Brief: You can’t do private equity by Zoom.That’s the view of Michael Psaros, co-founder of $13.5 billion private equity firm KPS Capital Partners. Forget flexible days, don’t even think about remote work and please don’t mention video calls. KPS, which invests in manufacturing companies, has required all its New York staff to be in the office five days a week since early September, provided they’re vaccinated. It’s the only approach that makes sense in the buyout world, according to Psaros, a former Bear Stearns banker who noted that most employees had already returned by June. “I’m sure flexible work is good for certain industries, but not in private equity,” Psaros, 54, said in an interview. “Private equity is an apprenticeship and relationship business, and you cannot apprentice by Zoom. You cannot learn by Zoom.”
Brief: Air Canada said employees working remotely must gradually return to the office starting Nov. 15 and be fully vaccinated, as COVID-19 cases ebb across Canada. The country’s biggest airline described its plan on Friday as “a balanced approach” that allows employees to keep working some “set days” remotely. In a statement, Chief Executive Officer Michael Rousseau cited Canada’s high vaccination rate as part of the company’s rationale for bringing workers back. “For individuals, companies or any organization to achieve their full potential requires personal connections and interactions,” Rousseau said. “This makes the return of Canadians to the workplace a necessary step in the recovery of our society and economy from the pandemic’s isolating effects.”
Brief: The Securities and Exchange Commission is seeking to force U.S. Senator Richard Burr’s brother-in-law to testify about their stock sales just before the beginning of the coronavirus pandemic, according to court records. Gerald Fauth has “waged a relentless battle” to avoid complying with a subpoena issued to him in May of 2020, the SEC said in court filings. “The Commission is investigating possible insider trading by Fauth’s brother-in-law, Senator Richard M. Burr, and respondent’s own sales of stock in the minutes after speaking with Senator Burr on the day the senator sold the vast majority of his own portfolio.” Fauth, a holdover Donald Trump appointee to the National Mediation Board, which governs labor relations in the rail and airline industries, has said he’s too ill to answer questions from investigators.
Brief: Citigroup Inc. will require all U.S. employees be vaccinated against Covid-19 as a condition of their employment, citing new orders from President Joe Biden. The Wall Street giant asked staffers to submit proof of vaccination by Dec. 8, and said those who comply will receive $200 as a “thank you,” according to a memo to staff Thursday seen by Bloomberg News. Citigroup set Jan. 14 as the final cut-off for workers to upload vaccine cards, to give unvaccinated staff more time to get shots. “Our medical teams have consulted with top experts at some of the most prestigious medical institutions in the country, and are confident about the safety and efficacy of the vaccines available to us,” Sara Wechter, who leads human resources at New York-based Citigroup, said in the memo.
Brief: Merck & Co.’s closely watched Covid-19 antiviral molnupiravir could bring in as much as $7 billion in global sales through 2022, according to the drugmaker. The figure includes up to $1 billion in revenue this year if the experimental drug is authorized in December, Chief Financial Officer Caroline Litchfield said early Thursday on a conference call. She projected at least $5 billion in sales by the end of next year, provided it’s cleared. Merck rose as much as 5.4% to $85.96 as of 11:12 a.m. in New York, its highest intraday price since January 2020. Molnupiravir has become one of the most highly anticipated coronavirus medications, as the pill is relatively cheap to make and easy to transport. Merck has taken steps to make sure that it will be distributed widely, including in low-income countries.and Event Driven funds brought in USD2.28 billion, 0.8 per cent of assets.
Brief: President Joe Biden unveiled a framework for a $1.75 trillion tax and spending package his administration believes can pass Congress and urged House Democrats to quickly clear a separate public works bill for his signature, despite misgivings by progressives. Biden visited Capitol Hill on Thursday to sell the package of tax increases and climate and social-welfare spending to House Democrats. The legislation would expand federal support for child care, health care and climate programs, funded by a minimum tax on corporations, a tax on stock buybacks and new taxes on incomes above $10 million annually. Total new revenue from the measure is estimated at $2 trillion over a decade, according to a White House fact sheet. The president asked the lawmakers to break a deadlock on a separate, Senate-passed $550 billion infrastructure bill and vote to send it to his desk, according to Representatives Mike Quigley of Illinois and Richard Neal of Massachusetts. House Speaker Nancy Pelosi immediately began pressing lawmakers to vote on Thursday.
Brief: Five percent of unvaccinated adults say they have left a job due to a vaccine mandate, according to a survey released Thursday by the Kaiser Family Foundation. This early read on whether workers will actually quit their jobs over mandates comes as more employers are requiring shots. One-quarter of workers surveyed by KFF in October said their employer has required them to get vaccinated, up from 9% in June and 19% last month. President Joe Biden announced in September a mandate for businesses with 100 or more employees to ensure workers are vaccinated against Covid or tested weekly for the virus. The mandate, which is currently still under review, is estimated to cover roughly two-thirds of the private sector workforce once it’s implemented. The Kaiser survey only asked whether people have quit over a vaccine requirement, not a vaccine requirement with a testing option. More than a third of unvaccinated workers said they would quit rather than comply with a vaccine or testing mandate, the Kaiser survey shows, a share that jumps to 72% if no testing option is offered.
Brief: Australia advised its nationals traveling overseas on Thursday to “exercise a high degree of caution” as it prepares to open its borders for the first time in 19 months. The Department of Foreign Affairs and Trade reinstated its travel advice for 177 countries and territories ahead of fully vaccinated Australians becoming free to travel from Monday. No destination has been given a risk assessment lower than the second-tier warning: “Exercise a high degree of caution.” The vast majority of Australian permanent residents and citizens have been stranded in the island nation since March last year by some of the most draconian pandemic restrictions of any democracy. They had to request exemptions from the ban and demonstrate exceptional circumstances. Most requests were rejected or approved too late for Australians to reach death beds or funerals. Travel to and from Australia for tourism has never been allowed. A few categories of citizen, including public servants on government business, were exempt from the international travel ban. International travel will be initially restricted to Sydney’s airport because New South Wales has the highest vaccination rate of any state. More than 86% of the population of Australia’s most populous state aged 16 and older are fully vaccinated, and over 93% of the target population had received at least a single vaccine shot.
Brief: AEW, the global real estate investment manager, has released its latest research on the European residential sector, publishing its internal forecasts on rental growth, yields and total returns across 24 different European residential markets for the first time. Key findings of the report include: On a risk-adjusted basis, residential stands out as the most attractive property sector. Also known as the private-rented sector or multifamily, residential is the most resilient of all property types. Residential income streams are underpinned by a primary human need and come from a diversified individual tenant base, while supply constraints limit void periods. Residential investments therefore offer bond-like, stable and predictable cash flows. For these reasons, residential total returns have historically been less volatile than for the other property types, while at the same time generating prime total returns close to 8 per cent pa; Continued lack of supply and strong demand from new household formations is driving prime rental growth in most European markets. Despite an increasing number of rental regulations to ensure affordability for tenants, prime residential rental growth is projected at 2.6 per cent pa over the next five years on average in Europe…
Brief: The hedge fund industry continued to attract new assets in August with USD30.5 billion in inflows. August’s inflows represented 0.69 per cent of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions. August marked the sixth consecutive month of hedge fund industry inflows, totalling USD143.8 billion since March. A USD37.8 billion monthly trading profit brought total industry assets to nearly USD4.52 trillion as August ended. “As economies continued to rebound and equity markets surged throughout the summer, investors saw growth and speculative opportunities in hedge fund investments,” says Ben Crawford, Head of Research at BarclayHedge. “Hedge Funds may also be having a moment for less optimistic reasons: They have a history of performing well during inflationary periods. While central bankers contend that the recent spike in the cost of living will be transitory, forecasters in the U.S. and elsewhere are revising their inflation expectations upward for multiple periods to come.” Most hedge fund sub-sectors reported inflows in August. Fixed Income funds set the pace bringing in USD10.4 billion, 1.1 per cent of assets while Multi-Strategy funds added USD7.5 billion, 1.6 per cent of assets, Balanced (Stocks & Bonds) funds saw USD5.1 billion in inflows, 0.8 per cent of assets, Sector Specific funds added USD2.96 billion, 0.8 per cent of assets, and Event Driven funds brought in USD2.28 billion, 0.8 per cent of assets.
Brief: A majority (62 per cent) of private capital fund managers in the UK, Europe, North America and Asia will increase the amount of automation and new technologies used to administer their funds over the next five years.According to a new global study commissioned by Intertrust Group, of these, over two thirds (67 per cent) said they plan to invest in Big Data capabilities while just under two thirds (63 per cent) expect to invest in distributed ledgers such as blockchain.The study, The Future of Fund Technology, found that business size is key in shaping technology investment decisions. Nearly half (47 per cent) of those with AUM of USD3 billion or more stated that it is “very likely” that they will invest in more automation and tech over the next five years. A majority (90 per cent) said they were also more likely to pioneer new technologies and work to utilise new technological advances as soon as they become available.
