: The value of UK buyout deals by high-net worth investors (HNWs) shot up by 626 per cent in 2020, rising from GBP132 million in 2019 to GBP958 million, says Boodle Hatfield, the leading private wealth law firm. The increasing number of buyout deals led or co-funded by HNWs goes against the overall decline in deal value across the wider private equity market over the same period. Whilst many trade buyers and to a lesser extent PE firms have stepped back from making acquisitions during the worst of the Covid crisis, HNW investors have used the crisis to buy distressed businesses at a substantial discount. Private equity deals by HNWs increased from 26 deals in 2019 to 27 deals in 2020. In contrast, last year there was a 26 per cent decline in combined deal value for UK private equity deals, according to research from a KPMG report. Overall UK private equity deal volume hit its lowest level since the 2008 economic crisis, falling from 1,200 deals in 2019 to 899 in 2020. Boodle Hatfield explains that HNWs have been increasingly interested in leading PE transactions themselves as a way to get access to the asset class without having to pay the management and performance fees that investing through a private equity fund would involve.
Brief : The Covid-19 pandemic didn’t hit all U.S. public pensions funds equally. Funds that were in the best financial health at the start of the pandemic took the hardest hit to their funded statuses over the course of the past year — but they’ve also benefitted most from the speedy recovery over the past 12 months, according to Goldman Sachs Asset Management’s public pension fund report for the first quarter of 2021. The report, which is based on a performance sample of 99 public plans representing approximately $3 trillion of assets under management, found that a majority of the pensions experienced funded status declines of 10.1 to 12.5 percent in March 2020. Retirement plans which were well funded to begin with — at over 90 percent funded — experienced the largest decline in funded statuses from December 2019 to March 2020. Meanwhile, pensions that started off the pandemic with funding ratios below 70 percent experienced a single-digit median decline in funded status. GSAM suggested that the trend in funded status declines was “likely influenced by varying allocations to fixed income.” Plans with the highest rates of decline in funded positions also allocated the lowest percentages of assets to fixed income.
Brief: Norway’s sovereign wealth fund, the world’s biggest, will let its employees continue working from home a couple of days a week once the pandemic is over, Chief Executive Officer Nicolai Tangen said. Staff at the Oslo-based investor, which oversees $1.3 trillion in assets, will be allowed to spend “up to two days” a week working from home, Tangen told lawmakers in Norway’s parliament during a hearing on Monday. But there will also be “two set office days for everyone,” he said, so that “we can have the meetings we need to have in the office.” Tangen, a former London-based hedge-fund manager, is the latest prominent member of the financial industry to acknowledge that life won’t return to pre-pandemic norms even after the Covid crisis subsides. Barclays Plc CEO Jes Staley recently said he won’t force employees to return to the office, while Deutsche Bank AG is working on plans to let staff work from home up to three days a week. At Norway’s wealth fund, Tangen said he was considering requiring staff to be in the office on Tuesdays and Thursdays. He also said no one would ever be forced to work from home, but said he thinks granting employees the option on a voluntary basis “can be positive.”
Brief: Markets have been obsessed -- and sometimes roiled -- for months over whether higher inflation is coming. The latest batch of quarterly reports suggests it’s already here and helping corporate America. Faced with rising prices for everything from lumber to oil to labor and computer chips, chief executive officers have cut costs and boosted prices for their products. The strategy appears to be working, with first-quarter income from S&P 500 companies jumping five times as fast as sales, data compiled by Bloomberg Intelligence show. As a result, their net margin -- which measures how much profit companies are squeezing from their revenue -- has risen to a record high, according to Bank of America Corp. Executives mentioned “inflation” more than any time since 2011 during earnings conference calls last month, according to Bank of America. Warren Buffett joined the chorus two days ago, saying price increases are more intense “than people would have anticipated six months ago.” The billionaire added that as his Berkshire Hathaway Inc. boosted prices, customers have accepted them.
