Brief: The shift to remote working as a result of the coronavirus pandemic proved to be the ultimate stress test for hedge funds’ cybersecurity and business continuity processes – but speakers at this year’s Hedgeweek LIVE Europe digital summit believe the industry has coped well with the unprecedented disruption. Opening day two of this year’s summit, the cybersecurity and business resilience panel fleshed out the many practical challenges thrown up by the remote working environment. These include data access, monitoring and protection, dealing with increased call volumes in a home environment, video conferencing, the potential software and hardware headaches, as well as staff wellbeing. Patrick Trew, chief risk and compliance officer at Maniyar Capital, described how his firm, which spun out of Tudor Investment Corporation, was in the unique position of launching right in the middle of lockdown. “We spent plenty of time preparing for the launch which, pre-March, would have been a fairly routine launch,” Trew said. “But the dynamic changed quite dramatically as events unfolded.”
Brief: British money managers ran afoul of liquidity regulations 13 times at the height of this year’s market volatility, exposing their investors to the kinds of risks that can trap billions of pounds for months. Nine funds, whose names were kept confidential, breached the 10% limit on holdings of unquoted securities between March and May, according to Financial Conduct Authority data obtained by Bloomberg through a public records request. Most of the breaches occurred in March, when Covid-19 spread to Western economies and the value of investors’ more easily tradeable securities plunged. While the breaches subsided by June, the revelation may increase pressure on investment managers to reduce their stakes in upstart companies and thinly-traded shares, which became more popular in an ultra-low-interest-rate environment. More attention has been paid to the issue after illiquid investments tripped up money managers Neil Woodford and H2O Asset Management. “Should funds that offer daily liquidity have 10% in unquoted stocks in the first place? My answer is no,” said Ben Yearsley, investment director at Shore Financial Planning. “It comes back to a failure of regulation. It’s been 18 months since Woodford blew up and still nothing has happened.”
Brief: Goldman Sachs sees a prosperous 2021 but is cautious about the bumpy road the U.S. economy will ride before it gets there. In a forecast that is well above Wall Street consensus, the bank’s economists see gross domestic product accelerating at a 5.3% pace next year, considerably stronger than the 4% median forecast from the Federal Reserve. However, the firm sees several obstacles along the way, particularly the damage that quickly accelerating coronavirus cases will have on the recovery. “The pace of recovery is likely to get worse before it gets better,” Goldman economist David Mericle wrote in a report. “Fiscal support has largely dried up for now, leaving disposable income lower in the final months of the year. But the largest risk is that the third wave of the coronavirus is likely to worsen with colder temperatures.” Indeed, the pandemic’s toll has swelled in recent weeks, with new daily cases eclipsing the 150,000 mark on Thursday and poised to continue rising as winter weather sets in. Few states have reimposed major restrictions yet, but are more likely to do so as the virus spreads.
Brief: Onex Corp. says its private equity investments increased in value this year, despite the economic volatility caused by the COVID-19 pandemic. The company, which manages a fund that bought WestJet Airlines Ltd. in a $5-billion deal last December, didn't announce details about the Calgary-based airline. Overall, the Toronto-based investment firm says it earned US$501 million, or US$5.29 per fully diluted share, in the three months ended Sept. 30. In the same period last year, the company reported earnings of US$100 million, or 99 cents US per diluted share. The company, which makes money in several ways including buying and selling companies, lending and fees for managing assets for clients, declared a dividend of 10 cents per share for the fourth quarter — unchanged since mid-2019. Despite recent hardships for airlines, including WestJet, Onex says its private equity investments yielded gross returns of 14 per cent during the third quarter, while shareholder capital rose by about 10 per cent. Chief executive Gerry Schwartz says Onex has been improving its portfolio, making investments in benefit insurer OneDigital, trade-show company Emerald Holdings and a clinical services group.
Brief: After eight months of virtual meetings and Zoom conferences, institutional investors are looking to ease back to in-person events next year, according to an Institutional Investor survey of nearly 300 allocators and consultants. The majority — 53 percent — said they would feel either somewhat or entirely comfortable attending outdoor regional events in the spring, even as most said they would still not want to travel for more traditional indoor conferences. Respondents from consulting firms, endowments, and foundations were among those who were most willing to attend regional events, while health care investors expressed the least amenability. II conducted the survey over the last four weeks, as coronavirus infections rose once again in the U.S. Most of the responses came in before this weekend, when Pfizer and BioNTech reported promising preliminary results on their Covid-19 vaccine. Participants in the survey were asked to describe their level of comfort about attending three types of events: regional, “resort-style,” and traditional. Regional events were defined as local, outdoor gatherings with no air travel, while resort-style events would take place outside at destinations like Miami or Aspen. Traditional events described indoor gatherings in major cities.
Brief: Experts see a small pay cut coming for executives at traditional asset managers, hedge funds, and private equity shops, particularly at smaller firms, given disruption in the underlying economy because of the coronavirus. The predicted five-to-10 percent compensation drop would make for two down years in a row, according to Johnson Associates’ third-quarter report on year-end incentives. But that average belies striking differences between the haves and have-nots in asset management. The consultant expects compensation changes to range widely, from 20 percent cuts to 7.5 percent hikes. Costs have continued to grow as investors want more hand-holding, data, and analytics, while compliance burdens expand, according to Johnson Associates. At the same time, investors continue to pressure managers for fee deals. Some asset managers are still cutting staff given shrinking asset bases or only modest inflows as the industry consolidates. Last month, for example, Morgan Stanley announced plans to buy asset manager Eaton Vance.