Brief: KKR & Co. agreed to buy Global Atlantic Financial Group in a deal that gives it a major presence in the insurance industry and adds long-term capital. The alternative-investment manager will acquire closely held Global Atlantic’s outstanding shares, according to a statement Wednesday, in a transaction that could be valued at more than $4 billion. Global Atlantic, which was founded within Goldman Sachs Group Inc. in 2004 and became independent in 2013, had more than 2 million policyholders through its retirement and life insurance products and almost $70 billion in invested assets as of March 31. KKR shares jumped the most in four months, gaining 9.2% to $33.60 at 9:40 a.m. in New York. KKR’s rivals have been building out their own insurance arms in recent years and have brought on executives who can help them attract more business. Insurers are facing historically low yields in fixed-income markets. Apollo Global Management Inc. helped turn annuity seller Athene Holding Ltd. into a business with a market value of $5.8 billion, and funds affiliated with Blackstone Group Inc. teamed up with other investors in 2017 to buy Fidelity & Guaranty Life.
Brief: Crispin Odey’s flagship hedge fund slumped to a 17.9% loss in the first half. The Odey European Inc. Fund fell in five out of six months, including a 7.3% drop in June, wiping out a surge during the market sell-off in March, according to a letter to investors seen by Bloomberg. Odey’s losses compare with a 3.5% slide across the industry that was led by led by event-driven and equity hedge funds, according to preliminary figures from the Bloomberg Hedge Fund Indices. “The future is as unknowable today as it was three months ago,” Odey wrote in the letter, without giving an explanation for the fund’s performance. The fund’s losses come despite Odey Asset Management reportedly making at least 25 million euros ($28 million) betting against shares in scandal-hit German payment company Wirecard AG, and a reported gain of at least 75 million pounds ($94 million) from the demise of U.K. shopping mall owner Intu Properties Plc. The performance follows years of losses as Odey maintained bearish bets during an historic bull run. When the market cratered in March, he was among the few bearish investors to profit from the downturn, posting a 21% gain for the month. His main fund has shrunk over the years, and now manages $624 million, according to the letter. That’s down from about $700 million in March.
Brief: Many investors will recall that Warren Buffet wrote in 2002 that “you only find out who is swimming naked when the tide goes out”. Today, given the global economic shock caused by the Covid-19 pandemic, investors and their advisers should be prepared to ask difficult questions in order to spot red flags, and get back onto shore before the metaphorical tide turns. The UK faces an estimated 35% fall in GDP for the second quarter of 2020; the OECD notes that Britain will suffer the worst economic harm of any developed country. Whilst the pandemic is unprecedented in its severity and scale, history does show a correlation between the current economic crisis and the discovery of corporate fraud and misconduct. The 2008 financial crash saw a 2.1% fall in the UK’s GDP and a 7.3% increase in fraud cases. By contrast, the UK currently faces a 35% decrease in GDP for the first half of 2020. Recent months have already seen notable scandals, including Wirecard’s €1.9bn accounting hole, fabricated sales at Luckin Coffee, and NMC Health’s undisclosed debt of $2.7bn. Why does fraud come to light during financial crises? As economies decline, struggling firms will look to adapt, and perhaps restructure entirely, in order to preserve cash and, therefore, survive. In so doing, company operations and accounts will be examined, and historic issues may be spotted.
Brief: In recent years, investors have poured cash into low volatility stocks, hoping to soften the blow of the inevitable market correction on their portfolios. But these stocks have done little to protect investors from the wild markets that started earlier this year when the spread of Covid-19 shut down economies around the globe. In theory, stocks with less volatility than the broader market underperform when equities are rising, but should hold up better during downturns. Low volatility strategies didn’t do that this time around. The pandemic may have changed the characteristics of stocks considered to be defensive, according to new research from $30 billion investment firm PanAgora Asset Management, which manages money using quantitative and fundamental techniques. PanAgora’s examination of low vol comes as investors and academics have been questioning the data and behavior of other widely used factors — stock performance characteristics — like value. By some measures, value stocks have underperformed for two decades. In a paper only for clients, but obtained by Institutional Investor, PanAgora addressed the odd behavior of low vol stocks within the Standard & Poor’s 500 index in the early part of the Covid-19 meltdown. It also examined how the pandemic has differed from prior crises and how these anomalies affected the performance of low vol equity strategies.
Brief: More than half of financial services companies plan to accelerate implementation of their next generation technology strategies, according to a new global survey of 500 financial services C-Suite executives and their direct reports released today by Broadridge Financial Solutions, a global fintech leader. “Financial services players have shown they can adapt and change during the pandemic. Going forward, they will continue to drive digitisation and mutualisation to improve client experience, resiliency, and cost,” says Tim Gokey, CEO of Broadridge. “Prior investments in digital, cloud, and mutualised technologies have enabled companies to be more resilient during the crisis, and executives are taking careful note as they plan for the future.” Virtually all financial services companies expect the pandemic to affect their operating model and strategy toward next-generation technology… The pandemic has also changed the role of fintech service providers, with 70 per cent of respondents stating that fintech providers’ ability to offer innovative uses of next-generation technology is now more important as a result of the outbreak. Almost half of respondents agree that the pandemic increased the need to mutualise – in other words, share or outsource – processing functions to reduce costs and increase resiliency.
Brief: A lot has changed in a month.Just four weeks ago the II Fear Index recorded themost optimistic views yetfrom institutional investors, who were feeling ever more upbeat about the economy’s trajectory as they grew less concerned about the spread of Covid-19.Since then, sentiment has reversed sharply, with asset managers and allocators polled this week fearing a major resurgence of coronavirus infections and sharing mounting pessimism about their countries’ economic prospects. This week’s survey, which had 139 respondents, found that nearly 70 percent were more concerned about a new spike in Covid-19 cases than they werethree weeks ago, including 33 percent who reported that they were “much more concerned.” Three weeks ago, the Centers for Disease Control and Prevention had reported a daily increase of about 28,000 coronavirus cases in the U.S. On Monday — the last day responses were accepted for this week’s Fear Index — the number of new confirmed cases passed 44,000. Investor concerns over the increasing rate of infection in the U.S. have been reflected over the last few surveys, with respondent priorities seen shifting back to public health over economic stability. This week, 57 percent said governments should be focusing on health, compared to 43 percent who thought political leaders should prioritize economic issues.