Brief: Thousands of restaurants and bars decimated by the COVID-19 outbreak have a better chance at survival as the government begins handing out $28.6 billion in grants ¬— money to help these small businesses stay afloat while they wait for customers to return. Laurie Thomas is applying for grants for her two San Francisco restaurants that have closed and reopened several times as coronavirus cases surged and declined; she’s still at just 50% of capacity. Rose’s Cafe and Terzo are operating at a loss but grant money will help them stay open. “This allows you to go back to February 2020 and apply these funds to help pay down debt, catch up on past due rent, etc.,” she says. The Small Business Administration is accepting applications for grants from the Restaurant Revitalization Fund as of Monday. For the first three weeks only applications from restaurants that are majority-owned by women, veterans and “socially and economically disadvantaged” applicants will be processed and paid out, although any restaurant can apply. After that, grants will be funded in the order that they’ve been approved by the SBA.
Brief: A coalition of airline and travel groups urged the U.S. and the U.K. governments to lift travel restrictions between the two nations, citing the growth in vaccinations and other tools that limit the spread of Covid-19. Officials should announce reopening before the Group of Seven economic talks scheduled for June, the groups said Monday in joint letters to President Joe Biden and Prime Minister Boris Johnson. “We are confident that the right tools now exist to enable a safe and meaningful restart to transatlantic travel,” said the letter from 49 industry groups and unions on both sides of the Atlantic. “Safely reopening borders between the U.S. and U.K. is essential for both countries’ economic recovery from Covid-19.” Exports between the two countries and tourism represent have a significant impact on each nation’s economy, highlighting the importance of resuming more normal travel, the group said. Industry officials in the U.K. have been saying that travel could begin to reopen as soon as this month, but the White House has been mum on when that might happen or what steps are needed to trigger such a move.
Brief: When a pandemic was declared last spring, Paul Aversano feared the worst. Aversano leads the global transaction advisory group at Alvarez & Marsal, which works with dealmakers across the corporate world and private equity. As stock markets plunged, investors turned their attention away from new acquisitions and toward shoring up their existing portfolio companies. It seemed like the industry-wide pipeline of deals was in danger of drying up. “I remember last year telling my CEOs, best estimate, I think our business will be down 50%, and I’d be thrilled if that was the case,” Aversano said. Rarely has he been happier to be proven so wrong. Deal activity did tick down during the second quarter of last year. But sooner than anyone expected, the market began to recover. In the end, Aversano’s business actually increased in 2020. And in 2021, acquisition activity of every kind is soaring to unprecedented heights.
Brief : Lazard Ltd. Chief Executive Officer Ken Jacobs is looking to take advantage of disruptions in the market by acquiring hedge fund teams and long-only investor groups. “We see a lot of opportunity there,” Jacobs said Friday in a telephone interview after his firm reported first-quarter results. The CEO said he sees a chance to gain in the alternatives business “by consolidating some of the smaller teams that are out there.” Lazard’s assets under management jumped 37% in the first quarter from a year earlier, to $265 billion, driven by a rebound in the markets, according to a statement. The firm generates about half its revenue from managing money and the rest from providing financial advice on mergers, acquisitions and restructurings. Jacobs said Lazard has been adding at least one investment group each quarter, while also actively hiring more M&A dealmakers at the senior level. Dealmaking is also rebounding, he said. As for large acquisitions in asset management, “we really like our position in our business today,” he said. “I’d never say never to anything, we’re inherently, at our core, dealmakers.” Lazard gained 9.8% this year through Thursday, compared with a 12% rise in the S&P 500.
Brief: Europe's economy shrank 0.6% in the first three months of the year as slow vaccine rollouts and extended lockdowns delayed a hoped-for recovery - and underlined how the region is lagging other major economies in rebounding from the coronavirus pandemic. The fall in output for the 19 countries that use the euro currency was smaller than the 1% contraction expected by economists but still far short of the rebound underway in the United States and China, two other pillars of the global economy. Figures announced Thursday showed the U.S. economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualized basis, the U.S. grew 6.4%. In Europe, it was the second straight quarter of falling output, meaning the region fell back into a recession despite a rebound in growth from July to September of last year. The latest data covers the quarter that ended March 31 and economists say the economy is on the verge of an upswing. France showed unexpected growth of 0.4% compared to the quarter before, while the main negative surprise came in Germany, the continent's largest economy.