Brief: Private equity fund managers are accelerating deal timelines in an effort to win bids, and more than half say uncovering risk during due diligence is a main challenge to closing deals, according to BDO’s Fall 2021 Private Capital Pulse Survey. The findings of the survey, which polled 200 US private equity fund managers, underscore the frenzied state of deal making. Forty-two per cent of fund managers say they are directing the most capital to new deals (up from 19 per cent a year ago and 26 per cent in the spring) and deal flow drivers are up across the board. Meanwhile, their pursuit of add-on acquisitions has fallen to 16 per cent from 24 per cent a year ago and 29 per cent in the spring. “To compensate for the slowdown in deal activity at the beginning of the pandemic, fund managers are racing to put committed capital to work and get deals done,” says Scott Hendon, Co-Leader of BDO’s National Private Equity practice. “Everything from private company sales to corporate divestitures is driving more deal flow. Add to that a healthy dose of external influences, such as a potential capital gains tax rate increase and a limited number of attractive targets to absorb all the dry powder on the sidelines, and you have a healthy amount of M&A deal activity—and competition—to contend with.”
Brief: An ASIC surveillance about personal investment switching by directors and senior executives of superannuation trustees has identified concerns with trustees’ management of conflicts of interest. ASIC looked at a sample of 23 trustees (including trustees of industry and retail funds), and focused on conduct during the time of increased market volatility arising from the COVID-19 pandemic. Directors and senior executives of superannuation funds are potentially privy to price-sensitive valuation information. ASIC undertook this surveillance to look into concerns about whether fund executives were using this information for personal gain by switching investment options based on their knowledge of the timing of the revaluation of unlisted assets. The surveillance revealed conduct that fell below ASIC’s expectations. ASIC Commissioner Danielle Press said, ‘We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk.
Brief: The number of working hours lost due to the COVID-19 crisis will be “significantly higher” than projected just a few months ago, according to the International Labor Organization. In what it termed a “dramatic revision,” the Geneva-based group now estimates that global hours worked this year will be 4.3 per cent below their pre-pandemic level, the equivalent of 125 million full-time jobs. Africa, the Americas and Arab States were the regions that experienced the biggest declines. “A two-speed recovery between developed and developing nations threatens the global economy,” said the ILO, which had forecast a loss of 3.5 per cent in June. “This great divergence is largely driven by the major differences in the roll-out of vaccinations and fiscal stimulus packages.” The organization cited estimates showing that a full-time job was added to the global labour market for every 14 people fully vaccinated. “However, the highly uneven roll-out of vaccinations means that the positive effect was largest in high-income countries, negligible in lower-middle-income countries and almost zero in low-income countries,” it said.
Brief: Hedge funds protected investors in September, even as traditional investments suffered in last month’s declining markets. Almost every global equity market index lost ground in September. But PivotalPath’s composite index, which represents more than 40 hedge fund strategies, was up 0.1 percent for the month. That puts September’s outperformance of 4.7 percent, relative to the S&P 500’s decline of 4.6 percent, in the top 10 percent of all months since January 1998, according to the hedge fund research and data firm. Hedge funds also held their own as the Nasdaq declined 5.3 percent and the health care and technology sectors lost approximately 6 percent. Hedge funds have been on a good run. PivotalPath’s composite index, which includes all of the hedge fund strategies the firm tracks, was up 11.3 percent in 2020, its best year since 2013. Traditional long-only strategies were hit hard by fears of inflation, rising energy prices, and supply chain hiccups. “But as worries about inflation became frenzied, energy, utilities and industrials hedge fund strategies were the second-best performer for the month, exactly as predicted,” Jon Caplis, CEO of PivotalPath, told Institutional Investor. The energy, utilities, and industrials category was up 1.8 percent last month and was the fifth best performer of all 40 strategies covered by the firm.
Brief: Hedge funds are well-placed to outperform other assets classes in a potentially choppy market environment during the fourth quarter, with commodities, event driven and certain credit strategies faced with a rich opportunity set and strong upside potential as markets adjust to a post-Covid world. In its latest ‘Fourth-Quarter Hedge-Fund Strategy Outlook’, K2 Advisors said global equities and bond markets are now locked in a “tug-of-war” between good news and bad news, which is shaping the way investors position their portfolios. “Change creates opportunities for those nimble enough to capture the new tailwinds while hedging out the risks associated with a shifting environment,” K2, the hedge fund investing unit of Franklin Templeton, observed. Specifically, Covid cases are set against tightening central bank policies, stronger employment numbers are balanced against supply chain problems, while solid earnings growth this year face worsening year-over-year comparisons in early 2022.
Brief: Markets, households and students face painful disruption next year if inflation hits 7 per cent as currently implied by inflation-linked bonds, says Mark Benbow, high yield portfolio manager at Aegon Asset Management. With GDP RPI inflation swaps implying a surge in inflation in 2022, Benbow says few will escape the squeeze on prices, with RPI-linked loan holders particularly exposed to much higher borrowing costs. “You don’t need to look far to see inflation – commodity prices are rising rapidly, as are other input costs such as shipping,” he says. “And with the rising cost of living, it’s only a matter of time before employers realise that they will need to increase wages. “That may sound like a good thing, but consider that index-linked bonds are implying that RPI will hit 7 per cent in 2022. If that comes to fruition, it will disrupt markets, households and students, who are painfully charged student loan interest on an RPI +3 per cent basis, meaning they will be paying interest of 10 per cent.”
Brief: Britain’s financial watchdog set out rules for a new type of fund for investing over the longer term to help tackle climate change and economic recovery from COVID-19, while ruling out daily redemptions to avoid suspensions in rocky markets. The new Long-Term Asset Fund (LTAF) regime creates a category of authorised open-ended fund for investing in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure. “We want investment in long-term, illiquid assets, including productive finance, to be a viable option for investors… seeking the potential for higher long-term returns in return for less or no immediate liquidity,” the Financial Conduct Authority said in a statement. It had proposed a notice period for redemptions of between 90 and 180 days in a consultation paper last year. “So we have set a minimum notice period of 90 days and a requirement that LTAF cannot offer redemptions more frequently than monthly,” it said on Monday. Funds that invested in illiquid property and offered daily redemptions had to be suspended last year when markets suffered extreme volatility as economies entered lockdowns to fight the pandemic.
Brief: Britain has experienced a series of shortages these past few months, from a lack of fuel at gas stations to not enough workers picking the fall harvest, but Treasury chief Rishi Sunak is unlikely to dwell on them when he delivers his annual budget statement on Wednesday. The Chancellor of the Exchequer, as he is formally known, will instead likely use one of the most high-profile, choreographed events in the country’s political calendar to paint a relatively rosy picture of the state of the British economy following the devastating shock of the pandemic. With government borrowing less than anticipated a few months ago — following a fairly solid recovery from Britain's deepest recession in around 300 years — Sunak has a bit of wiggle room on the taxes and spending front. However, with the next general election not due until 2024 at the latest, Sunak is not expected to turn into Father Christmas — big tax giveaways in Britain are traditionally timed for the run-up to a general election.
Brief: The global boom in mergers and acquisitions has just delivered dealmakers their best-ever year -- on $4.11 trillion and counting. Numerous records have already tumbled in recent months and it was just a matter of time before the previous high set in 2007 was cleared. “M&A bankers are always blamed for being perpetually optimistic but the data is quite compelling,” said Stephan Feldgoise, co-head of global M&A at Goldman Sachs Group Inc. “Whether it be large-cap M&A, sponsor M&A, SPACs, strategic repositioning coming out of Covid, the numbers have been just extraordinary.” Volumes have been rising across sectors and regions, fueled by cheap financing and super-acquisitive private equity buyers. Deals in the $1 billion to $10 billion range -- a sweet spot for buyout firms -- have underpinned the boom, in the notable absence of $50 billion-plus blockbusters. Standout transactions this year have included the leveraged buyout of Medline Industries Inc., Canadian Pacific Railway Ltd.’s hard-fought takeover of Kansas City Southern, and the long-awaited merger of German real-estate firms Deutsche Wohnen SE and Vonovia SE.
Brief: Canada's hot inflation and recovering job market are raising pressure on the Bank of Canada to hike interest rates ahead of schedule, with investors looking to a policy announcement this week for clues that the central bank is turning more hawkish. The BoC, led by Governor Tiff Macklem, is expected on Wednesday to raise its inflation forecast and to largely end stimulus from its pandemic-era bond buying program, starting a countdown of sorts to the first interest rate hike since October 2018. The central bank has pledged to keep rates at a record low 0.25% until economic slack is absorbed, which would happen in the second half of 2022 in its latest forecast, and has long maintained that the factors pushing up inflation are transitory.
Brief: Saudi Arabia is expecting 50 million tourist visits in 2022 as it seeks to rejuvenate a nascent effort to promote domestic and international vacations stymied by the pandemic. “We have already started the recovery journey, and it will continue to 2023, 2024,” Tourism Minister Ahmed Al Khateeb told Bloomberg TV at the Saudi Green Initiative Forum. He also unveiled a new center focused on sustainable tourism as part of efforts, announced by Crown Prince Mohammed bin Salman over the weekend, to bring planet-warming emissions in the world’s biggest exporter of oil to net zero by 2060. The coronavirus crippled worldwide travel just months after Saudi officials outlined plans to attract foreign holidaymakers for the first time. The country is relying on tourism to help drive economic diversification and create jobs for its growing population.
