Brief: Hedge funds have seen their net stock exposures jump to the highest in at least three years in a spate of short covering and bullish bets on cyclical companies. U.S. long-short funds have assumed a more risk-on posture amid the $4.6 trillion trough-to-peak rally across some of the industries most exposed to the coronavirus fallout, according to Credit Suisse Group AG. The data through April 30 sheds light on how professional speculators are tip-toeing back into the likes of financials and industrials which have been trading at multi-year discounts. Now, violent rotations between riskier equities and defensive names could inject fresh pain on this breed of stock picker. The S&P 500 is heading for a three-session slump led by cyclical sectors following a barrage of poor data and renewed U.S.-China tensions. Fund managers are grappling with “the opposing pulls of deteriorating fundamentals set against Fed-inspired optimism,” said Mark Connors, global head of risk advisory at Credit Suisse, in a report dated Friday.
Brief: Most private equity firms are currently concerned about restructuring costs and re-engineering their portfolios impacted by the coronavirus pandemic, however a new survey suggests deal activity can restart in three months’ time. Nearly 90% of buyout groups said they expect to deploy capital in the next three to six months, responding to a survey by consultancy firm New Street Group. But for now they are working on shoring up their holdings’ balance sheets. More than 70% of respondents to New Street said they plan on investing into their existing portfolio. Meanwhile, a failure to source funding and increasing pressure to meet operating expenses is expected to lead to a rise in demand for specialists. New Street said it is likely that firms will look to bring on chief restructuring officers and other CFOs who can restructure companies.
Brief: Is Wall Street blind? The global economy is in shambles, the coronavirus pandemic has killed more than 237,000 worldwide and 30 million Americans have lost their jobs as collateral damage in the fight against COVID-19, with the tallies all rising by the day. Yet, the U.S stock market just rocketed to its best month in a generation. While it’s most definitely wild, Wall Street is also a collection of investors who are continually looking ahead, setting prices for stocks at the moment based on where they expect corporate profits and the economy will be a quarter or two into the future. From February into late March, investors sent the S&P 500 down by nearly 34%, anticipating that the number of jobless workers would explode and the economy would tumble into recession. Then in April, as gruesome economic figures confirmed those fears, investors instead focused on a few strands of optimism for the future.
Brief: Asset owners and money managers are adapting their engagement efforts as the workers and suppliers of their portfolio companies feel the impact of the coronavirus crisis. Investors said they have refocused their engagement activities to ensure that executives at their portfolio companies are protecting the health and the safety of workers and are not, for example, keeping non-essential employees at retail, office or even mining sites unnecessarily. Investors added they are putting pressure on top executives to continue to employ workers and honor existing contracts by paying for goods already produced to keep smaller suppliers in business. Some asset owners are working with portfolio company executives to help them access governmental loans and subsidies for workers who have been furloughed.
Brief: Chicago Equity Partnersis closing and returning assets to its institutional clientele. The active manager is in the process of winding down the firm's operations, although a timetable for the firm's closure has not been set, said Daniel Gagnier, a spokesman for the firm. Chicago Equity Partners publicly announced the move in an April 17 update to its SEC ADV filing noting that "CEP has decided to wind up its operations, including liquidating all private funds. CEP has notified its clients of its decision and provided a description of the process." Affiliated Managers Group acquired a 60% stake in CEP in October of 2006. AMG spokesman Jonathan Freedman declined to comment.
Brief: Unless you’re the Governor of Georgia, you know we are not going back to normal. But where are we going? If you’re an allocator, probably nowhere. Contrary to the beliefs of some right-wing ideologs, Covid-19 is highly contagious and is killing people. It will continue to kill people for some time. I begin with the assumption that Boards of Trustees and sponsoring organizations recognize that a critical part of their fiduciary duty is to ensure the people to whom they have delegated the management and administration of their pool of beneficial assets are fully not dead. This means they must be healthy. Given the current pandemic and its long tail, I cannot imagine a Board or Trustees or sponsor permitting its CIO and investment staff to participate in non-essential external business meetings.