Brief: Despite a 71-basis-point drop in the average discount rate contributing to a 7.7% rise in aggregate liabilities, Pensions & Investments' annual analysis of SEC filings showed a 1-percentage-point increase in the average funding ratio of the 100 largest U.S. corporate defined benefit plans in 2020. "If you didn't know what happened in between, you wouldn't have seen too much change year-over-year from 2019 to 2020, with funded status ending right around where it started. But a lot did happen," said Tom Meyers, executive director and head of Americas client solutions at Aviva InvestorsAmericas LLC in Chicago. As of March 31, 2020, Wilshire Consulting estimated the aggregate funding level of S&P 500 company-sponsored pension plans at 79.2%, a 9.4-percentage-point decrease from the end of 2019. However, the aggregate funding ratio of P&I's universe was 88.4% as of Dec. 31, which Mr. Meyers said "reflects the magnitude of the capital markets recovery." The average funding ratio of the 100 largest plans was 92%, up from 91% the year before. As plans recovered from the drop in funded status and the market dislocations that followed the onset of the pandemic last spring, Mr. Meyers said well-positioned plans made opportunistic moves, such as selling Treasuries to increase corporate bond exposures at higher spreads and investing in alternative asset classes like commercial real estate, private credit or high yield that were under pressure during the crisis.
Brief: Amusement parks tickets. Business-class plane reservations. Drive-thru traffic at McDonald’s. Now more than ever, investors are leaning on real-time data to buttress their bullishness on the U.S. stock market. They’re sifting through an ever-widening array of snapshots at a time when some government figures are being distorted by year-ago comparisons to an economy hobbled by a recession. Of course, no one needs esoteric datasets to see that the U.S. -- once the epicenter of the pandemic -- is on the mend, notes Paul Hickey, co-founder of Bespoke Investment Group. Deaths are down, vaccinations are up and consumers are spending again. But with the snap-back recovery in the books and stocks perched at the highest valuations in two decades, the hunt is on for indicators to fine-tune the bull case -- or uncover an early warning signal to get out before being blindsided by a crash. The following is a rundown of what market pros say they’re watching.
Brief: An ASIC review of a targeted selection of retail managed funds found that they did not face serious investor liquidity challenges during the height of COVID-19 market disruption, and that their liquidity frameworks were generally adequate. While there was a significant drop in net investor cashflow in the first half of 2020, responsible entities of these funds did not tighten members’ ability to withdraw their investments. ASIC conducted the review between June and November 2020 to identify any potential liquidity issues faced by managed funds and respond to those if necessary. The review covered 14 registered funds across three different strategies (four mortgage, five direct property and five fixed income funds) with an aggregate of $1.7 billion in assets under management and approximately 8,500 investors. ASIC selected funds that it considered were at risk of facing liquidity issues due to a mismatch between investors’ expectations or potential desire to exit and the liquidity of the fund assets in a financially stressed market.
Brief: IPO activity in the US had the strongest first quarter in the year 2021, continuing the strong momentum seen in the second half of the year. According to the research data analysed and published by Finaria, 389 US-based IPOs raised a total of USD125 billion in Q1 2021, up from the 33 issuances that raised USD10 billion in Q1 2020. From this total, there were 298 SPAC deals raising a collective USD87 billion. That was higher than the amount raised in the whole of 2020. On the global landscape, proceeds from traditional IPOs set a five-year record. Based on a report by KPMG, 458 issuances raised USD96 billion in the period which ended on 24 March, 2021. That was up from 252 deals that raised USD30 billion in Q1 2020. US, Hong Kong and A-Share Markets Lead with USD61.4 Billion from Traditional IPOs, 63 per cent of Global Total In the US, the total number of SPACs in Q1 2021 was thrice the figure posted in Q3 2020, which was when the trend became popular. In Q1 2021, there were only 91 traditional IPOs in the country, raising USD38 billion. For the 24 SPACs that completed mergers during the quarter, there was a 27 per cent return. Traditional IPOs, on the other hand, had a 15 per cent return while key indices, S&P 500 and NASDAQ gained 6 per cent and 3 per cent, respectively.
Brief : Powered by consumers and fueled by government aid, the U.S. economy is achieving a remarkably fast recovery from the recession that ripped through the nation last year on the heels of the coronavirus and cost tens of millions of Americans their jobs and businesses. The economy grew last quarter at a vigorous 6.4% annual rate, the government said Thursday, and expectations are that the current quarter will be even better. The number of people seeking unemployment aid — a rough reflection of layoffs — last week reached its lowest point since the pandemic struck. And the National Association of Realtors said Thursday that more Americans signed contracts to buy homes in March, reflecting a strong housing market as summer approaches. Economists say that widespread vaccinations and declining viral cases, the reopening of more businesses, a huge infusion of federal aid and healthy job gains should help sustain steady growth. For 2021 as a whole, they expect the economy to expand around 7%, which would mark the fastest calendar-year growth since 1984.