Brief: Asian stock markets were mixed Monday after Wall Street slipped and China tightened travel controls in some areas in response to coronavirus infections. Shanghai, Hong Kong and Sydney advanced while Tokyo declined. Wall Street’s S&P 500 index declined 0.1% on Friday, weighed down by losses for tech companies after a seven-day streak of gains. In China, Gansu province in the northwest closed tourist sites Monday after coronavirus cases were found and the capital, Beijing, banned visitors from areas with infections in the past 14 days. China has reported only a few dozen cases, but Beijing’s response of curbing travel prompted concern that they might weigh on economic activity that already is weakening. “One may expect aggressive measures to control virus spreads, which may put a cap on growth,” said Yeap Jun Rong of IG in a report.
Brief: HSBC’s profits rose 74% in the third quarter as improving economic conditions allowed the bank to release hundreds of millions of pounds originally set aside for a potential jump in loan defaults during the pandemic. The London-headquartered bank said pretax profits rose to $5.4bn (£3.9bn) in the three months to 30 September, up from $3.1bn a year earlier. It easily beat City forecasts for profits of $3.8bn for the quarter. HSBC credited continued economic stability for helping increase its profits, as improving conditions allowed customers to repay their debts on time. It meant HSBC could release about $700m from the pile of cash it built up during the pandemic to help cushion the blow of a potential surge in defaults. It nearly offset the $785m loan loss charge that HSBC logged during the same period last year. Analysts had expected a further $236m charge in the third quarter. The better-than-expected results led HSBC to announce a share buyback programme, which will result in up to $2bn distributed to its investors.
Brief: The finance industry is ratcheting up pressure on Hong Kong to ease its strict quarantine rules and abandon its zero-Covid policy after a survey found almost half of major international banks and asset managers are contemplating to move staff or functions out of the city. In a letter sent over the weekend to Financial Secretary Paul Chan that was seen by Bloomberg News, the Asia Securities Industry & Financial Markets Association, the top lobby group for financial firms in the city, said the hard-line approach has put Hong Kong’s status as financial center, its broader economic recovery and competitiveness at risk. The lobbying body’s growing alarm comes as other financial centers, including Singapore, London and New York, are starting to get back to normal, easing travel rules while seeking to co-exist with the virus. Hong Kong has some of the world’s strictest quarantine policies, placing incoming travelers in quarantine for as long as three weeks, a strategy that has been largely successful in keeping local infections at close to zero.
Brief: HSBC Asset Management has shared a raft of advice with clients looking to navigate the current “wall of worry” facing global markets. With concerns about global growth and inflation causing jitters of late, along with the prospect of premature central bank policy adjustments and the resurgence of Covid-19 in certain parts of the world, investors have plenty on their plate when deciding where to allocate money. In a message to clients earlier this week, HSBC Asset Management Global Chief Global Strategist Joe Little recommended a number of strategies, including looking at Asian fixed income, “reasonably priced inflation hedges,” and value and cyclical stocks. Consensus forecasts for U.S. 2021 GDP [gross domestic product] have been cut by 0.7 percentage points to 5.9%, according to HSBC’s aggregate, while supply chain disruption has pushed up U.S. 2021 inflation expectations by a full percentage point to 4.3%.
Brief: The COVID-19 pandemic has not slowed profits on Wall Street as pre-tax earnings this year have beaten last year's outsized growth, a report Thursday found. The financial sector is critical to New York's economy, and the first half of 2021 was extraordinary strong for Wall Street, Comptroller Thomas DiNapoli said in a report. For the first six months of the year, pre-tax earnings hit $31 billion, up from $27.6 billion from the same period last year, and the most since 2009.“Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time," DiNapoli said in a statement. "The securities industry’s strong profits have helped shore up tax revenues and securities industry workers have been among the first to return to the office.”Wall Street is vital to the state's finances, making up about 18% of all state revenue each year.
Brief: Total hedge fund industry assets have swelled to almost USD4 trillion globally, a rise of nearly USD370 billion since the start of this year, according to new capital flows data. Hedge fund managers attracted USD5.6 billion of new investor money throughout the third quarter, supplemented by marginal performance-based gains, putting total industry capital at USD3.97 trillion overall, Hedge Fund Research stats show. Global hedge fund assets have rebounded sharply over the course of the Covid-19 pandemic, according to HFR’s latest Global Hedge Fund Industry Report – with total industry capital soaring by more than USD1 trillion in the previous six quarters, after falling below USD3 trillion in Q1 2020 when the coronavirus outbreak began. With the USD5.6 billion of inflows for Q3 this year, net inflows since Q3 2020 total some USD40 billion, HFR said.
Brief: An aggravating global supply squeeze caused the steepest decline in French manufacturing output since stringent coronavirus lockdowns were in place last year and severely damped growth momentum in Germany, purchasing managers report. Gauges for factory orders in both countries deteriorated in October, with some goods producers mentioning that “severe delays” on inputs were responsible for contracts being canceled or postponed. Inflation pressures grew amid the bottlenecks, according to IHS Markit surveys. “While until recently, the effects of inputs shortages have been most apparent on prices, we’re now seeing them have a noticeable impact on production levels and order book,” said Joe Hayes, a senior economist at the London-based firm.
Brief: The Cboe Volatility Index, known as Wall Street’s fear gauge, closed Thursday at its lowest level since before the pandemic hit as strong earnings pushed stocks to record highs.The VIX closed down 3.1% at 15.01, its lowest close since Feb. 19, 2020. The VIX has averaged 19.71 in 2021. The VIX is measure of market expectations of 30-day volatility and can serve as a way to gauge fear among market participants. The S&P 500 notched its seventh consecutive increase on Thursday, closing at a record; the VIX is down from 19.85 to 15.01 during the same time period.In a note published on Thursday, Susquehanna International Group equity derivative strategist Chris Murphy wrote that while the VIX has “cratered,” volatility is still high in other parts of the market.
Brief: A senior executive at SAP SE, owner of one of the world’s largest travel expense management platforms, expects it to take until at least 2023 before revenues from its Concur unit return to pre-pandemic levels. After losses for Concur during the pandemic, the service is seeing an uptick for bookings and transactional revenue, Chief Financial Officer Luka Mucic said in an interview. Mucic said that transaction volume -- which includes fees for extra usage of Concur -- was on the rise. He expects Concur to return to pre-pandemic growth rates next year, although it will take until 2023 at the earliest to revert to those levels in absolute sales terms.
Brief: After 19 months spent attempting to ward off Covid-19 while safeguarding jobs and businesses, the U.K. is heading into winter with a growing problem: The coronavirus is spreading rapidly, just as the economy starts going in the opposite direction. U.K. cases are accelerating faster than in other western European nations, while deaths have jumped to their highest since March. Government ministers are having to deny they are planning for a new lockdown. At the same time, economic growth is slowing, inflation is running high, the Bank of England is expected to hike rates soon and households are facing a cost-of-living crisis. It’s a contrast to successive waves of infection earlier in the pandemic, when tighter Covid curbs hurt the economy and looser measures helped it rebound.
Brief: New York City’s securities industry reaped another windfall in the first half of the year as it benefited from the pandemic-induced boom in markets -- and that’s projected to boost Wall Street bonuses. The industry’s pretax profits surged about 13% from a year earlier to $31 billion, helped by strong trading, underwriting and advisory activities, state Comptroller Thomas DiNapoli said Thursday in a report. While it was the industry’s second-most profitable first half on record, DiNapoli cautioned that profits will subside as interest rates rise and monetary stimulus fades. “Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time,” he said in a statement. “As we prepare for an eventual slowdown in Wall Street’s record activity, we need to ensure New York’s Main Street, and its other vital sectors, are also recovering.”
Brief: The leaders of Europe’s top banks agree they have a lot riding on the recent surge in consumer prices. But when it comes to deciding whether inflation is here to stay, they’re as divided as policy makers and business executives. On the one side, Deutsche Bank AG Chief Executive Officer Christian Sewing and his counterpart at Nordea Bank Abp are preparing for longer-lasting inflation. Sewing argues it’s time for central bankers start thinking about how to unwind years of negative interest rates that have weighed on lenders’ profitability. On the other side, Banco Santander SA Chairman Ana Botin and the chief of Swedbank AB are calling it a temporary spike from the pandemic and other factors, although they acknowledge the dangers of price pressures persisting.
Brief: New weekly jobless claims held below 300,000 for a back-to-back week as labor market conditions trudged back toward pre-pandemic levels. The Labor Department released its jobless claims report Thursday morning. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg: Last week's initial unemployment claims fell by a greater-than-expected margin, bringing the number of new filings back to the lowest level since March 2020. The four-week moving average for new jobless claims also dropped by 15,250 to reach 319,750 as of last week, also marking the least since March of last year.
