Brief: Investors, already skittish ahead of U.S elections in November, now have another thing to worry about: the president’s health. President Donald Trump’s COVID-19 diagnosis triggered a sell-off in stocks and oil as investors moved away from risk assets on Friday. “The president of the United States has got a disease which kills people. People are de-risking because of that,” said Chris Weston, head of research at brokerage Pepperstone Group in Melbourne. But where investors go from here depends, to a large degree, on how Trump copes with a disease which has killed more than a million people around the world… Aside from the Trump news, investors were digesting a jobs report showing U.S. employment growth slowed more than expected in September and back-and-forth negotiations over a U.S. coronavirus relief plan. If Trump’s symptoms turn out to be mild and he recovers quickly, markets could stabilize and the Republican president could use the experience to project his image as a fighter in the campaign against Democratic challenger Joe Biden. But if the 74-year-old gets very sick and has to be hospitalized, as British Prime Minister Boris Johnson was earlier in the year, or the virus spreads to other members of his administration, investors will be alarmed.
Brief: The primary role of a traditional bank providing financing and capital is set to be challenged further in a post Covid-19 world by non-banks, according to a PwC report, “Securing your tomorrow, today – The future of financial services,” which predicts that alternative providers of capital are set to become an even more important part of the global financial system. In the last 10 years, aggregate lending in USD by non-banks has outstripped the pace of growth of traditional lenders, with non-banks seeing a compound annual growth rate (CAGR) of lending 2.3 per cent, compared to 0.6 per cent CAGR to banks. This trend is likely to accelerate as declining core capital ratios – caused by asset impairments resulting from the Covid-19 pandemic - will limit the lending capacity of banks, particularly in Europe. Non-traditional sources of finance such as private equity, sovereign wealth funds, credit funds and governments themselves will need to step into the breach to finance the recovery and its aftermath. In 2019, non-banks – including private equity funds and sovereign wealth funds – lent 41 trillion dollars compared to the 38 trillion dollars lent by traditional lenders. In particular, the analysis by PwC shows that private debt has seen substantial growth, which is set to propel the asset class into a significant category of non-bank lending.
Brief: Institutional investors are increasingly favoring the biggest, most established alternative managers as they make allocations during a global pandemic. Alternative investment fund clients surveyed by SS&C Intralinks reported an increased preference for $1 billion-plus and $5 billion-plus fund managers in the investment technology firm’s global poll of around 200 limited partners. For example, 15 percent of surveyed LPs said they were favoring general partners with more than $5 billion in assets under management, compared with just 5 percent last year. Meanwhile, the proportion of respondents prioritizing mid-sized managers — those with between $100 million and $500 million in assets — fell from 53 percent to 41 percent. “It suggests that LPs are looking to back the most trusted names in the industry to guard against reputation risk, as well as appease investment committees who might be cautiously minded in the current market,” SS&C Intralinks said in a report on the findings. “Another factor could be that large-cap managers are more likely to have experienced a market downturn, such as in ’08, and considered a safe pair of hands.”
Brief: Investment banks might be hesitant about hiring too much experienced talent right now, but junior recruitment is proceeding as normal. Hirevue interviews have been underway since late July and virtual super days and Zoom interviews abound. For the most part, the interview questions being asked are the same as usual: if you're applying for a markets role you'll almost certainly need an opinion on how to invest $1m+; if you're applying for a corporate finance role you'll need to know how to explain a DCF to your 80 year-old grandmother. Peppered in among the questions students say they're being asked at banking interviews this year, however, are questions specifically related to the pandemic. As we noted in May, you'll also need a good story about how you've handled the pandemic personally and have used it as a chance to 'grow' etc etc. You might also want to prepare answers to the questions below, which recent interviewees claim to have been asked in postings on Wall Street Oasis and Glassdoor. As ever, some of wildest/most philosophical questions are being asked at hedge fund Bridgewater, where some people have been working in the woods since the pandemic began...
Brief: Private credit fundraising slumped globally to US$8.3 billion in the third quarter, down 68 per cent from the same period a year ago, as investors took a wait-and-see approach amid uncertainty caused by the pandemic. The last quarter’s figures compare to US$37.6 billion brought in for the asset class in the second quarter, according to London-based research firm Preqin Ltd. In North America -- the biggest hub for alternative lending -- fundraising fell to $7.8 billion in the third quarter, down from US$24.6 billion the prior quarter and compared to $8.6 billion in the same period in 2019. “What we’ve seen in the third quarter is a real reduction in the number of funds closed and the amount of capital raised, because investors have already allocated the capital potentially or it could just be the fact that Covid has not disappeared like some hoped,” David Lowery, Preqin’s head of research insights, said in a Wednesday interview. In the U.S., investors keeping an eye on the Nov. 3 president election could also lead to them taking a “wait-and-see approach,” Lowery said. Raising capital in the wake of a pandemic has undoubtedly been a challenge -- particularly when a credit manager is connecting with new investors, according to Theresa Shutt, chief investment officer at Canada-based Fiera Private Debt.
Brief: Brian Bell, chief executive of Split Software, was in a meeting pitching investors when California announced the shelter-in-place policy to prevent the spread of the coronavirus in March. In the days that followed all of his meetings were delayed or canceled as venture capital investments froze. But since then things haven’t just thawed, they are boiling over. According to previously unreleased data from PitchBook, in the first nine months of 2020, U.S. venture capital firms invested $88.1 billion in tech startups, up from $82.3 billion in the first nine months of 2019. Tech investments represented 78% of venture capital investments last year and 74% in 2018. Venture capitalists say $3 trillion in stimulus funding has investors looking to put cash to work, and top venture capital firms continue to launch massive funds. Greylock Partners, an early investor in Airbnb, started raising money for its latest fund during the pandemic and announced a billion-dollar fund in September. Lightspeed Venture Partners, the first outside investor in Snap, in April announced it raised more than $4 billion for three new funds to support early- and growth-stage startups. Investors say they are betting the pandemic will have the lasting effect of pushing more economic activity online, making up for the businesses boarding up on Main Street. And they are investing in startups that aim to enable the further digitization of sectors like banking, retail and healthcare.