Brief: As Joe Biden’s presidency passes the 100-day mark, fund managers are considering what impact his inaugural period in office will have on financial markets. A mammoth USD1.9 trillion Covid-19 relief package has already passed through Congress, and further stimulus is expected amid plans to overhaul US infrastructure and update the energy system in line with the administration’s climate goals. It is clear that Biden’s administration is taking a very different direction compared to the Trump government it replaced in January. Biden has called for a series of “once-in-a-generation investments in our nation’s future”, and planned spending so far amounts to USD6 trillion. This includes the American Families Plan, announced to Congress on Wednesday, which sets out major spending and tax cuts for workers, families and children planned for the next 10 years. Investment managers have given their views on the market impact of the increased Covid fiscal stimulus and infrastructure spend, as well as the trends they see arising over the coming years as a result of the new direction of the US. Matt Benkendorf, CIO of Vontobel Quality Growth, believes that markets could see more volatility later in the year, as inflationary spending plans take their course.
Brief: PE firms made GBP10.1 billion of corporate carve-out acquisitions in the UK last year, up from just GBP765 million in 2019 as the Covid-19 pandemic drove more corporates to sell non-core business units, says Mayer Brown, the global law firm. Mayer Brown says that the economic disruption of the past year has forced many large businesses to focus on their core operations to a much greater extent, leaving them much more open to sales of less strategically-important business units. Private equity funds with significant capital to deploy have been a major beneficiary of corporates’ increased interest in divestments and have frequently been bidders in these auctions. This includes large US PE houses, who were involved in all four of the UK corporate carve-out deals worth more than GBP1 billion concluded by PE buyers in 2020…
Brief: T. Rowe Price Group Inc. Chief Executive Officer Bill Stromberg said the firm plans to bring its U.S. workers back to the office by Sept. 13 after more than a year of remote work. The money manager will allow employees in North America to return on a voluntary basis until that date, with social distancing measures in place, Stromberg said in an interview Thursday after the Baltimore-based company posted first-quarter results. “We’re coming back with a commitment to additional workplace flexibility, more than we’ve had in the past,” Stromberg said. “Some jobs really do function better in the office than others, and some can be more independent than others,” he added. “We’re in the process of working that out, job-by-job, right now.” Financial firms are stepping up efforts to bring workers back as Covid-19 vaccines become more broadly available and in-person schooling resumes. Many companies are deciding whether to bring everyone back full time or embrace more flexible schedules that would allow staff to work remotely for part of each week.
Brief: Manulife Financial Corp. Chief Executive Officer Roy Gori isn’t in a hurry to bring the insurer’s employees back to the office, and when he does, they’ll still have plenty of flexibility to work from home. The company hasn’t set a date to bring workers back, and it will continue to allow them to perform some portion of their jobs from home, Gori said. While the office is important for creativity and innovation, Manulife has managed to keep employees engaged and productive while working from home thanks to investments in technology and an emphasis on meeting workers’ needs, Gori said. “We’re not in a huge hurry to get people back,” Gori said in an interview Wednesday. “The current environment of having people work remotely is working incredibly effectively for us.” Financial firms’ plans to return workers to the office have been varied. JPMorgan Chase & Co. became the first major U.S. bank to mandate a return to offices for its whole U.S. workforce, telling staffers in a memo Tuesday that they’ll need to come back in about two months on a “consistent rotational schedule.” Citigroup Inc. plans to bring more workers back in July while Wells Fargo & Co. is seeking a more normal environment in September.