Brief: If you think financial markets have been strange the past 18 months, just wait. What lies ahead is an unfamiliar macroeconomic environment that’s undergoing dramatic changes, says Pacific Investment Management Co. The firm released a report Wednesday warning that over the next five years the global economy will see “a more uncertain and uneven growth and inflation environment with plenty of pitfalls for policymakers.” Higher macroeconomic and market volatility will likely mean lower returns across fixed-income and equity markets, according to the manager, which oversees around $2.2 trillion in assets. But while overall capital market returns will likely be lower, increased volatility should spell opportunity for active fund managers, wrote Pimco. Markets are already bracing for the prospect that major central banks will soon begin withdrawing the emergency support provided during the Covid pandemic, with the Federal Reserve widely expected to start dialing back asset-buying next month, while inflation risks remain a major source of disquiet.
Brief: The chief executive of the world’s largest asset manager has called on governments globally to treat climate change with the same urgency as COVID-19 by supporting private capital investment in new technologies, but warned capitalism alone could not solve this crisis. BlackRock chief executive Larry Fink, who oversees around $10 trillion globally, said the pandemic had shown technologies can be developed quickly once the world recognises there is an “existential crisis”.However, Mr Fink said capitalism had fallen short in its pandemic response with large swathes of the emerging world struggling with very low vaccination rates, which could allow the virus to mutate. “We did not have the resolve to invest in the manufacturing, so we could get the whole world vaccinated, so we don’t have to worry about the next variant and the next variant and the next variant,” Mr Fink said during an online sustainability forum hosted by Credit Suisse.
Brief: The 2021 Global Management Survey, published by NAREIM, INREV and Ferguson Partners, paints a varied picture of real estate investment managers’ recovery from Covid-19. In terms of 2020 financial performance, 38 per cent of respondents recorded a 10 per cent increase in EBITDA, while 32 per cent reported a 10 per cent drop. The median firm in the survey recorded net AUM growth of 6 per cent. While still positive, this reflects the first year of slowing growth since 2016. The survey reports 29 per cent of respondents recording a year-on-year fall in AUM – up from 21 per cent in 2019.Unsurprisingly, employee numbers were impacted during the pandemic. In 2020, headcount either fell or stayed the same for 42 per cent of respondents, versus 26 per cent in 2019; and the number of investment managers who decreased headcount grew from 17 per cent to 27 per cent over the same period.
Brief: In 2018, Blackstone became the U.K.’s largest small-business landlord. That year, Blackstone partnered with the U.K.’s largest privately owned property company, Telereal Trillium, to buy an entire portfolio of commercial real estate off British government-owned Network Rail. It seemed like a good investment: Network Rail, swimming in £46.5 billion ($63.9 billion) in debts, had delayed £162 million in investment in the portfolio. Tenants — thousands of them, renting sometimes damp, sometimes noisy railway arches for businesses including bakeries, hair salons, and car garages — were long overdue for structural inspections to make sure the trains could still run safely overhead. And because Network Rail still owned the tracks, the British taxpayer would foot the bill to inspect and maintain the structures, while Blackstone could focus on filling empty arches and revaluing tenanted ones.
Brief: United Airlines Holdings Inc. posted a narrower loss than analysts had expected as a dip in demand from a summer surge in the coronavirus delta variant proved fleeting. The carrier lost $1.02 per share, or $300 million, in the third quarter on an adjusted pretax basis, better than the $1.61 loss analysts had estimated, according to figures compiled by Bloomberg. United shares rose 1.4% in trading after the market close. The stock has gained 6.9% this year through the end of trading Tuesday. Pandemic-driven losses persisted for a seventh quarter at United, which as recently as July had predicted a profit for the latter half of 2021 based on strong demand from leisure travelers and a gradual return of corporate road warriors. But that was before a summer wave of Covid-19 infections and hospitalizations caused an industrywide sales slowdown. United had warned investors Sept. 9 that its planned profit would turn into red ink due to this change in business conditions.
Brief: Dubai’s key tourism sector is unlikely to rebound for at least a year, according to S&P Global Ratings.While the city will witness a modest recovery this year helped by one of the world’s highest vaccination rates, “weak international tourism is likely to drag on the economy until late 2022 at the earliest,” Ratings Credit Analyst Trevor Cullinan said on Tuesday.Last year, S&P estimated Dubai’s gross domestic product would contract about 11%, given the impact of coronavirus on sectors including travel and tourism that contribute more than a third of the city’s economy. Dubai also has a “sizable” overall public debt burden projected at around 141% of GDP, according to S&P.
Brief: Fund managers may be quickly souring on global growth and earnings expectations, but their positioning remains pro-risk as they slash bond holdings to a record low and buy U.S. equities. This is a key takeaway from the latest Bank of America Corp. monthly fund manager survey, conducted in the week through Oct. 14. While the outlook for global growth turned negative for the first time since April 2020 and the overall survey was the least bullish in a year, the allocation to bonds fell to the lowest level ever as inflation woes drove expectations for higher rates, according to BofA strategists. Investors boosted their exposure to U.S. equities to a 16% overweight, the most since November 2020, while the overall positioning in stocks remained “very high,” but steady at a net 50%.
Brief: The COVID-19 pandemic may have bloated public debt to levels already pushing some governments to consider consolidation, but that’s nothing compared to the fiscal difficulties brewing in the coming decades, the OECD said. According to its long-term scenario, a deceleration in large emerging economies, demographic change and slowing productivity gains will drag trend economic growth among the OECD’s 38 members and the Group-of-20 nations to 1.5 per cent in 2060 from around 3 per cent currently. At the same time, states will face rising costs, particular from pensions and health care.To maintain public services and benefits while stabilizing debt in that environment, governments would have to raise revenues by nearly 8 per cent of gross domestic product, the OECD said.
Brief: Hang in there -- that’s been the simple motto of equity market mavens who are bullish on the FTSE 100 Index. The U.K. benchmark is one of only a handful of major indexes that have yet to fully recover pandemic losses, being down more than 3% in that time. Among the main concerns of investors is a supply crunch that’s more acute for Britain than many other advanced economies due to the country’s high dependence on trade and because Brexit exacerbated a trucker shortage. “Brexit disruptions are having a huge sentiment effect on U.K. assets,” said Edmund Shing, chief investment officer at BNP Paribas Wealth. The energy crisis is another cause for concern, he said. After years of relative underperformance, dating back before the 2016 referendum on leaving the European Union, U.K. stocks are cheap. The FTSE 100 trades at a near-record 40% valuation discount to the S&P 500, and at 20% discount to the euro-area benchmark Euro Stoxx 50.
Brief: One prominent Bay Street economist is warning that Canada's uneven labour recovery post-pandemic could have long-lasting economic effects if not addressed. “We still see this asymmetrical widening in the income gap. So, not only are we seeing the wealth gap widening, but also the income gap is widening,” Benjamin Tal, deputy chief economist at CIBC World Markets Inc., said Monday. “That worries me a lot.” His comments come on the same day BDO Debt Solutions released new data showing the deepening financial divide among Canadians. The latest BDO Affordability Index showed 43 per cent of respondents acquired additional debt because of the pandemic, up from four per cent from 2020. Around 28 per cent of people polled reported their financial situation improved during the pandemic as they saved money and paid down debt.
Brief: Offices are starting to fill up again, but it’s still not where Londoners are spending their entire work week. More than 80% of London-based office employees who participated in a JPMorgan Chase & Co. survey said working full time either from home or from the office were their least preferred options after the ending of pandemic restrictions, analysts led by Neil Green wrote in a note. The analysts polled about 650 workers between Sept. 30 and Oct. 12, with about two-thirds of respondents saying they were back in the office on a regular basis. Only 37% said they had been going in five days.“This data strongly supports the trend for flexible offices,” the analysts wrote. “Employee demands are evolving.”
Brief: The “nightmare scenario” of stagflation rearing its head is less likely than many investors think, according to investment professionals, who say the current backdrop is not comparable to the last prolonged period of stagflation during the 1970s and early 1980s.However, they warn that expectations for stagflation could lead to a "significant reversal" across nominal bond and equity markets. Stagflation, when economic growth slows and unemployment increases while inflation ticks higher, creates a tough environment for investors, given consumer spending slows, companies' earnings fall and unemployment continues rising. It is a difficult cycle to break, as evidenced between 1973 and 1982, when the oil embargo of 1973 hit prices and first challenged the seemingly stable inverse correlation between inflation and unemployment.
Brief: Prime Minister Boris Johnson will host a dinner Monday with 20 of the world’s most powerful executives ahead of a summit designed to boost investment into the U.K. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Bill Gates will be among the guests, according to the Daily Telegraph. Stephen Schwarzman, co-founder of private equity firm Blackstone Inc., Barclays Plc CEO Jes Staley andBanco Santander SA Chairman Ana Botin and will also be there, the newspaper reported. Chancellor of the Exchequer Rishi Sunak will host a separate dinner for other leading business figures on the same evening in the capital’s financial district alongside William Russell, the Lord Mayor of London. More than 200 top business people have been invited to Tuesday’s summit, which is aimed at boosting business investment in Britain.
