Brief : Bridgewater Associates Chief Executive Officer David McCormick, a former U.S. Treasury undersecretary, said policymakers and business leaders are making a mistake trying to return the economy and U.S. society to a pre-pandemic “normal.” “There were some really significant underlying problems with normal,” McCormick, 55, said Tuesday during an interview at Bloomberg’s “The Year Ahead” virtual conference. He cited a lack of social mobility, political polarization, China’s rise as a global power and the U.S.’s ill-defined role in the world as reasons not to embrace the recent past as an ideal. If anything, McCormick said President Joe Biden should pursue policies that reassert American leadership and restore the nation’s sense of opportunity. McCormick, a Republican, served in the Treasury Department under President George W. Bush during the 2008 financial crisis and left in 2009. If he were in government today, he said he’d advocate for better access to education and health care for poorer Americans and collaboration between the public and private sectors that prioritizes innovation. He described both as the “building blocks of power.”
Brief: More pension funds, insurers and asset managers are outsourcing part or all of their dealing desks to specialist traders as they seek to cut costs and adapt their operations to deal with the coronavirus crisis, industry sources say. Last year’s volatility in markets, plunging as the pandemic took hold and rebounding as government stimulus kicked in, meant asset managers spent more time juggling trades and less time on their usual job of long-term asset allocation. Moving some or all of their trading to specialist firms offers access to a larger group of banks and brokers, making it cheaper to execute trades and allowing asset managers to cut trading staff and trading terminal costs, industry sources say. The shift to outsourcing has also been accelerated by changes in working practices brought about by the pandemic. “As we all work from home, people are realising you don’t need to be physically sitting next to the traders to be able to communicate,” said Tom Carroll, head of asset management at British fund manager Sanlam Investments, which outsourced trading to Northern Trust shortly before the pandemic. Carrol said the move meant his company’s 20 fund managers could “focus more on what they’re good at” - picking assets for the long term rather trading through short-term volatility.
Brief: Adapt to survive: this was the message for the asset management sector in 2020, which turned out to be one of the most extraordinary and unpredictable years in living memory. In March, the onset of the Covid-19 crisis and national lockdowns caused stock markets to lose a third of their value in one month, and mobilised an immense digital transformation as swathes of the economy adjusted to home-working. The asset management industry weathered the storm better than most. Assets under management worldwide have risen to exceed USD110 trillion, thanks in part to a remarkable rebound in underlying financial markets, with some indexes recouping their losses in as little as six months. While vaccine roll-outs indicate the pandemic’s end may be on the horizon, many of the changes it has caused are likely to stay – including a ‘lower for longer’ interest rates landscape and competition from passive investing putting more pressure on fees. Arguably the biggest shift asset managers have faced has been the pendulum of investor preferences, which has swung decidedly in favour of sustainable investing. At the start of 2021, a third of all assets under management in the US were held in sustainable strategies, and three quarters of institutional investors in Europe said they plan to stop buying European non-ESG products within the next two years. The story for asset management in 2021 will be over whether it can keep up with the pace of change and thrive in a post–coronavirus world.
Brief: Formidable Asset Management LLC, which gained about 83% last year, said “now more than ever, a nimble, active approach to management is required” for investment success in 2021. “Though we are early in the year, the truly bizarre events, both societally and in terms of markets, seem to be continuing in 2021,” the hedge fund’s Chief Executive Officer William Brown and Chief Investment Officer Adam Eagleston wrote in a letter to clients, seen by Bloomberg. Stocks that were “retail favorites” in 2020 could go still higher this year, they said, “buoyed by further fiscal stimulus and gains from prior winnings rolled forward.” The main contributors to the fund’s 2020 performance were its positions in green energy and electric vehicle-related stocks. According to the letter, some of the winners for the fund in 2020 included Nano One Materials Corp., Flux Power Holdings Inc., Maxar Technologies Inc., Workhorse Group Inc. Some 2020 “heartbreakers” included a position in AMC Entertainment Holdings Inc.’s debt and put options on GSX Techedu Inc. Formidable declined to disclose the size of assets under management. Brown previously served as managing partner of BBK Capital Partners and as senior vice president at Raymond James while Eagleston was formerly a portfolio manager at Driehaus Capital Management LLC.
Brief: The European fund industry saw a deluge of investment in 2020, with net inflows rising by around 61.6%, according to new figures from Refinitiv Lipper. Across the year, overall net inflows into European funds were estimated at 574.3 billion euros ($696 billion), up from 303.9 billion euros in 2019 and vastly outstripping the annual average of 192.7 billion euros between 2004 and 2019. Following a steep plunge in March as the coronavirus pandemic spread throughout the world, global stock markets recovered over the course of the year, due in part to unprecedented fiscaland monetary stimulus from governments and central banks and the later emergence of successful vaccines. The 2020 total also marks the second-highest inflows into mutual funds and ETFs (exchange-traded funds) in the history of the European fund industry. Mutual funds, which enjoyed 483.5 billion euros of inflows, are those which pool money from investors to allocate to stocks, bonds, money market instruments or other alternative assets. ETFs are baskets of securities that tend to track an underlying index and are listed on stock exchanges, trading throughout the day like ordinary stocks, and saw inflows of 90.8 billion euros in 2020.
Brief: For years, active managers blamed a seemingly endless bull market for the rise of low-cost passive investing. But after the market finally crashed last year, investors still favored passive strategies By the end of 2020, investors had pulled more than $250 billion out of active U.S. equity funds, according to Morningstar. Passive U.S. stock funds, meanwhile, bounced back from the March sell-off, attracting a net $9.4 billion over the calendar year. Passive strategies also held steady in Europe, according to Cerulli Associates. Citing Morningstar data, the asset management research and consulting firm said that investors fled actively managed funds at a higher rate in March, causing active strategies to lose 3 percent of their start-of-year assets under management. Passive funds, by comparison, lost 1 percent of their starting assets in March. “Passively managed funds weathered the market volatility of 2020, highlighting the need for active funds to deliver better and more consistent performances in order to slow the erosion of the marketplace,” Cerulli said in a January report. By the end of November, European equity index funds had attracted €91.4 billion ($111 billion) in net flows, according to Morningstar. Passive funds as a whole increased their market share to 20.3 percent of European long-term fund assets as of November, Morningstar said.