Brief: Australia’s sovereign wealth fund grew to reach a record A$179 billion ($140 billion) as it notched up another quarter of solid returns. The Future Fund returned 4.5% in the three months to March 31, and posted the best yearly performance to March since 2017, it said in a statement Thursday. Global equities hit fresh records during the quarter as economies continued to rebound from the pandemic shock of 2020. “All funds have beaten their target returns across all timeframes,” Chairman Peter Costello said in the statement. “Markets have continued their recovery, driven by the deployment of vaccines, quantitative easing and fiscal stimulus around the world.” The Future Fund is keeping almost 19% of its portfolio in cash and maintained its equities holdings flat at about one-third of the fund last quarter. Total equity allocation is about 1.6 percentage points below the same time last year as Costello echoed Norway’s sovereign wealth fund in expecting more market volatility. “With interest rates at historically low levels, markets are very sensitive to any prospect of inflation and rising rates as a consequence,” he said. “The Board recognizes that the investment challenge ahead is significant and is continuing to assess and position the portfolio to generate mandated long-term returns while managing risk.”
Brief : Discover what’s driving the global economy and what it means for policy makers, businesses, investors and you with The New Economy Daily. Sign up here Federal Reserve officials strengthened their assessment of the economy on Wednesday and signaled that risks have diminished while leaving their key interest rate near zero and maintaining a $120 billion monthly pace of asset purchases. “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Federal Open Market Committee said in a statement following the conclusion of its two-day policy meeting. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” Marking a clear improvement since the pandemic took hold more than a year ago, the Fed said that “risks to the economic outlook remain,” softening previous language that referred to the virus posing “considerable risks.” The statement also noted that sectors hit hardest by the Covid-19 pandemic had “shown improvement.”
Brief: China's private equity investors benefited from the country's swift action to contain the Covid-19 pandemic, enjoying a jump in investment value and deal numbers last year, according to global consultancy Bain & Co. But the fund managers face an uphill battle to conclude more lucrative deals this year amid escalating competition. "Higher selling prices of targeted firms are expected this year," said Lucia Li, a partner with Bain said. "High-growth companies are actively chased by many funds, hence they are raising their valuations and prices." Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team. In 2020, private equity funds in China sealed deals worth US$97 billion, up 40 per cent from a year earlier, Bain's survey found. The total number of transactions climbed 53 per cent to 857. Companies in the technology, media, telecoms and health care sectors with both solid earnings and high growth potential were the primary targets of the cash-rich investors.
Brief: Bonds backed by America’s airports are rallying back as the Covid vaccine rollout promises to revive the travel industry, marking a rebound for one of the corners of the municipal-debt market hardest hit by the pandemic. The rally has driven the yields on debt backed by airports down to about 1.2%, or about 30 basis points more than the market’s benchmark, according to an ICE Bank of America index tracking the sector. That marks a dramatic shift from early in the pandemic, when speculation about the deep financial toll of the nation’s shutdowns drove the index’s yield to more than 4% as investors dumped the securities in droves. The move eliminates what had been some of the rare bargains in the municipal securities market as valuations on top-rated bonds hover near record highs. Junk bonds have climbed, too, pushing the yields back toward the more than two-decade low hit before Covid-19 raced through the U.S. “During the pandemic, airlines and anything associated got absolutely crushed in terms of spread -- and they stayed wider for a longer period of time than some of the other sectors that were affected,” said Jason Appleson, a portfolio manager at PT Asset Management in Chicago. “In terms of buying opportunity, I’m not sure there is a lot left.”
Brief: After a number of false starts over the past year, corporate America is finally bringing workers back to the office. The widening availability of vaccines means that employers are setting plans for returns. Exxon Mobil Corp. said on Tuesday that its Houston-area workers would be back full-time in May. JPMorgan Chase & Co., meanwhile, is opening its U.S. offices next month, with its full staff expected back in July on a rotating basis. Already, offices are slowly starting to fill up across the country as social distancing-rules ease and vaccines accelerate, bringing optimism that more Americans will soon be able to resume their pre-pandemic daily life. About 26% of office workers in major cities were back at their desks as of April 21, the highest share in about five months, data from security company Kastle Systems show. Companies that postponed searches for space last year are back in market, looking to take advantage of cheaper rents and concessions from landlords eager to fill vacancies. National demand for offices jumped 28% in March from the prior month and is now just 9% below pre-pandemic levels, according to property-data firm VTS, which tracks office tours. “People are feeling really good about where we are in the world from the economy and getting Covid under control,” said Ryan Masiello, chief strategy officer at VTS. “That’s a big part of what’s driving people back into the market.”