Brief: Assets under management (AuM) at the world’s 500 largest asset managers have reached a new record of USD119.5 trillion, according to new research from the Thinking Ahead Institute. As of the end of 2020, this represents an increase of 14.5 per cent on the previous year when total AUM was previously USD104.4 trillion.The research, conducted in conjunction with Pensions & Investments, a leading US investment newspaper, confirms growing concentration among the top 20 managers whose market share increased during the period to 44 per cent of total assets. Of the top 500 managers, 221 names which featured on the list a decade ago in 2011 are now absent in 2021, demonstrating a quickening pace of competition, consolidation and rebranding.
Brief: Wall Street banks have been among the biggest beneficiaries of the pandemic-era trading boom, fueled by the Federal Reserve's massive injection of cash into financial markets. With the central bank nearing the time when it will start winding down its asset purchases, banks are set to profit again as increased volatility encourages clients to buy and sell more stocks and bonds, analysts, investors and executives say. The Fed has been buying up government-backed bonds since March 2020, adding $4 trillion to its balance sheet, as part of an emergency response to the COVID-19 pandemic. The strategy was designed to stabilize financial markets and ensure companies and other borrowers had sufficient access to capital. It succeeded but also resulted in unprecedented levels of liquidity, helping equity and bond traders enjoy their most profitable period since the 2007-09 financial crisis.
Brief: Your return to the office might come with no desk, toilet paper or refrigerator to stash your lunch. The supply-chain disruptions and chip shortages that have retailers fearing empty shelves for Christmas are complicating employers’ plans for a smooth reopening of offices, according to a report this week from consultancy Korn Ferry. Office managers are saying that orders for breakroom refrigerators they need in January may not be fulfilled until next summer, said Elise Freedman, a senior client partner at Korn Ferry who is advising companies on their return-to-work strategies. New desks are also months behind schedule, she said, though that’s a smaller issue as offices are slow to fill to capacity. With workers already reluctant to go back to the five-day office routine — a third of professionals responding to a Korn Ferry survey in August said they’re never returning full-time — each hiccup makes it harder for the employer to make reliable plans.
Brief: The pass rate for the first level of the chartered financial analyst exam rose from the record low set in July. In August, 26% of candidates passed the Level I test, up from 22% for those who sat for the exam the previous month and 25% in May, according to the CFA Institute’s website. The 10-year average pass rate is now 41%. “We see a similar phenomenon in the lower-than-average pass rate from the August Level I administration as we did earlier this year,” Peg Jobst, managing director for credentialing at the institute, said in a statement Thursday. “As Covid-19 continues to challenge a large number of candidates on their journey through the CFA program, we continue to see the impact reflected in the lower pass rates.” The latest results follow historically low pass rates across all levels of the CFA exam. The institute said its pass rates would improve in the future, approaching pre-Covid levels as long as pandemic pressures subside.
Brief: Just a few months ago, the U.S. economy looked like it was roaring back from the pandemic slump. Now the recovery is starting to look more like a grind. The spread of the delta variant has held back millions of Americans from spending on services like restaurants and hotel rooms. Supply chains are still creaking and Hurricane Ida, which caused havoc in petrochemicals hub Louisiana as well as roughly $20 billion of flooding damage in the Northeast, may have made them worse. And high inflation is stretching household budgets. The Atlanta Federal Reserve’s real-time estimate of economic activity now predicts growth of just 1.3% in the quarter that ended in September. Two months ago it was forecasting 6%. Economists surveyed by Bloomberg are more upbeat. Still, the consensus growth forecast for the third quarter has dropped sharply since August. None of this means the U.S. rebound is heading into reverse, says Nathan Sheets, newly appointed chief economist for Citigroup Inc. “I think recession’s too strong,” he says. “But it’s certainly softer.” Here are five indicators that illustrate and explain the gathering gloom.
Brief: The U.K.’s benchmark equity index is clawing back pandemic losses, driven by a rally in mining, energy and banking stocks. The FTSE 100 Index rose as much as 0.5% to 7,242.73 on Friday, taking it to the highest level since February 2020, when market jitters about the pandemic started to surface. “Having underperformed for so much of the last 18 months, the FTSE 100 is now reaping the benefits of its heavy weighting of basic resources, energy and financials,” said Michael Hewson, chief market analyst at CMC Markets. A surge in metals and energy prices as well as rising yields are lifting miners, oil companies and banks higher, he said. Royal Dutch Shell Plc and BP Plc have both soared more than 15% over the past month, with HSBC Holdings Plc and Standard Chartered Plc also among the top performers. Meanwhile, reopening beneficiaries Rolls-Royce Holdings Plc and British Airways owner IAG SA have benefited from easing travel restrictions.
Brief: The dealmaking and trading windfall that the pandemic unleashed on Wall Street firms just keeps piling up as the economy recovers -- and U.S. banking leaders are pointing to signs that it’s far from over. A fresh round of earnings reports by five of the nation’s largest lenders included revenue hauls from investment banking at Morgan Stanley and Bank of America Corp. that were at or near record levels, and dramatic surges in equities trading across the industry, such as a surprising 40% jump at Citigroup Inc. Closely watched Goldman Sachs Group Inc. reports its third-quarter results Friday. The latest phase of the 18-month frenzy was driven by companies eager to do deals as they adjust their businesses, and by traders betting on the pace of an economic recovery amid supply-chain woes and inflation worries. The outlook, according to several financial industry leaders, is more of that, along with mounting pressure on the Federal Reserve to reduce its emergency pandemic support for the economy.
Brief: Social impact investing in the UK has increased by almost eight-fold over nine years from GBP833 million in 2011 to GBP6.4 billion in 2020, according to new figures released by Big Society Capital, a UK social impact investor. The data, from Big Society Capital’s Annual Market Sizing Report, shows there has been consistent growth year-on-year with a particular acceleration between 2019 - 2020, the year of the pandemic, which saw a 26 per cent increase in the value of social impact investments in the UK (26 per cent 2019-2020 vs 21 per cent increase 2018-2019). Social property funds continue to account for the largest portion (45 per cent) of the social impact investment market and has seen eight-fold growth since 2016. Social lending accounts for 43 per cent of the market, seeing three-fold growth since 2011.
Brief: UK dealmakers are equally convinced that the biggest threats to completing deals in the next 12 months will be issues stemming from the pandemic and climate change. That's according to a survey of 400 UK and US-based dealmakers by Datasite, a leading SaaS technology provider for mergers and acquisitions (M&A) professionals. The research shows that 41 per cent of UK dealmakers expect the biggest M&A dealbreaker in the next 12 months to be Covid-19, just ahead of climate change at 40 per cent. By contrast, 48 per cent of US dealmakers expect climate change to be the biggest dealbreaker in the next 12 months, followed by Covid-19 at 32 per cent. “Britain’s economy has certainly come a long way following the darkest days of the pandemic, but we still have some labour and supply chain issues to resolve,” says Merlin Piscitelli, Chief Revenue Officer for Datasite in Europe, the Middle East and Africa.
Brief: Now that more than 18 months have passed since Covid-19 started sweeping the world, we have a good understanding of how the pandemic has affected real estate investments. In some ways, it has changed the game. In other ways, it has simply underlined a number of trends that were already shaping the sector. These ‘megatrends' will likely cross decades and decades, and have big implications for real estate - boosting some sectors and disrupting others. Below is a snapshot of the trends that have shaped 2020 to now, and how we see them developing in the coming decade. While we are not predicting the end of the office tower, we do expect a fall in their popularity with tenants. Global lockdowns have proven the viability of remote working and, even as the world normalises, many companies are adopting a hybrid working model going forward.
Brief: The adoption of environmental, social and governance (ESG) integration remains strong amongst global institutional investors, while a significant group has also placed greater emphasis on ESG considerations as a result of the Covid-19 pandemic, according to the 2021 RBC Global Asset Management (RBC GAM) Responsible Investment Survey. The 2021 survey highlighted that while ESG adoption remains near peak levels amongst institutional investors globally, there is a sizable group of institutional investors (29 per cent) who have placed greater emphasis on ESG considerations as a result of the Covid-19 pandemic. These investors are also the most vigorous supporters of ESG as an enabler of investment performance, as nearly all of this group (97 per cent) believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios, a significant difference compared to the overall global respondents who said the same (83 per cent).
Brief: Billionaire investor Ray Dalio believes the workplace will never return to pre-pandemic conditions as flexibility and technology became the major driving forces in the new world. “The future of the workplace is going to be characterized by probably two things — customization and technology. We’ve been given a gift to be able to rethink what we are doing,” Dalio said Wednesday at CNBC’s @Work Summit. “I don’t think we are going to go back to the old world.” “It’s going to be an erratically different kind of work — what is employment? How will technology be replacing people? How will that be dealt with? How will the wealth gap be dealt with...there are going to be many, many changes over the next five years,” Dalio added.
