Brief: Cybersecurity companies are warning that they’ve seen an exponential rise in attempted “phishing”, banking-email compromises, and illegal cryptocurrency mining. And it’s hedge funds that may be most vulnerable. “We’ve definitely seen an increase in phishing and crypto-mining, and an uptick in hacking attempts,” Ed Cowen, CEO of Remora, a cyber security consultancy which specialises in hedge fund and asset manager clients, told Financial News. “It’s part of an overall trend that has been accelerated by the digitisation of business and the evolution of crime. ”Soaring cases of cyberattacks have been plaguing every sector of the financial industry as the pandemic-driven lockdown forced workers to scatter beyond the firewalls of secure offices. But it’s an especially acute issue for hedge funds, given that many firms in the sector tend to lack the large-scale, in-house security of bigger firms. The rewards for crime are also high: hedge funds manage billions in assets, making them more exposed. “The real challenge for funds is that many of them are large micro-businesses,” Cowen said. “They have to look, talk and feel like they’re large corporations, but typically they’re between 10 and 20 people ... I don’t think funds and businesses in the UK are fully aware of the scale of cyber fraud. If a bank gets robbed, people talk about it; if the [hedge fund] office gets robbed, no one talks about it.”
Brief: Despite the longest economic expansion in U.S. history, the gap between the present value of liabilities and assets at U.S. state pensions is measured in trillions of dollars. To make matters worse, pensions are now faced with the reality that standard diversification — including extremely low-yielding bonds — may no longer serve as an effective hedge for equity risk. While I was at CalPERS, concerns arose in 2016 about the effectiveness of standard portfolio diversification as prescribed by Modern Portfolio Theory. We began to recognize that management of portfolio risk and equity tail risk, in particular, was the key driver of long-term compound returns. Subsequently, we began to explore alternatives to standard diversification, including tail-risk hedging. At present, the need to rethink basic portfolio construction and risk mitigation is even greater — as rising hope in Modern Monetary Theory to support financial markets is possibly misplaced. At the most recent peak in the U.S. equity market in February 2020, the average funded ratio for state pension funds was only 72 percent (ranging from 33 percent to 108 percent). That status undoubtedly has worsened with the recent turmoil in financial markets due to the global pandemic. How much further will it decline and to what extent pension contributions must be raised — at the worst possible time — remains to be seen if the economy is thrown into a prolonged recession.
Brief:Four among the six shuttered debt schemes of Franklin TempletonMutual fund saw a fall in their Net Asset Values or NAVs after two entities - Nufuture Digital (India) Ltd (NDIL) and Future Ideas Co Ltd (FICL) – defaulted on payments. The net asset value of Franklin India Income Opportunities Fund fell by 4.73% on Friday. The NAV of Franklin India Credit Risk Fund also saw a dip of 2.28%, Franklin India Short Term Income Plan’s NAV dropped by 1.75% and Franklin India Dynamic Accrual dropped saw a fall of of 1.343%. “Due to default in payment, the securities of FICL and NDIL will be valued at zero basis AMFI standard hair cut matrix and interest accrued and due will be fully provided. Securities of RTVPL will continue to be valued at 75% basis recommended valuation,” Franklin Templeton MF said in a note. "This is a bad news for sure. A debt mutual fund investor has capital protection on his/her mind always. A 4.7% dip in NAV is huge. And when you can't pull out your money or do anything, it is worse. I believe this may lead to further fear psychosis in the minds of debt investors. In such situations, debt investors may report to redeeming from other debt schemes as well, which is not good," says Babu Krishnamoorthy, Chief Sherpa, FinSherpa InvestmentServices.
Brief: Australasian sustainable funds attracted inflows worth more than $207 million in the second quarter of 2020, with Australian Ethical and Dimensional reaping the majority of these rewards. Morningstar's latest Global Sustainable Fund Flows report, which examined 3432 sustainable open-end funds and exchange-traded funds (ETFs) across the globe in the second quarter of 2020, found that sustainable funds outperformed following the March market sell-off. Assets in Australasian sustainable funds increased substantially during the second quarter, up 18% from $14.9 billion (US$10.6 billion) at the close of the first quarter to $17.7 billion (US$12.6 billion). At the end of June, sustainable assets recorded one of their highest levels, only outpaced by their peak at December 2019. Morningstar found there are now 108 strategies in the Australasian sustainable fund universe, up from 86 at the close of the first quarter 2020. Interestingly, the Australian sustainable funds market is relatively concentrated, with the top 15 funds accounting for 60% of all assets in the sustainable fund arena.
Brief: Concern is growing over a likely spike in defaults among so-called ‘zombie’ companies that have stayed afloat during the coronavirus pandemic by relying on government stimulus and increasing their debt loads, but will struggle to keep servicing loans as government schemes roll back. ‘Zombie companies’ are indebted businesses that only generate enough cash to cover operational costs and interest payments on their loans, but not the debt itself. In the UK, financial services industry body The City UK estimates that businesses may build up GBP100 billion of debt by next March which they would be unable to repay, with 780,000 SMEs in danger of insolvency. A global forecast by fund manager Janus Henderson for overall corporate debt predicts a jump to a record USD9.3 trillion in 2020. Jub Hurren, senior portfolio manager of AIMS Fixed Income at Aviva Investors, says that many companies won’t fail immediately, thanks to supportive monetary policy: “The fact that interest rates are going to stay at extremely low levels means that even companies with low earnings can probably survive longer than they would otherwise because of the reduced burden in terms of servicing debt.”
Brief: Investors in property funds should wait up to six months before they can get their money back to avoid a stampede for the exit leading to widespread suspensions in rocky markets, Britain’s Financial Conduct Authority proposed on Monday. UK-regulated open-ended property funds offer daily redemptions to entice investors, but nearly all those targeted by Monday’s proposal are suspended following market volatility in March due to the pandemic, trapping more than $7.5 billion in assets. Policymakers have warned that property funds should not be viewed like a bank account that can be tapped at will, given they contain “illiquid” assets such as commercial real estate that can take several months to sell even in normal market conditions. Concerns over daily redemptions began when several property funds were suspended after Britain voted in June 2016 to leave the European Union, as investors pulled out money. The Financial Conduct Authority (FCA) proposes that property funds publish a “notice period” or irrevocable pre-agreed gap of between 90 and 180 days from the request for a redemption to the return of cash. It would affect new and existing customers, but also mean that property funds don’t have to hold as much cash as they do now, the FCA said.