Brief: In March, the billionaire founder of Austin, Texas’ ESW Capital, Joe Liemandt, fired off a directive to managers of his army of 2,500 remote workers. The email’s subject line read: “White Collar Specialization- Worksmart Work Unit.” With the world embracing remote work as the new normal, Liemandt ordered his managers to design work units, specialized tasks that workers—mostly software engineers— could perform efficiently over and over, as if they were assembly line workers in an old-fashioned auto factory. “Most jobs are poorly thought out and poorly designed—a mishmash of skills and activities . . . poor job designs are also quickly exposed with a move to remote work,” Liemandt wrote. The solution, Liemandt argued in his email, was for managers to observe remote workers and identify repeatable work patterns in order to create these work units. The idea was for managers to fragment white-collar work into small-scale tasks—the writing of specific code by a software engineer, a customer support agent solving a specific technical problem, or a targeted document analysis. Liemandt wanted his managers to create these units—lots of them.
Brief: Amid the market volatility and economic uncertainty of the pandemic, compensation for professionals in private equity and venture capital continued to rise. In Benchmark Compensation’s annual survey of industry professionals, 68 percent of respondents said they earned between $150,000 and $1 million last year, marking the highest percentage to report earning more than $150,000 since the company began publishing the annual report 14 years ago, the firm said in a press release Tuesday. The 2021 report also marks the seventh consecutive year of gains in private equity and venture capital compensation. Overall, the study found that respondents working in private equity earned more money than those working in venture capital, but respondents working in hybrid firms earned the highest levels of compensation as vice presidents and managing directors. The report was based on a survey of hundreds of workers, from partners to junior advisors, from October to November 2020. Participating firms included Goldman Sachs, KKR, Bain Capital, and BlackRock. “Overall, compensation is up, but more than half of those surveyed are dissatisfied with their pay,” David Kochanek, the publisher of the study, said in a statement. According to Benchmark Compensation, employees cited market conditions and employee expectations as the reasons why they were dissatisfied.
Brief : Jamie Dimon is sending a message to his fellow Wall Street chiefs: It’s time to bring employees back to the office. JPMorgan Chase & Co. became the first major U.S. bank to mandate a return to offices for its entire U.S. workforce, with staffers being told they’ll need to come back in about two months. The lender’s top decision-making body, led by Chief Executive Officer Dimon, said in a memo to staff Tuesday that it “would fully expect that by early July, all U.S.-based employees will be in the office on a consistent rotational schedule.” Industry leaders have been preparing for an end to remote work since the earliest months of the pandemic last year. Dimon, who’s been going into the bank’s headquarters since June, said as far back as September that he expects economic and social damage to result from a longer stretch of working from home. David Solomon, Dimon’s counterpart at Goldman Sachs Group Inc., called the remote-working arrangement an “aberration” that needs to be corrected as quickly as possible. “This is fantastic news and the fact that it’s JPMorgan and Jamie Dimon — this will send a very positive message to other CEOs, not just in New York but around the country, to start making plans to on-board their employees,” Bill Rudin, chief executive officer of Manhattan office landlord Rudin Management Co., said in a phone interview.
Brief: HSBC Holdings Plc expects to cut its office footprint by 20 per cent this year and is budgeting for half its previous business travel costs as the adoption of flexible working spurs changes to longstanding practices. The bank, which has already committed to a 40 per cent reduction in office space in the long term, expects to get halfway to its goal over the course of this year, Chief Financial Officer Ewen Stevenson said in an interview with Bloomberg Television Tuesday. “We do very much want to move to a hybrid working environment,” he said. HSBC’s pace highlights how quickly the pandemic has redrawn the office market as businesses debate the type and extent of space required for their newly-remote workforces. Vacancies have soared in financial centers such as London, and even Chief Executive Officer Noel Quinn and his senior team at HSBC are hot-desking to help reduce the bank’s footprint at its Canary Wharf headquarters. “Firms have told us that they remain committed to retaining a central London hub but how they operate will inevitably change to reflect post-pandemic trends, such as hybrid and flexible working,” Catherine McGuinness, chair of the policy and resources committee at the City of London Corporation, said in a statement Tuesday.