Brief: JPMorgan Chase CEO Jamie Dimon is not known for mincing words or hiding his emotions. So the fact that the leader of America's largest bank sounds very upbeat about the health of the US economy is noteworthy. Dimon said he is not worried about the possibility of inflation heating up in the next few months during a call with reporters about JPMorgan Chase's third quarter earnings Wednesday. He bluntly said "that's life" and added that the fact that we're even talking about inflation is a good thing because it's a sign that the worst of the Covid-19 pandemic, despite Delta variant fears, may soon be over. "We should all thank our lucky stars," Dimon told reporters about his expectation that the US may soon be turning a corner with regards to Covid-19 cases. Dimon even dismissed worries about all the headlines regarding supply chain disruptions due to the pandemic.
Brief: The pandemic has made workplace meetings more inclusive and efficient, according to a survey of more than 600 business leaders across Singapore, Australia and Japan. In Singapore, more than half of C-Suite executives who responded said they tried to open up conversations to a wider group of staff, the analysis from Tableau Software Inc. and YouGov showed. The loss of face-to-face interactions was a concern for two-thirds of executives in Australia, and leaders in Japan aged 44 and under said they had seen an improvement in workplace conversations, according to the study. Decision-making got faster during the pandemic, said JY Pook, senior vice president for Asia Pacific and Japan at Tableau, a data visualization software firm. “
Brief: CFA Institute, the global association of investment professionals, has released results from a survey it conducted on the career outlook of more than 15,000 current university students and recent graduates aged 18-25 from 15 markets. The results find that globally, 58 per cent of respondents still feel confident about their future career prospects in the wake of the Covid-19 pandemic. The findings also indicate that traditionally stable fields, such as finance, remain attractive for graduates navigating these uncertain times. In fact, respondents across all 15 markets ranked finance as one of the top five most valuable majors for finding a career. Overall, graduates felt that medicine/science was most stable and attractive, followed by healthcare and then education.
Brief: US multinational pharmaceutical manufacturer Merck’s new drug – which is designed to help reduce Covid-19 symptoms for people with Covid-risk factors including age, obesity, and diabetes – offers “great potential” to fully re-open the global economy, Man Group noted in market commentary on Tuesday. The London-listed global hedge fund giant’s ‘Views From The Floor’ note observed how the Goldman Sachs US Global Health Risk equities basket, which lagged the S&P 500 for much of 2021, has risen on the back of encouraging trials of molnupirarvir. The Health Risk equities basket – which includes airlines, tour operators and hospitality names including such as Royal Caribbean, Expedia, Delta Airlines, and Nordstrom – relies on the post-pandemic economic reopening, which has stalled in recent months after powering 2020’s stock market rebound. “
Brief: Certain key private equity numbers turned to point downwards in the third quarter of the year, including fundraising which fell by 21% year-on-year.Private equity, which was described as “performing well since the pandemic”, also saw ‘exit’ values fall by over 2% and Prequin - the data firm which published the Q3 figures - said “some signs of market softness may be appearing”.Aggregate private equity capital raised was $83 billion, down 21% year-on-year. Preqin said private equity exit activity had “cooled down slightly” and that exit values were down 2.4% year-on-year. However, North America remained the dominant source of “buyout deal flow”, having registered $107.2 billion in aggregate during Q3, compared to only $61.5 billion in the same period last year.
Brief: The International Monetary Fund is slightly downgrading its outlook for the global recovery from the pandemic recession, reflecting the persistence of supply chain disruptions in industrialized countries and deadly disparities in vaccination rates between rich and poor nations. In its latest World Economic Outlook being released Tuesday, the IMF foresees global growth this year of 5.9%, compared with its projection in July of 6%. “The global recovery continues but the momentum is hobbled by the pandemic,” IMF Chief Economist Gita Gopinath told reporters at a briefing. For the United Sates, the world's largest economy, the IMF predicts growth of 6% for 2021, below its July forecast of 7%. The downward revision reflects a slowdown in economic activity resulting from a rise in COVID-19 cases and delayed production caused by supply shortages and a resulting acceleration of inflation.
Brief: Traders and investment banking staff who plan to work from home regularly should expect the U.K.’s markets watchdog to come knocking. The Financial Conduct Authority on Tuesday warned regulated firms that it has powers to visit any address where work is performed and that includes private residences. The FCA could visit a home for ongoing supervision, not just as part of an investigation, the watchdog said. The updates come as staff across the financial services sector move to a hybrid working model. The FCA said firms will now need to prove that remote working arrangements don’t increase the risk of financial crime or hurt competition.
Brief: The divide between Asia’s two main financial hubs in handling the pandemic is growing ever wider, with one opening up to global travel and the other maintaining one of the world’s harshest quarantine policies. In Singapore, officials are taking steps to reconnect with the global economy even as the government faces pressure to favor locals over foreigners for well-paying jobs. Speaking in a televised address over the weekend, Prime Minister Lee Hsien Loong said that Singapore can’t stay “locked down and closed off indefinitely” and residents should prepare to see “many Covid-19 cases for some time to come.” Hong Kong Chief Executive Carrie Lam has taken the opposite approach, stressing in a Bloomberg Television interview Monday that even a single death would be a “major concern” as she follows China’s Covid Zero approach that tolerates no local infections.
Brief: Another COVID-19 variant; melting ice caps cause cities to sink below the water level; wars breaking out over diminishing supplies of potable water. Cyberattacks bankrupting global corporations and crippling governments. Corrupt autocrats plundering their countries for wealth and power. They aren’t just dystopian fantasies. Some are already occurring around the world. They’ll likely only increase in the coming year and decade. Each could exert a monumental impact on our lives—and on markets. Yet the impact won’t be uniformly negative. For investors, alpha is possible amid the chaos. The trick is adopting a mindset to take advantage of the possibilities that disruption brings.
Brief: The number of UK pharmacy M&A transactions has jumped 26 per cent to 408 in the last year, up from 325 the year before, says UHY Hacker Young, the national accountancy group. Pharmacies were one of few sectors to benefit from a surge in customer demand during the pandemic. As one of the few designated “essential retailers”, they were also allowed to remain open throughout lockdown. Sales of PPE, along with Covid testing has opened up a whole new business lines for pharmacies. This has not only increased their appetite amongst pharmacies to acquire smaller operators but also made pharmacies a more attractive target for buyers from outside of the sector. UHY Hacker Young says both regional and national pharmacy groups are making acquisitions, including first time buyers that have not previously made acquisitions. Private equity buyers have also been showing increased interest in the sector.
Brief: The global asset management industry reached an all-time high of $114.7 trillion in assets under management in 2020, according to a McKinsey report released yesterday. That made 2020 the second-best year since the financial crisis in terms of AUM growth, according to the report. It was not just driven by performance: Net new flows of assets grew at 2.7 percent in 2020, just slightly down from 2019. “In North America, 2020 was a story of the updraft in the U.S. markets in particular, in large part because U.S. media, technology, and healthcare companies were overrepresented in the circle of winners of the global pandemic economy,” McKinsey said in the report. Yet even as assets surged, asset manager revenues and operating profits have grown at a slower pace. In North America, AUM grew at 13 percent last year, while revenues and operating profits grew at 7 percent and 9 percent, respectively. McKinsey pointed out that despite the market shocks and the prolonged suspension of in-person interactions caused by Covid-19, the asset management industry has picked up some tailwinds as the U.S. economy quickly recovered to the pre-pandemic level.
Brief: With traditional equity and credit returns set for a squeeze, and ESG, Covid-19 and remote working upending the hedge fund industry from both an investment and operations perspective, managers face both considerable challenges and sizable opportunities up ahead, speakers at EisnerAmper’s 6th annual Alternative Investment Summit said this week. Opening this year’s event, the ‘Future of Hedge Funds’ panel explored an assortment of industry themes and trends – including the increased importance of ESG considerations, the far-reaching operational changes stemming from the Covid-19 pandemic, and the range of emerging investment opportunities coming down the pipeline. Simon Fludgate, head of operational due diligence of Aksia, described a “cataclysmic shift” in how much investors care about ESG, but observed how different people want different things from ESG policies, acknowledging a contrast between sentiments in US and Europe.
Brief: Allianz has unveiled the twelfth edition of its ‘Global Wealth Report', which puts the asset and debt situation of households in almost 60 countries under the microscope to reveal a sizeable growth in financial assets over the last year. 2020 was the year of extreme contrasts. Covid-19 destroyed millions of lives and livelihoods and the world economy plunged into its deepest recession since World War II. At the same time, monetary and fiscal policy mobilized unimagined sums to support the economy, markets and people. Incomes were stabilised and stock markets recovered quickly. With this tailwind, households' wealth weathered the Covid-19 crisis: Global gross financial assets increased by 9.7% in 2020, reaching the magic EUR 200 trillion mark for the first time. Savings were the main driver: As lockdowns drastically reduced consumption opportunities, the global phenomenon of "forced savings" was born. Fresh savings jumped by 78% to EUR 5.2 trillion in 2020, an absolute record. Inflows into bank deposits - the default option of forced savings, simply leaving unspent income in the bank account - almost tripled (+187%).
