Thu. Jan 20th, 2022


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And please let me know your feedback: harriet.agnew@ft.com

‘Spec technology is destroying’

Happy New Year. We barely had time to break our New Year’s resolutions and markets were already starting to get bumpy.

Last week investors leaving a trade which has yielded major returns since the financial crisis: abandoning shares of fast-growing (and often unprofitable) technology companies and buying into relatively stable businesses that are expected to benefit from an economic recovery.

It does not take a markets sensible to find out that the withdrawal of central bank support and a rise in US interest rates are present this year a challenge for risky assets pumped higher by the Fed’s economic scope, writes markets editor Katie Martin.

Especially the expectations of this sharpening applied again to speculative technology bulls like Cathie Woodsay Ark Invest, whose flagship exchange-traded fund has fallen nearly 10 percent this year. As Hani Redha, a portfolio manager at PineBridge Investments, states it: “Spec-tech is destroying.”

And since active fund managers position themselves for a world where interest rates are not on the bottom, the long-term pressure (think fee compression, passive and performance) is what challenges them. purpose continue. Exhibit A: three-quarters of stock pickers behind the US market last year.

A rising tide of hot stock markets lifted almost all listed executives in 2021, but the spread between winners and losers will increase in 2022 as investors favor groups exposed to fast-growing areas such as private assets, according to analysts.

Tom Mills, an analyst at Jefferies, say:

“Overall, vibrant stock markets and pandemic-related cost savings have provided a significant crutch to asset managers’ earnings. [since the] short, sharp market correction in March 2020. A future and potentially more long-term withdrawal is likely to be more detrimental to operating margins as many managers are now investing in growth. ”

Chart showing P / E multiples for US-listed asset management groups

Meanwhile, there are few people who can get away with drawing parallels between each other Steven Spielberg‘s original Jurassic Park and the ETF industry. But my colleague Robin Wigglesworth is one of them. He looks beyond the curious news for the ETF industry (almost $ 10tn after a second year of record growth) at the beginning risks. Especially the spread of “complex, expensive, derivative ETFs that are thinly disguised fee withdrawals that are sold to retail investors or day traders looking for excitement”.

And if risk is in your mind, do not miss John Plender on the multiple investment risks of 2022. Further and upwards.

Hertz: Life for rent

It was a difficult time to be a troubled debt manager. There were few good investment opportunities during the decade-plus bull market in which central banking mating supported world markets.

So, when the pandemic hit in the spring of 2020 and global travel came to a halt, Struggle Management and Knighthead Capital Management seized an opportunity and raised $ 1.5 billion to invest in the emergency travel sector.

They do not have to wait long to put the money to work. In May 2020, Hertz applied for bankruptcy. The few investors started a marathon auction process to get the company out of Chapter 11 administration, and when they emerged victorious, made a daring $ 2 billion investment in the century-old car rental pioneer.

“There is always one sector that is in the middle of every emergency cycle,” says Tom Wagner, which Knighthead founded in 2008 to invest in fatal assets. “In this case, it was travel and relaxation. If we could get it right, we could get the whole portfolio right. ”

Now the two New York-based funds are sitting on nearly $ 3 billion in paper profits from trading. The pandemic continues, but the fate of the rental car industry has reversed. A global semiconductor shortage has limited the production of new cars, and thus with limited ability to expand their fleet, such as Hertz and Budget Notice prices have risen to meet rising demand. Meanwhile, supply chain restrictions have led to an increase in used car prices, which has helped rental car companies’ results because they have large fleets that they sell to used car dealers as they get older.

In this analysis, my colleague Antoine Gara and I lift the lid on one of the hedge fund industry’s most lucrative operations of 2021. We also hear of a very different future that Certares and Knighthead envision for Hertz, one in which its fleet and network of locations are redeployed as infrastructure, both for the thriving electric car industry and the coming era of autonomous taxis.

Race and finances: asset managers fail

Shundrawn Thomas, a black American from the south side of Chicago, now serves as president of Northern Trust Asset Management, a $ 1.2tn fund house based in the Midwestern city. When he started working in financial services three decades ago, it was a “culture shock” to step on a trading floor where so few people looked like him, Thomas recalls.

