Brief : BlackRock Inc. Chief Executive Officer Larry Fink said that investors may be underestimating the potential for a spike in inflation. “Most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years,” Fink said at a virtual event hosted by Deutsche Bank AG on Wednesday. “So this is going to be a pretty big shock.” Concern about higher inflation has already seeped into U.S. markets with the cost of goods including lumber and steel rising this year. Fink began his career at First Boston Corp. in 1976, in a period of elevated inflation. The U.S. Consumer Price Index touched a high of 14.8% in March 1980. Fink, who now runs the world’s biggest asset manager, added that central banks may have to reassess their policies if higher prices become a concern. The Federal Reserve has committed to keep rates near zero in the near term and has indicated it will tolerate inflation above its 2% target to make up for the period where it dipped below that level. If the Fed were to reconsider that, it could seem discordant with separate fiscal stimulus, Fink said. President Joe Biden has proposed additional measures to stimulate the U.S. economy, including a $1.7 trillion infrastructure spending plan.
Brief: Even as the remote-work era clouds the future for offices, one segment of the business is drawing cash from investors including Blackstone Group Inc. and KKR & Co. More than $10 billion has gone toward buying buildings used for life sciences and other research this year, according to Real Capital Analytics Inc. That accounted for approximately 4% of all global commercial real estate transactions through May, double the share from last year. That estimate doesn’t count new construction, and fresh buildings are breaking ground in U.S. cities including Boston, San Diego and San Francisco -- many without having signed major tenants. Unlike workers in conventional offices, many scientists don’t work remotely. And as vaccines help fuel the economic rebound, funding for medical innovations is expected to drive the need for more space, particularly in the U.S. and U.K. “The pandemic only amplified the demand growth, but it’s a trend we think will continue for years,” Nadeem Meghji, Blackstone’s head of real estate Americas, said in an interview. “This is about, broadly, advances in drug discovery, advances in biology and a greater need given an aging population.” Last year, as social-distancing emptied out office buildings and damped investor interest in malls and hotels, life science building sales and refinancing totaled about $25 billion, up from roughly $9 billion in 2019, according to Eastdil Secured.
Brief: “The Coronavirus pandemic (Covid-19) highlighted the importance of GPs having deep sector knowledge, expertise and awareness in the sectors they invest in,” Alice Langley, Partner, Investor Relations, IK Investment Partners comments. “With significant uncertainty around the long-term effects of the pandemic on the global economy and businesses alike, having a comprehensive understanding of what recovery might look like for businesses within a specific sector, will stand GPs in good stead. “Having this level of data and insight enables firms to utilise any opportunities as well as mitigate risks by building this into their value creation plans. At IK, we invest across four main sectors; Business Services, Healthcare, Consumer and Industrials. Having deemed this as a sensible approach for many years, Covid-19 simply supported our thesis of investing in businesses within non-cyclical industries.” The pandemic also forced an acceleration of digitisation as the new normal saw GPs and LPs move to remote working and virtual due diligence. Langley notes: “I anticipate digitalisation to be high on the priority list for PE firms with the aim of harnessing technology to streamline operations for themselves and their portfolio companies.
Brief: European Union countries will continue to benefit from an economic safety net through next year to help their economies recover from the damage inflicted by coronavirus restrictions, the EU’s executive branch said Wednesday. As COVID-19 spread throughout Europe and sent the EU spiraling toward its deepest recession, the European Commission activated a “general escape clause” in March 2020 that allowed member nations to deviate from normal budgetary rules. But with vaccination programs now taking hold and the number of new coronavirus cases dropping, the commission predicts the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. Given the positive trend, Commission Executive Vice President Valdis Dombrovskis said that “we are prolonging the general escape clause in 2022, with a view to deactivating it in 2023.” Dombrovskis said the decision comes “with our recovery around the corner but with the road ahead still paved with unknowns. We will therefore continue to use all tools to get our economies back on track.”
Brief: The Covid-19 pandemic will cause a “sustained and pronounced increase in unemployment” with low- and middle-income countries that have lagged behind in vaccinations suffering the biggest blow, according to the International Labor Organization. The ILO fears not enough jobs will be created to accommodate those who lost employment as a result of Covid-19, plus new labor-market entrants. The global shortfall is estimated to be 75 million this year, and 23 million in 2022. “Projected employment growth will be too weak to provide sufficient employment opportunities for those who became inactive or unemployed during the pandemic and for younger cohorts entering the labor market,” the ILO said. “Many previously inactive workers will enter the labor force but will not be able to find employment.” The Geneva-based body’s prediction is the latest evidence that the pandemic has reversed years of progressive gains to welfare around the world. Not only has unemployment risen in many countries despite furlough programs to help firms retain staff, but the headline rate masks the extent of the damage. Many people, particularly women and the young, have left the labor market and aren’t being counted. In addition, schooling has been disrupted in many places due to the need to stem spread of the disease. The ILO estimated that those jobs that are created are likely to be lower quality, with the problem most severe in poorer countries with large informal economies.
Brief: Across the globe, consumers’ desires are shifting — and that has implications for investors. A decrease in the consumption of basic goods, like food and personal hygiene products, may present new opportunities for investors in emerging markets, according to a recent paper from investment firm Polen Capital. “We believe the investment opportunities in emerging markets are hard to overstate,” portfolio manager Damian Bird and analyst Pamela Macedo wrote in the paper. “A McKinsey study estimates that by 2025 consumers in emerging markets will spend an estimated USD 30 trillion annually, a future it calls ‘the biggest opportunity in the history of capitalism.’”For their study, Bird and Macedo compiled macroeconomic and industry-specific data from global industries over the past 20 years. They first noted a shift away from the “classic consumer product S-curve,” a visualization that illustrates historical trends of consumers in early-stage developing economies. According to that model, consumers at first tend to purchase low levels of consumer products. However, as a country’s economy grows and individuals acquire more wealth, consumption of consumer products starts to slowly increase, gaining speed as the country’s economy expands.