Brief: India’s macroeconomic troubles are attracting a new wave of global investors betting they can eke out profits from the rising number of capital-starved businesses struggling to stay afloat. Some global heavyweights like Apollo Global Management Inc. and Oaktree Capital Group have either struck recent India deals or scaled up their teams in the country in a push to invest in distressed assets. New York-based Cerberus hired a former Apollo and Citigroup veteran to establish and lead an India office in 2019, and this year vied with Ares Management Corp.-backed SSG Capital Management for control of a failed shadow lender. Researcher Venture Intelligence calculates that funds have already pumped $1.5 billion in distressed assets in India this year, 55% more than through all of 2019. That data only captures deals that have closed and doesn’t includes others that have been recently announced such as Oaktree’s 22 billion rupee ($294 million) loan to lender Indiabulls Housing Finance Ltd. in July. India in recent months has struggled to control its coronavirus epidemic, reporting the largest number of infections after the U.S. and has suffered the worst economic contraction among major economies worldwide. Yet even before the pandemic, the country had been battling one of the world’s worst bad debt problems in its financial sector, which claimed a string of lenders and left banks reluctant to lend to the most vulnerable businesses.
Brief: Two of the hedge fund industry’s quantitative powerhouses are getting tripped up this year as wild markets throw off their investing models. Renaissance Technologies, which manages the world’s biggest quant hedge fund, and Two Sigma Advisers have seen losses across several of their funds in 2020, a sign of how unprecedented market volatility caused by the Covid-19 pandemic hurt even the most sophisticated traders. Stocks sank into the fastest bear market on record in March before staging a rebound not seen in nine decades. The CBOE’s volatility gauge has averaged 33 since the end of February, 14 points higher than the average over the prior 30 years. That upended performance from firms that in recent years have been among the best on Wall Street. “Quants rely on data from time periods that have no reflection of today’s environment,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management. “When you have volatility in markets, it makes it extremely difficult for them to catch anything because they get whipsawed back and forth.” Renaissance saw a decline of about 20% through October in its long-biased fund, according to a person familiar with the matter. The $75 billion firm’s market-neutral fund dropped about 27% and its global-equities fund lost about 25%. The firm, founded by former codebreaker Jim Simons, told investors that its losses are due to being under-hedged during March’s collapse and then over-hedged in the rebound from April through June. That happened because models that had “overcompensated” for the original trouble.
Brief: Investors are weighing the chances the Federal Reserve will increase its purchases of U.S. government debt in coming weeks to counteract the economic fallout of a COVID-19 resurgence, an intervention that could reverse a recent rise in Treasury yields to multi-month highs. News that two coronavirus vaccines proved highly effective in late-stage trials in recent days have stoked investors’ appetite for risk, sending yields, which move inversely to bond prices, to their highest levels since March and U.S. stock markets to record highs. Still, some investors believe that rising coronavirus cases may threaten the fragile U.S. economic recovery at a time when fiscal stimulus is likely to be delayed and widespread access to a vaccine remains months away. The United States recorded more than 1 million new COVID-19 cases last week. That combination of negative factors could push the central bank to increase its support, some investors argue, even though asset purchases already stand at record levels and the Fed has not indicated it intends to raise them at its next two-day policy meeting, Dec. 15-16.
Brief: Global regulators are preparing to tighten restrictions on investment funds and shadow lenders, concluding they threatened the stability of the financial system at the height of this year’s pandemic-fueled market volatility. Key areas of vulnerability during the March mayhem included big investors’ dash for cash, significant redemptions in mutual funds and non-government money market funds, as well as leveraged hedge fund trades in Treasuries, the Financial Stability Board said in a report published Tuesday in Europe. The panel of global regulators indicated it would issue proposals next year to make money market funds more resilient and then address risks posed by the broader non-bank financial sector in 2022. The FSB said this year’s stress would have been much worse if the U.S. Federal Reserve and central bankers around the world had not rushed to the rescue with unprecedented support. “It’s clear we need to take action to address these issues,” Randal Quarles, chair of the FSB and vice chairman of supervision for the Federal Reserve, told reporters during a Monday press briefing. He warned in a letter accompanying the report that the financial system remains vulnerable, because the “structures and mechanisms that gave rise to the turmoil are still in place.”
Brief: The U.S. Securities and Exchange Commission's record-breaking fiscal year for whistleblower awards was driven by more than 6,900 tips, an all-time high that was nearly one-third greater than last year's count, according to the office's annual report published Monday. The report shows the number of whistleblower tips in fiscal year 2020 jumped by nearly 33% to 6,911, from 5,212 in fiscal year 2019. The figure was well over double the 3,001 tips recorded in fiscal year 2012, when record keeping began. The tips spurred a previously announced record-breaking year during which the agency awarded approximately $175 million to 39 individuals. Monday's report notes that the third quarter, between April and June, resulted in a particularly high number of tips. Kyle DeYoung, a Cadwalader Wickersham & Taft LLP partner who previously served as senior counsel to former SEC enforcement director Andrew Ceresney and co-directors Stephanie Avakian and Steve Peiken, attributed the spike to COVID-19. "It isn't surprising that tips were up during COVID," said DeYoung. "Whenever there is huge volatility and a downturn you tend to have an increase in tips because more people have lost money, more people are frustrated, and there's more opportunity for wrongdoing in that sort of a market." DeYoung thinks the backlog of virus-related tips will continue to produce payouts as the commission heads into a new fiscal year that is already on track to shatter records.
Brief: Publicly traded traditional asset managers notched their strongest quarter ever between July and September, even as the coronavirus pandemic continued to shut down big sectors of the economy, according to Casey Quirk, the asset management strategy consultant that is part of Deloitte. Public managers hit new highs for both revenue and assets under management between July and September 2020. That performance is in line with public markets, which recovered much of their losses since the lows in March. Casey Quirk, which analyzed 23 asset managers that were not a part of larger corporations such as banks or insurance companies, found that aggregate revenue increased 1.85 percent and assets increased 2.7 percent compared with the fourth quarter of 2019. Last year’s final quarter was the previous high for the group, which represented firms in the U.S., Canada, and continental Europe. But the difference between the best and the worst in the industry widened and quickened between July and September, according to Amanda Walters, a principal at Casey Quirk.