But even now he says he stepped in at meetings where clients “assumed I was the help, not the senior leader”. With few black mentors available, Thomas says, black employees face additional obstacles as they try to climb the corporate ladder in asset management. “Informal” recruitment, with current employees recommending candidates for jobs or promotions, often benefits people who have gone to the same schools or have the same background. In general, it can be an uncomfortable experience for minority employees to work in the club world of asset management, he tells my colleagues Put on Mooney and Madison Darbyshire here deep dive.

Following the assassination of George Floyd in 2020, the global $ 110 tonne asset management industry stood out in its efforts to address its concerns about racism. Leading institutional investors have not only made public promises to promote diversity in their own ranks, they have also voted in increasing numbers to support shareholder decisions that call on other managements to do the same.

A year and a half later, asset managers are struggling to live up to their professed ideals. Black workers and members of other minority groups remain dramatically under-represented in the sector – especially in senior roles – and industry executives say it could take years to tackle the recruitment efforts needed to truly diversify their workforce.

“The failure to diversify is not just a moral issue, it’s about performance,” he said. Robert Ravens, founder of the Washington-based Various Asset Managers Initiative and a former U.S. Assistant Attorney General.

What do you think can be done to improve diversity in the asset management industry? Email me: harriet.agnew@ft.com

Chart of the week

Chart showing assets under management in 'growth equities' investment

Growth equity has become one of the hottest corners of the private capital industry, as ever-larger companies avoid public markets and find strong demand among investors who are desperate for betting with higher returns. Data provider Preqin estimates that growth equity has more than doubled in size since the end of 2016, to nearly $ 920 billion at the end of March. Groups like TPG and Permira expand in growth equity. But there are signs of foaming. “The game has changed phenomenally,” says Mike Turner, a partner at a law firm Latham and Watkins. “There is quite a lot of FOMO [fear of missing out] investments underway, many investors entering the market who do not fully understand the companies and the opportunities in which they invest. ”

Top Stories You May Have Missed Over The Holidays

Bill Stromberg, the outgoing CEO of T Rowe Price, warned of “free-form risk-takingLast year in live markets and said investors should “step away from risk” to avoid being burned in an increasingly speculative market.

More staff turnover at Ray Daliosay Bridgewater Associates. The world’s largest hedge fund has appointed two co-CEOs to replace David McCormick, who is leaving for an expected run for the U.S. Senate.

The UK’s crypto lobby has has strengthened its influence in Westminster with the launch of a cross-party group of lawmakers as politicians on both sides of the Atlantic intensify efforts to regulate growing digital asset markets.

Some investors are turning to hedge funds to help them withstand the likely shift in global monetary policy in the coming year. The $ 500 billion California Public Employees Retirement System will probably not be among them. Hedge fund fees remains “problematic”, say Marcie Frost, CEO of the US’s largest public pension plan.

Non-swingable tokens have evolved from a niche segment of the crypto market to become a $ 40 billion industry by 2021. A look at a outbreak year in which buyers have spent almost as much on digital collectibles as traditional art.

The so-called interests of activist investors need larger investigation, writes head of Lex Jonathan Guthrie. The actual extent of the financial expense of ownership by investors such as Paul Singer and Patrick drahi is often overestimated.

There are few hedge fund managers who can raise $ 1 billion shortly after losing a quarter of their money to investors. But Chris Rokos, founder of $ 13 billion Rokos Capital Management, has just done it.

Pension plans must be free to make decisions without political interference at a time when governments want to tap retirement pots to achieve economic goals, according to Quebec Deposit and Investment Fund, one of Canada’s largest pension funds.

British companies try to build muscle on the US retail investment boom. A growing number of them are trying to target U.S. retail investors who are willing to support fast-growing and sometimes riskier businesses, according to OTC Markets Group.

New enforcement powers enabling the UK pension watchdog to seek jail time if corporate activity damages a workplace retirement scheme have begun to transactions affect, according to pension advisers. Potential buyers are now more wary of companies with defined benefit schemes.

And finally

Bemelmans Bar by The Carlyle, New York
Bemelmans Bar by The Carlyle, New York © Don Riddle

Dry January was overestimated. With that in mind, here are the How to spend it guide to 25 hotel bars where you can kick off dry martini january in style.

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