Brief : M&G Investments will reopen the M&G Property Portfolio and its feeder fund at midday on 10 May 2021, more than 17 months after it first pulled down the shutters. Over the course of the suspension, the managers have exchanged or sold 38 properties for a combined discount to net asset value of 0.1%, of which more than a third were retail properties. This has brought the cash level to 33.2%, which the authorised corporate director and depositary of the fund believe is a "suitable liquidity position" to meet redemption requests and protect investors who wish to remain invested. Due to the rebalancing caused by an attempt to raise liquidity, the fund is now overweight to industrials and has seen its retail exposure fall from 38.4% to 28.1%. From 25 June, the portfolio will change to dual pricing on a full spread basis to "provide greater clarity, reduce the potential for large price fluctuations and provide stronger alignment with the fund's long-term horizon". It will also seek to maintain a 20% cash weighting during normal market conditions to "enhance liquidity management".
Brief: Hedge funds and asset managers must design portfolios to successfully weather volatile markets, and “invest heavily” in technology, rather than focus on predicting the next downturn, says Man Group chief investment officer Sandy Rattray. Rattray – who has co-authored a new book on strategic risk management along with Man Group strategy advisor Professor Campbell Harvey, and Otto Van Hemert, director of core strategies at quant-focused Man AHL – believes the upheaval of the past 12 months have rendered tail event predictions “nearly impossible.” Their new book, titled Strategic Risk Management: Designing Portfolios and Managing Risk, explores how risk management should be incorporated into the core design of investment portfolios, and examines how portfolio balancing and balanced return streams can be achieved through volatility targeting of higher-risk asset classes, and which defensive strategies offer capital protection. In the book, Harvey, Rattray and Van Hemert argue that risk management is “inextricable” from alpha generation.
Brief: Availability of cheap credit has masked distress, but it’s still out there, says BlackRock managing director Mark Kronfeld. You just have to know where to look. “Just because you’re not seeing bankruptcy filings doesn’t mean there isn’t distress,” said Kronfeld, a member of the global credit platform at BlackRock Inc., which manages $9 trillion in assets. There will be fewer traditional bankruptcies -- besides pre-packaged filings -- as long as there’s enough liquidity to ride out the pandemic, according to Kronfeld, who focuses on special situations and distressed investments. Still, there may be more bankruptcy filings in the sectors most impacted by the pandemic, including retail and energy, Kronfeld said. “Companies, even with increased leverage, are able to get cheap financing,” but risks remain, he said on a virtual panel hosted by SierraConstellation Partners. There was about $90 billion of distressed debt trading as of April 16, down from almost $1 trillion in March 2020, according to data compiled by Bloomberg. That includes nearly $5 billion in retail bonds and loans, and $15 billion from oil and gas companies.
Brief: Cybersecurity fundraising activity is on track for another record year, according to ICON Corporate Finance’s April 2021 cybersecurity sector report, which reveals that sector valuations have hit historic highs over the past 12 months. In Q1 2021 USD3.7 billion was invested by VCs globally, an increase of +35 per cent. That looks set to shatter 2020’s record USD8.3 billion (+22 per cent). The resilience of the market was demonstrated as more than USD22 billion in M&A deal value was transacted, despite the challenges of a global pandemic Public cybersecurity stocks have traded at all-time highs, seeing the sector more than double in value since lockdown restrictions began in March 2020. ICON’s Cybersecurity Sector Index, meanwhile, shows that the sector is now trading at 11x revenues and company is predicting that a wave of cybersecurity businesses are ready to capitalise on the extraordinary market opportunity, boosted by VCs flooding the industry with necessary funding.
Brief: Money has been pouring into the logistics sector from a variety of different sources, including US banks, institutions, private equity, and firms in the Middle East and Far East. “That has driven down yield considerably over the last six months,” according to Legal & General Investment Management senior fund manager Jonathan Holland, speaking to Funds Europe for the April issue. A lot of the new capital can come with a lack of knowledge, according to Thomas Karmann, head of logistics at Axa Investment Managers’ alternatives division, Axa IM Alts. “Risk is often not correctly priced anymore and there is hardly any differentiation of location and market depth for (re)letting. There seem to be less single asset sales and more portfolios, containing some less attractive buildings which would almost be unsellable on a standalone basis,” he said.
Brief: The budget unveiled by Canadian Prime Minister Justin Trudeau’s government on Monday includes a tax provision that could affect enterprises that rely heavily on debt financing, including private-equity firms and natural-resource companies. The change affects tax deductions that certain businesses can take for the interest they pay on loans. Trudeau’s government wants to limit those deductions to an amount equal to 40% of a company’s earnings starting in 2023, and 30% after that. It estimates the measure would raise C$5.3 billion ($4.2 billion) in additional revenue over five years. The measure is meant to prevent companies from minimizing their tax burden by having their Canadian units hold a disproportionate amount of debt. Several other countries in the Group of Seven and European Union are introducing similar limits on interest deductibility as part of a tax-fairness plan by the Organization for Economic Cooperation and Development.