Brief: By almost any measure, this has been an astonishing earnings season for US corporates. At the time of writing, around two-thirds of companies had beaten expectations – and not just by a little. Barclays analysts put average earnings per share growth at an impressive 63%. However, it doesn’t appear to be having much impact on share prices. Why? Tesla is a case in point: its earnings rose to 93 cents per share, against expectations of 79 cents with revenue up 79% year on year. Its share price dropped 3% in the immediate aftermath of the results. Overall, the S&P 500 has been treading water even as results have come through strongly. The strong macroeconomic picture is also not providing the support it should. The US economy is flying. Retail sales registered almost 10% growth year on year in March. The IMF is predicting GDP growth of 6.4% for 2021. Manufacturing is seeing huge expansion and jobs growth is buoyant. Steven Bell, chief economist at BMO Global Asset Management, says there is more to come. “The excellent vaccine rollout plan is unleashing a surge in spending as consumers emerge with bank accounts bursting with cash from a whole series of fiscal handouts,” he says.
Brief: Consumer confidence rose sharply for a second straight month, hitting the highest level since the pandemic began, as the rapid rollout of vaccines and another round of U.S. financial support for Americans boosts optimism. The Conference Board reported Tuesday that its consumer confidence index advanced to a better-than-expected 121.7 in April, up from 109.0 in March. It was the strongest reading since the index stood at 132.6 in February 2020, right before the COVID-19 pandemic struck in the United States. The present situation index, based on consumers assessment of current business and labour market conditions sored from 110.1 to 139.5. The expectations index, based consumers' views of what conditions will be like over the next six months, posted a more moderate gain, rising from 108.3 last month to 109.8 in April. Economists believe that the rising consumer confidence will bolster overall economic growth as consumers, who account for 70% of economic activity, step up their spending as lockdown restrictions are eased.
Brief: Goldman Sachs’ long-planned online migration of some lucrative prime-brokerage businesses picked up steam during the pandemic as hedge funds and investors working from home were unable to meet in person, while other Wall Street banks are taking more measured steps. Last July, Goldman Sachs Group Inc launched Marquee Connect, offering online virtual introduction services for top clients. Other prime brokers told Reuters they were also moving to bring some prime broker services online, but one cautioned that clients may be getting “Zoom fatigue” with hopes to resume meeting in person once more people are vaccinated. Humans have long handled capital introduction services, in which third parties like banks attempt to matchmake investors with hedge funds. But as large swathes of other bank services have moved to virtual platforms, banks have been increasingly looking at how to move some of these services online too.
Brief: It is not clear that U.S. inflation will be “transitory” as the Federal Reserve economists are trying to convey, according to Jeffrey Gundlach. “I’m not sure why they think they know that it’s transitory,“ Gundlach of DoubleLine Capital LP said in an interview with BNN Bloomberg Tuesday. “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively.” While the Fed does have a point in saying the year-over-year increase -- which Gundlach says could be as high as 4% -- is higher in part because of the low, pandemic-induced numbers from 2020, the central bank may also be underestimating the impact of its wide-open monetary policies. “There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“ Gundlach is chief executive and chief investment officer of Los Angeles-based DoubleLine Capital, which managed more than $136 billion as of Dec. 31. While bond yields remain very low, it’s hard to figure out who’s going to buy the massive bond market issuance, he said.
Brief : Long-running systematic macro hedge fund IPM says the Covid-19 pandemic “aggravated” an already challenging situation for the firm, leading to its decision to shut down the business. Stockholm-based systematic pioneer Informed Portfolio Management announced last week it was ending all investment activities. It said the recent investment environment has proved challenging for systematic macro as a strategy and IPM as a manager, which has suffered “lacklustre performance and significant outflows”. “The investment environment has been difficult in recent years for strategies focusing on economic fundamentals, with the Covid-19 pandemic aggravating the situation,” IPM chairman Lars Ericsson said in a statement. Founded in 1998 by Anders Lindell and Jonas Rinné, who had previously been at Swedish fixed income trading house JP Bank, the firm built considerable momentum in its early years, gaining more than 31 per cent in 2008 during the Global Financial Crisis using computer models to trade government bonds, currencies and equities futures. But the systematic hedge fund’s assets steadily eroded in recent times, from a high of some USD9 billion just a few years back to roughly USD1 billion in 2020.
