Brief : Federal Reserve actions will continue to bolster the U.S. economy as it battles the Covid-19 pandemic, the central bank said Friday in its twice-yearly update to Congress. “Monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” the Fed said. The report was published on its website ahead of Chair Jerome Powell’s testimony before the Senate Banking Committee on Tuesday and the House Financial Services panel a day later. Fed officials have signaled they will hold interest rates near zero at least through 2023 and last month repeated they would keep buying bonds at a monthly pace of $120 billion until “significant further progress” had been made on employment and inflation. On an optimistic note, the Fed said data show a pickup in employment through early February in the hard-hit leisure and hospitality sector -- which includes restaurants, entertainment venues, and hotels. The Fed said data on new-business applications started to pick up in the summer. Nevertheless, other data show that services spending remains restrained, the report said. The Fed noted that job losses in the pandemic have fallen disproportionately on low-income workers, those without a college degree, Americans of color and mothers. These groups also still have the most ground left to make up as economic activity remains suppressed.
Brief: Asset managers are preparing for a rebound in UK equities, as an easing of coronavirus restrictions is expected to follow a swift roll-out of vaccinations. Last week, the chief economist of the Bank of England Andy Haldane said that the UK economy is “like a coiled spring” with “enormous amounts of pent-up financial energy waiting to be released” once the effects of the mass vaccination programme kick in. The UK economy shrank by almost 10 per cent last year, resulting in a contraction more than twice as large as any on record, said the Office for National Statistics. The IMF expects the UK economy to expand by 4.5 per cent this year, and another 5 per cent in 2022. At the end of January, London-headquartered asset manager Schroders, upgraded its outlook on UK equities to ‘positive’. “We upgraded UK equities as we expect it to benefit as the global recovery broadens into multinational and commodity-sensitive markets,” wrote Schroders, noting strong recent gains from oil and gas and basic materials companies. The FTSE All-Share index posted negative returns in January as companies in the financials, industrials, and consumer goods sectors all weakened.
Brief: Sovereign wealth and public. pension funds are bolstering their funding of private debt, with close to $9 billion committed since the COVID-19 crisis as they hunt for yield and their ample liquidity allows them to take on more risk than banks. Most recently, Saudi Arabia's Public Investment Fund said last week it had become an anchor investor in a new $300 million shariah credit fund. Queensland Investment Corp (QIC), an investment arm of the Australian state, last month became the latest state-owned investor to launch a private debt team. Last year marked a tricky time for the asset class. Private-debt fundraising declined substantially and commitments to direct lending, the largest chunk of it, fell by more than half. But as the uncertainty surrounding the pandemic lifts, activity is expected to pick up in 2021. State-owned investors with their deep pockets and long-term investment horizons are at the forefront. "Now we are seeing real interest from sovereign and pension funds that wasn't there a couple of years ago," said Antoine Josserand, head of business development at pan-European private credit manager Pemberton Asset Management, which counts both types of investors as clients. "It's a reflection of the fact that they recognise the merit in terms of diversification of their alternative asset bucket. Others, as part of their fixed-income portfolio, are trying to find the best relative value they can in the current negative rate environment."
Brief: Hamilton Lane Inc. is putting the probability of an economic downturn this year at zero, according to Chief Executive Officer Mario Giannini. “There is virtually no chance that there is a recession in 2021,” Giannini said Thursday during the firm’s annual market overview. “We’re not going into a downturn, and in fact we may have an even stronger environment than people expect.” The Bala Cynwyd, Pennsylvania-based alternative-asset manager, which oversees about $657 billion, believes that central banks will continue to plow more money into the system to hold up markets. “When you look at what governments are doing in the U.S., in Europe, everywhere -- they are saying this pandemic was no one’s fault and we are not going to allow economies to turn down and not do something about it,” said Giannini. “So we think they are going to continue to provide enormous fiscal stimulus through this year.” Giannini said interest rates will remain low for a longer period of time than expected. He did predict one wild card: the possibility of an inflation scare from pent-up demand for a return to pre-pandemic life with outings such as eating at restaurants and taking trips driving “an enormous amount of activity.”
Brief: Activist hedge fund manager William Ackman, whose bets on companies are closely watched, updated investors on how his flagship fund earned a record 70.2% return in 2020 on Thursday in a socially distanced way by sending out a 57-page presentation. Normally this would be one of the rare occasions where investors could pepper the billionaire investor and his partners in person with questions about markets and individual companies over dinner in New York. Ackman has plenty to celebrate after his Pershing Square Capital Management put up a second straight year of record returns in 2020. In 2019 the fund returned 58.1%. And 2021 is off to a strong start with an 8.1% return. Because of the COVID-19 pandemic however, Ackman and his team continue to work remotely, something they started over a year ago, and there will be no public champagne cork popping or dinner tonight. It was only in 2018, over dinner, that Ackman told investors that he would stop jetting around the world to meet with investors throughout the year. He was going to focus more on researching new ideas instead of acting as his firm’s chief marketer. For investors, the shift has paid off, and Ackman called 2020 and “outstanding year” in the presentation.