Brief: Facebook Inc. shares rose on Friday, though not by enough to prevent what is set to be the social-media company’s longest streak of weekly losses since the pandemic started. The stock climbed 0.5% today, but remains down 3.6% for the week. Should the stock end the week in negative territory, that would mark its fourth straight weekly loss, the longest such streak since a five-week decline that ended in March 2020. At current levels, Facebook shares are down more than 13% off a September peak. Over the past month, the stock is down 12%, making it the weakest performer among Wall Street’s biggest names. Recent losses reflect a rise in Treasury yields, which have broadly weighed on growth stocks, along with a number of company-specific headwinds. This week saw a lengthy global outage of the company’s sites, along with Senate testimony from a former insider turned whistle-blower, who argued that Facebook puts profits ahead of user safety.
Brief: Money is flowing heavily into the business of medical billing as hospitals and doctors — whose revenues were disrupted by the coronavirus — focus on maximizing every dollar they can collect from patients and insurers. The big picture: The rise and even existence of the billing industry is the result of a fragmented system that is designed around multiple types of insurance plans and a system that has increasingly forced patients to shoulder more of the costs of their care. The state of play: Companies involved with billing and collections, called "revenue cycle management" in industry jargon, increasingly advertise themselves to health care providers as one-stop shops for all things involving payments. Driving the news: The pandemic drastically shrank revenue among hospitals and other providers, and although that drop was relatively short-lived, it spurred even more revenue cycle activity.
Brief: The World Bank has revised upward its economic growth projections for the Middle East and North Africa to 2.8% this year from an earlier estimate of 2.2%, as vaccine campaigns gather pace and pandemic restrictions ease. The Washington-based lender now calculates the total cost of the pandemic at around $200 billion in terms of gross domestic product losses, according to its latest regional economic review published on Thursday. Growth in 2021 will still lag behind pre-pandemic levels and is seen at 4.2% next year, as some countries have been slower to address the public health crisis. The Middle East and North Africa was hit hard by the coronavirus pandemic last year and, like the rest of the world, lockdown measures introduced to combat the spread of the virus left many of its economies in distress. Going forward, governments must ensure efficient vaccination campaigns to prevent public health from deteriorating once again, the report said.
Brief: Governments should start planning a return to more sustainable budgets with policies that win the trust of investors, after unprecedented fiscal stimulus to fight the COVID-19 pandemic, the International Monetary Fund said on Thursday. But each country must determine the appropriate timing and pace of fiscal consolidation based on its own individual circumstances, the IMF said in its Fiscal Monitor report. The fiscal plans needed to consider the stage of the pandemic, existing fiscal vulnerabilities, the risk of economic scarring, pressures from aging populations, development needs and historical difficulties in collecting revenues. "There are countries where the pandemic is still raging and therefore the priority continues to be the health emergency," IMF deputy fiscal affairs director Paulo Mauro told Reuters in an interview.
Brief: UK-based investors are losing faith in the Government’s ability to rebuild the economy following the pandemic, HYCM research has found. The survey of nearly 1,500 investors with investments of more than £20,000 excluding property, savings and workplace pensions, found that 60% do not believe Prime Minister Boris Johnson and the Conservative Government have handled the pandemic properly. An additional 59% said they lack faith in the government's ability to tackle the record levels of public debt that was accrued during the coronavirus pandemic, while half of UK investors said they are concerned about the potential of acute economic austerity over the coming years. "As recent policy reforms would suggest, the government is already taking significant action to repay the large level of public debt accumulated during the pandemic.
Brief: The ways people work are changing, and some asset management executives are worried the industry won’t be able to keep up. Asset management executives surveyed by Accenture expressed concerns around changes in technology and permanent adoption of remote work. For instance, 68 percent of respondents answered “yes” when asked if they believed their firm’s culture is resistant to adopt new technologies. The survey, which included 100 c-suite asset management executives, is expected to be released Thursday. Respondents were largely based in the U.S. and included a range of positions, including chief information officers, chief operating officers, and chief technology officers. Firm types included asset management subsidiaries, alternative asset managers, and standalone asset managers.
Brief: Bank of America Corp will pay out $200 awards to its employees at Merrill Lynch Wealth Management who have been fully vaccinated and going to office regularly, according to a memo shared with Reuters on Wednesday. The awards will be offered to client associates, administrative support and operations staff at BofA-owned Merrill Lynch, a spokesperson for the bank said. For now, only those staffers who have confirmed they have received their vaccines were asked to return to office, the spokesperson said. “While there is no vaccine mandate across the company, we strongly recommend employees be vaccinated and to notify us of their status.” More than 80% of Merrill employees have voluntarily reported their vaccination status and have or are returning to the office, the spokesperson added.
Brief: An overwhelming majority (93 per cent) of private equity fund managers expect to make an investment in the energy sector over the coming five years as they seek to capitalise on the post-pandemic rebound in global demand for power and government-backed stimulus programmes. Of these, over half (51 per cent), stated they were ‘extremely likely’ to invest in energy. The findings are revealed in a new study, Recovery to Rediscovery: Capitalising on a Changed Private Equity Landscape, which was commissioned by Auxadi, a leading provider of accounting, tax and payroll services to private equity, real estate, and multinationals. It was based on interviews with senior-level private equity investors with average assets under management of EUR14.4 billion.
Brief: While inflation concerns mount for the U.S. economy, the real danger may be the combination of rising prices and a stagnating economy, said Bridgewater Associates co-Chief Investment Officer Greg Jensen. “The problem is stagflation -- that’s the real risk, and so many portfolios are massively exposed,” Jensen said Wednesday at the Bloomberg Invest virtual conference. Policymakers have limited options to handle that, Jensen said in an interview with Stephanie Flanders of Bloomberg Economics. “The Fed faces certainly the problem of inflation being well above their target and the inability to be as easy as they’d like to be and being pulled along by that -- and certainly the increasing odds that we’re facing bubbles,” he said.
Brief: European companies are discussing relocating staff from Hong Kong, the region’s local chamber of commerce said, as the city commits to a “Covid Zero” strategy that almost every country apart from China is abandoning. Hong Kong’s strict quarantine measures have led many businesses to consider restructuring at least part of their operations to places such as Singapore, Frederik Gollob, chairman of the European Chamber of Commerce in Hong Kong, said Wednesday on Bloomberg Television.“You can assume that in most boardrooms across Europe and Hong Kong this is a subject of discussion,” he said. “You can’t really avoid it, looking at the restrictions. “His comments come a day after Chief Executive Carrie Lam said Hong Kong’s ties with mainland China were more important than the international business and global travel connections that helped cement the city’s status as an Asian financial center.
Brief: Pick a direction, and don’t go with it. That’s the story in stocks of late, with the S&P 500 alternating between gains and losses of at least 1% for four straight sessions -- the longest stretch since June 2020. It’s the same in fixed income, with 10-year Treasury yields swinging wildly around 1.5%. The harrowing reversals reflect a particularly stark divide between bull and bear cases in markets right now. On one side, risk appetites are being constricted by lingering uncertainty over the government debt ceiling, tightening Federal Reserve policy and disrupted supply chains. At the same time, sentiment is being buttressed by improving Covid trends, an economy that keeps chugging along and forecasts for more double-digit earnings growth from corporate America.
Brief: RBC Capital Markets downgraded its rating on Air Canada to the equivalent of hold from buy, citing a “heightened risk” that COVID-19 variants will cap the stock’s near-term performance.“The [Delta] variant has undoubtedly impacted the pace of the recovery while also adding a layer of uncertainty regarding the timing of the industry’s ‘return to normal,’” Walter Spracklin and Ryall Stroud, analysts at RBC, wrote, arguing investors should prepare for a more stubborn recovery that stays “lower for longer.” Tuesday’s downgrade represents the first time the bank’s analysts have lowered Air Canada’s stock rating since 2013. Their outperform rating remained untouched through the thick of the pandemic, as the airline slashed capacity and global travel collapsed. But new data indicates the recovery will be “choppier” and longer than previously assumed, Spracklin and Stroud wrote.
Brief: Generation X, the oft-overlooked demographic group squeezed between the Baby Boomers and Millennials, has experienced a wealth boom in the U.S. since Covid-19 was declared a national emergency. During the pandemic, household wealth distribution has shifted from older generations to those who are reaching their peak earnings years, according to data from the Federal Reserve. Gen Xers, who are age 41 to 56, saw robust gains in equities and pension entitlements, while their share of the nation’s consumer debt declined, the data show. The Covid-19 crisis marks a rebound of sorts for the cohort that was worst-hit by the 2008 financial crisis. Millions of Gen Xers, who were in their 30s and early 40s at the time, lost jobs and housing wealth.
Brief: Employees just starting out are risking their career advancement by continuing to work remotely, hedge fund manager Ken Griffin said. “If you are early in your career, you are making a grave mistake not being back at work,” Griffin said Monday in a conversation with Bloomberg’s Erik Schatzker at the Economic Club of Chicago. “It’s incredibly difficult to have the managerial experiences and interpersonal experiences that you need to have to take your career forward in a work-remotely environment.” Griffin, who runs Citadel’s hedge fund business and Citadel Securities, also said working outside the office hinders innovation and indicated it may hurt the country’s competitiveness. Workers in China have returned “literally from almost the start” of the pandemic, he said.