Brief: Harrison Street Real Estate Capital is betting on the growth of the U.K.’s bio-tech industry with a deal to combine the country’s largest science incubator with a portfolio of science parks. The company’s venture with Trinity Investment Management has agreed to acquire BioCity Group, according to a statement. BioCity helps startups through early stage venture capital investment and accelerator programs. Science parks have become one of the hottest real estate niches in the U.K. as international investors look to piggy-back on increased government funding for a sector that has been among the few beneficiaries of the coronavirus pandemic. The country has a shortage of purpose-built space for commercializing scientific research, despite boasting several of the world’s top academic institutions and pharmaceutical companies. The venture will acquire a portfolio of 12 facilities across five U.K. science parks for about 120 million pounds ($167 million), according to the statement. The new business will be called We Are Pioneer Group and will manage a portfolio spanning 2.6 million square feet.
Brief: Last week we saw Europe’s rebel soccer league crumble within 72 hours from announcement to demise. One can only imagine what might have happened behind closed doors – frantic phone calls, secret meetings and very tense meetings. Outraged fans took to the streets to protest, players openly expressed their frustration, politicians weighed in and this rogue league made headlines around the world… The pandemic has both highlighted and exacerbated the inequalities that were already present. We have all spent the last year, and some of this year, making enforced sacrifices; some financial, some social. None of us want those sacrifices to have been made in vain. That means a more equitable share both of rewards and prospects for everyone. After the Global Financial Crisis of 2008/9, there was a widespread perception of financial greed and mistrust of the world’s bankers and financiers, none of whom were ever held to account for any misdemeanours, real or imaginary. A decade of austerity left the perception that ordinary citizens were left to suffer the pain and pick up the bill. The reaction to Covid-19 is different.
Brief: Early signs are emerging that the U.S. stock market rotation into cyclicals and out of big tech still has room to run. The reopening trade has lagged for weeks and it’s been the topic of fierce debate among equity strategists. Last week, smallcaps beat tech for the first time in about a month, and the trade looks sets to continue once again on Monday. Evercore ISI and Fundstrat Global Advisors LLC are urging clients to buy stocks tied to the economic recovery. It’s “time to re-engage cyclicals,” said Dennis DeBusschere, head of portfolio strategy at Evercore, in a note on Sunday. “The rapidly improving labor market is inconsistent with peak GDP fears and suggests the output gap will close quickly, putting upward pressure on inflation, bond yields, and cyclical assets.” The U.S. economy is reaping the rewards of a fast vaccine rollout, with about 42% of the population having had at least one dose. Economists have raised growth estimates, and there’s every sign that life is returning to normal for millions of Americans.
Brief: The chief executive of British Airways said there was a "great opportunity" for Britain and the United States to open a travel corridor given their high vaccination rates, and said he was optimistic for European travel from June onwards. Airlines are readying their planes, pilots and crew for travel this summer, hoping for a bounce back after over a year of pandemic restrictions, although governments have yet to agree the details of how and when the restart will work. British Airways chief executive Sean Doyle, who took the helm of the IAG-owned airline in the middle of the COVID-19 crisis last October, said that travel between Britain and the United States should be restriction-free. "If you look at the progress of vaccinations that the UK and the US have made, they're almost neck and neck," he said, speaking to an online industry conference. I think the U.S. is a great opportunity to get up and running again. Travel between Europe and the United States is also on the cards.
Brief: The total value of UK private equity club deals hit GBP19.7 billion last year, a fourfold increase from the GBP4.5 billion last year, says Pinsent Masons, the multinational law firm. The number of these ‘club deals’ has reached a three-year high (see graph below) – there were 56 deals last year, up 30 per cent from 43 the year before. A ‘club deal’ is when two or more private equity or trade buyers jointly acquire a company. One of the biggest club deals of recent years was the GBP6.8 billion acquisition of ASDA, in October last year by the Issa brothers and TDR Capital. Alasdair Weir, Partner at Pinsent Masons, says by pooling their fire power, club deals allow groups of investors to buy bigger targets and share risk. In some cases this can reduce the amount of leverage needed, allowing deals to be equity funded more quickly and with more certainty. The impact of Covid-19 on the economy has caused some lenders to exercise more caution on leveraged buyouts in those sectors most affected by the lockdown. By increasing the equity slice, club deals allow buyers to use lower levels of debt financing.