Brief: Ray Dalio’s Bridgewater Associates spent weeks earlier this year tweaking its investment models to account for unprecedented government stimulus and the worsening pandemic. That hasn’t helped performance. The flagship Pure Alpha II fund has lost 18.6% through Thursday, according to a person familiar with the matter. That’s little changed from the decline it reported through the end of August. This year’s loss in Dalio’s main fund is shaping up to be its worst ever, putting him far behind other macro managers who have posted strong gains in 2020. The fund has gained little ground since the end of March, despite a strong market rebound. It was down about 23% in the first quarter as the spread of Covid-19 brought much of the global economy to a standstill. After central banks flooded markets with liquidity, Bridgewater investment managers spent more than a month turning off strategies they deemed to be ill-suited for the new environment, and adjusted others they believed would work. By August, a person close to the firm said risk levels, which had been cut earlier in the year, were back to historic norms.
Brief: U.S. Senate Majority Leader Mitch McConnell said on Friday that economic statistics, including a 1 percentage point drop in the unemployment rate, showed that Congress should enact a smaller coronavirus stimulus package that is highly targeted at the pandemic’s effects. The Republican senator told a news conference in Kentucky that the fall to a 6.9% jobless rate, combined with recent evidence of overall economic growth, showed the U.S. economy is experiencing a dramatic recovery. “I think it reinforces the argument that I’ve been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate,” McConnell told reporters. But his call for a narrow package was quickly rejected by House of Representatives Speaker Nancy Pelosi, a Democrat, who has been working to broker a COVID-19 stimulus deal near the $2 trillion mark with Treasury Secretary Steven Mnuchin. “It doesn’t appeal to me at all, because they still have not agreed to crush the virus. If you don’t crush the virus, we’re still going to have to be dealing with the consequences of the virus,” Pelosi told a news conference on Capitol Hill.
Brief: Allianz SE canceled a share buyback program that it had suspended earlier in the year as the hit from the Covid-19 pandemic continued to mount in the third quarter. Virus-related hits rose to 1.3 billion euros ($1.5 billion) by the end of September, up from about 1.2 billion euros in the first six months of the year. Allianz said it won’t repurchase some 750 million euros of shares that were still left in a buyback program for 2020, “in light of the ongoing economic uncertainties.” While the insurer doesn’t keep a ranking of loss events, the pandemic has already cost it more than the 470 million euros it reported for hurricane Katrina in 2005, the most expensive single loss event for the industry so far. Virus expenses are now approaching those of the 9/11 terror attacks that cost the company about 1.5 billion euros in 2001. The pandemic is posing a major challenge for insurers, which have to contend with simultaneous claims across multiple industries and business lines. A single unit of Allianz, which says it’s the largest insurer of Hollywood studios, reserved hundreds of millions of dollars this year for coronavirus-related claims after movie and television studios were forced to curtail production during lockdown. More losses might be on the way as the second wave of the pandemic is hitting Europe, though the experience of the first lockdowns will help insurers limit losses. Chief Financial Officer Giulio Terzariol said in an interview on Friday that claims from new lockdowns will be contained after Allianz stopped covering pandemic-related losses in most new property-casualty insurance contracts.
Brief: Portfolio managers face conflict every day as their ideas and levels of conviction are constantly tested. But as we all continue to adapt to remote working, finding a level of detachment from the office environment seems to be helping PMs re-affirm their edge and listen with greater clarity to their intuition. Could the home office now become a semi-permanent arrangement in pursuit of improved portfolio performance? The hustle and bustle of a trading floor and free flow of ideas inside hedge funds can be energising but for even the best portfolio managers, it can also stoke the flames of sub-conscious doubts and fears. It is all too easy to become swayed by an analyst’s counter-argument, or lose conviction on a trade because the chief economist throws a curveball. Such is life in the high-pressure world of fund management, where maintaining one’s conviction – or one’s investment edge – comes under constant bombardment. And while we human beings will never shed our cognitive biases, changing one’s environment can make a difference. In the strangest of years, remote working in 2020 is helping portfolio managers maintain their edge, away from the day-to-day distractions of the office.
Brief: While some analysts have said that a V-shaped recovery is underway, Oaktree Capital Management high yield portfolio managers Madelaine Jones and David Rosenberg are more skeptical. In an "Oaktree Insights" letter published Thursday, Jones said the economy hasn't fully recovered from the depths of the coronavirus crash. "Until fundamentals really do improve, conflicting economic data and political shocks could spark more market ructions," they said, adding that the economic recovery largely depends on when the pandemic can be resolved. "The fundamentals tell us we're not out of the woods yet," the portfolio manager said, citing the historically high unemployment level in the US, and a GDP that rebounded strongly but is still well below pre-pandemic levels. Spiking levels of the coronavirus will undermine the economic recovery for the rest of the year, said Jones. "Now is a time to be cautious," said Jones. "There are limits to what central banks can do to prop up markets if underlying economy conditions don't heal. Given the speed of this broad market rally, we have no interest in going out too far on the risk curve in the search for that last bit of yield."
Brief: The inability to meet with asset managers in person has not kept public pension funds from investing in private equity, according to eVestment. The investment data firm said in a private markets report that pension funds committed $20 billion to private equity in the third quarter, more than the $17.8 billion invested in the same period last year. The second quarter had been even busier, with commitments totaling nearly $25 billion. In total, eVestment said 455 private equity commitments were made by public pensions from April through September, following the transition to all-remote work in March. This compares to 413 private equity commitments recorded in the same six months a year earlier. “Despite the remote nature of fundraising today, public plans are continuing to execute on their commitment plans and deploy capital,” eVestment said in the report. The California Public Employees’ Retirement System, New York State Teachers’ Retirement System, Washington State Investment Board, and State of Wisconsin Investment Board were the most active investors during the third quarter, according to eVestment.