Brief: JPMorgan Chase & Co said on Monday it will restrict business travel for U.S. employees who are unvaccinated or have not disclosed their vaccination status to the bank, according to an internal memo seen by Reuters. The bank has also mandated such staffers to be tested twice a week, and said they would need to contribute a higher cut of their pay towards medical insurance, to account for testing expenses. The Wall Street bank has urged its employees to get their COVID-19 shots, but not mandated vaccines, in line with peers such as Bank of America Corp and Wells Fargo & Co. JPMorgan Chase will also require proof of vaccination from employees participating in client events in-person, effective immediately, according to the memo.
Brief: India’s digital economy is poised to mirror China’s, and is expected to be worth a staggering $1 trillion in the next five to six years. According to a white paper by Investcorp, expected to be released Monday, India’s digital advancement has further accelerated amid the pandemic as consumers relied on technology to meet everyday needs — from purchasing groceries and other essentials to accessing education and healthcare services. In a country that has been one of the hardest-hit by the pandemic, 11 new unicorns (private tech companies with a valuation of at least $1 billion) were created in 2020 — the equivalent of the previous three years combined. In the first half of 2021, India boasted 15 new unicorns, which raised a total of $6 billion at an aggregate valuation of $28 billion. Investcorp now estimates that 100 new unicorns will be created in the country by 2025.
Brief: It has been an eventful time for petrol stations across the UK. Panic buying of fuel has seen demand overwhelm supply. More broadly, the huge pent-up savings from the pandemic has seen a significant demand surge for goods. While global manufacturing continues to supply goods at a record pace, supply chains have not been able to keep up - from used cars, semiconductors and furniture, to Nandos' chicken. This has been further exacerbated by global capital expenditure (capex) levels having slumped in recent years. Capex levels have not kept pace with depreciation since 2017, and the pandemic unsurprisingly caused a further depression in capital spending. The MSCI AC World Capex to depreciation ratio (ex-financials) dropped to around one in 2020, indicating companies in recent years have mostly been spending on maintenance - investing ‘for balance sheet rather than for growth'.
Brief: Chancellor of the Exchequer Rishi Sunak may be touting a recovery in the U.K.’s job market, but his latest spending pledge shows he’s still concerned about a spike in unemployment now his furlough plan has ended, according to Goldman Sachs Group Inc.In a speech to the Conservative Party Conference on Monday, Sunak heralded the performance of the U.K.’s labor market during the pandemic, and announced 500 million pounds ($680 million) of funding to help get people back to work after the expiry of the wage-support program. For Goldman economists, that extra spending, while low compared with the billions spent on furlough, is a sign the Chancellor is still harboring concerns about the outlook for the labor market even as he insists it was right to end the support in September.
Brief: U.S. Supreme Court justices are set to don their black robes and sit once more behind a mahogany bench in their grand courtroom on Monday as they resume in-person oral arguments for the first time since COVID-19 pandemic disruptions started last year. In a tentative step toward normalcy, the nine justices will be joined by lawyers, court staff and journalists in their spacious column-lined courtroom as they begin their new nine-month term. No members of the public will be present. The court building has been closed to the public since March 2020 due to the pandemic, with the justices hearing oral arguments via teleconference. In a sign of how planning during the pandemic is constantly in flux, preparations for the new term were disrupted on Friday when Justice Brett Kavanaugh tested positive.
Brief: New Zealand’s central bank is expected to embark on a series of interest-rate increases to tame inflation and rein in soaring house prices, even as a coronavirus outbreak that has now spread beyond Auckland poses a greater risk to economic growth. Reserve Bank policy makers will raise the official cash rate by a quarter percentage point to 0.5% Wednesday in Wellington, according to 20 of 21 economists in a Bloomberg survey. Most predict it will follow up with a succession of hikes over the coming year, taking the rate to around 1.5% by August 2022, though the persisting outbreak of the highly infectious delta strain of Covid-19 could interrupt the tightening cycle. “We expect the RBNZ to go ahead with hiking the OCR on Wednesday, while noting downside risks to the outlook,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland. “There’s no question that the situation is grimmer than we were all assuming back in August. We thought we were looking at a relatively short, successful lockdown and then we would be Covid-free, and that’s not likely at all any more.”
Brief: Deals by real estate investment trusts totaled $108 billion this year through September, beating the annual record as ample capital fueled transactions in the recovering economy, according to Jones Lang LaSalle Inc. The U.S. deal surge signals the beginning of a new cycle emerging from the pandemic-related economic halt, according to Sheheryar Hafeez, a managing director in the capital markets group at JLL. “There is renewed confidence in the runway ahead of us in 2022 and beyond,” said Hafeez, whose company released a report on REIT transactions Monday.REIT mergers and acquisitions had plunged to $17 billion last year. Even before the pandemic, deals were slowing from the recent high of $86 billion in 2018 as investors worried about the decade-plus bull market coming to an end, according to Hafeez. The all-time high was $103 billion in 2006.
Brief: Airline losses from the coronavirus pandemic are set to surpass $200 billion as travel curbs weigh on corporate and long-haul demand well into 2022, according to the industry’s main lobby. Carriers are poised to post a collective deficit of $11.6 billion next year, the International Air Transport Association said Monday in Boston at its annual meeting. The trade body also increased its loss estimate for this year, and revised upward the shortfall for 2020. The combined $201 billion in net losses over the pandemic-blighted period eclipses close to nine years of industry earnings, based on IATA figures. While domestic and regional travel have begun to rebound, there’s been little recovery in the globe-spanning business routes so crucial to many carriers. The U.S. is poised to open its borders to trans-Atlantic visitors next month, but other long-haul markets remain in the doldrums, especially those connecting Asia with Europe and North America.
Brief: For the world’s leading Covid-19 vaccine makers, news that Merck & Co.’s experimental pill cuts the risk of hospitalization and death in half was the latest blow in a very bad week. Stocks including Moderna Inc. and BioNTech SE have shed about $84 billion in combined value this week in the aftermath of a stock market slump that sent the two companies to their lowest level since July. Selling accelerated on Friday, with BioNTech and Moderna each declining as much as 16% in New York as Merck delivered the news on its experimental pill that Wall Street called a “game changer.” The drug, called molnupiravir, reduced the risk of hospitalization or death by 50% in a study, raising concerns about the long-term revenues for companies providing inoculations.“
Brief: SoftBank-backed Indian hotel chain Oyo Hotels on Friday filed for a public offering, just two days after trendy eyeglass unicorn Warby Parker (WRBY) went public on the New York Stock Exchange. The flurry of activity has become commonplace during a record-breaking surge of IPOs this year that's seen buzzy offerings from the likes of Robinhood (HOOD), Coinbase (COIN), and 23andMe (ME). In a new interview, Suzanne Shank — president and CEO of investment bank Siebert Williams Shank — said the IPO boom comes down to two main factors: companies repositioning themselves during the pandemic and the persistence of low interest rates from the Federal Reserve. "I think we're seeing companies that both benefited from the pandemic, as well as those that are sort of rebooting post-pandemic," she says. "That has really been sparking this increased deal flow."
Brief: It may be no comfort for millions of workers and businesses, but the U.K.’s coronavirus recession was no longer the worst in three centuries. Revisions mean that gross domestic product fell by 9.69% in 2020. That makes it the deepest slump since 1921, when the economy shrank 9.71% in the aftermath of World War I. The decline was previously estimated at 9.85%. Until then, the devastation wrought by the pandemic was thought to have exceeded all recessions since 1709, when the Great Frost led to a 13.4% contraction. The revisions announced Thursday are part of the annual Blue Book, when the Office for National Statistics updates the national accounts based on new sources and methods. While ONS figures go back to 1948, long-run estimates are produced by the Bank of England.
Brief: Zoom’s agreement to buy cloud contact center software company Five9 was scuttled on Thursday, after Five9 shareholders rejected the deal. Zoom said in July that it was acquiring Five9 in an all-stock purchase for $14.7 billion, its first billion-dollar-plus purchase and, at the time, the second-biggest tech deal of the year. The company has now lost an opportunity to quickly broaden its capabilities after its stock rallied during the coronavirus pandemic.Five9 shares fell 2% in extended trading following the statement from the companies. Buying Five9 “presented an attractive means to bring to our customers an integrated contact center offering,” Eric Yuan, Zoom’s founder and CEO, wrote in a blog post. “That said, it was in no way foundational to the success of our platform, nor was it the only way for us to offer our customers a compelling contact center solution.”
Brief: The Covid-19 pandemic has catapulted social issues to the forefront of investors minds, according to the latest global investor study published by Schroders today (September 30).The survey of more than 23,000 people across Europe, Asia and the Americas, revealed that 57% of investors are now placing greater importance on social issues versus environmental issues (55%) compared to pre-pandemic levels. The definition of “people” in the context of the research means those who will invest at least €10,000 (or the equivalent) in the next 12 months or those who have changed their investments within the last 10 years.Whilst the environmental element of ESG investing has been firmly on the radar of global investors since the Paris Agreement, meaningfully addressing social issues – from the consistency of corporate behaviour towards employees during the pandemic to working conditions and a liveable wage – has traditionally been lacking.