Fixed Income and Technology: Alternatives to a Strong Economy That Delays Interest Rate Cuts

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From left to right: Tiago Forte Vaz, María Camacho and David Hayon | photo: Funds Society

The Rise of Artificial Intelligence and Central Bank Rates in the U.S. and Europe open opportunities for investments in both technology and Fixed Income, said experts from Pictet and Edmond de Rothschild at an event in Montevideo.

The experts, Tiago Forte Vaz, CFA, Head of Intermediaries at Pictet for Uruguay, Brazil, Portugal, and Argentina, and David Hayon, Head of Sales Latam at Edmond de Rothschild Asset Management, commented on the macroeconomic scenario, agreeing that the U.S. economy is strong, which is delaying interest rate cuts.

“The resilience of the U.S. economy is noteworthy. Even Fed members weren’t this optimistic. There was talk of a recession. Rate cuts were expected, and everyone was wrong,” commented Hayon.

Forte also emphasized that inflation is the most important issue to address and noted, “The year started optimistically, but central banks didn’t adjust until September.” The expert added that this is a significant risk as the Fed “lost credibility and is willing to tolerate a greater slowdown to avoid inflation.”

Hayon, for his part, supplemented the comment by explaining that Europe has more control over inflation but will try to align rate cuts with the U.S. to avoid generating inflation.

Geopolitical Risks

Both experts said that “it is impossible not to talk about geopolitical risks.” It is a latent conflict that could escalate, commented Forte.

However, Hayon tempered this by stating that they do not believe Europe will intervene militarily in the conflict. “We don’t imagine French troops in Ukraine,” said Hayon, adding that it is believed “the conflict will be played out in negotiations to achieve an end to the conflict and avoid escalation.”

Another geopolitical risk is that 70% of the population will have elections this year. Among the most notable countries are the U.S., India, Mexico, and Russia. “This environment creates tension and uncertainty that is difficult to diversify at the portfolio level,” added Forte.

The event, moderated by María Camacho, founding partner and director of strategy at LATAM ConsultUS, also included time for strategy presentations.

Pictet: Artificial Intelligence, Bubble or Opportunity?

Forte began by asking the audience, consisting of financial advisors from the Montevideo industry, whether it is still a good time to invest in Artificial Intelligence (AI).

The regional representative emphasized the concept that technology is overvalued in the present and undervalued in the future. Forte added that it is expected that spending on technology as a percentage of GDP will double.

He also noted that although the world has already been revolutionized by AI technologies, they are still in an early stage. However, “it is growing at an exponential rate.”

Regarding investment challenges, he mentioned the tension over semiconductors between China and Taiwan and “sufficient opportunities” in public markets for these strategies.

Edmond de Rothschild: Fixed Income Still Attractive

From Edmond de Rothschild, Hayon highlighted the importance of fixed income, especially in developed markets.

The expert pointed out that although spreads have narrowed significantly, total returns are good due to high rates and warned, based on the rate context explained, that there is still time to invest in these assets and achieve very good returns.

He also commented on the benefits of subordinated fixed income. Hayon emphasized the possibility of buying hybrid bonds, where the investor buys bonds with the security of investment grade but with the yield of high yield. “Buying subordinated debt from banks and insurers will pay well,” he elaborated.

During the presentation of the EDR SICAV Millesima select 2028 investment strategy, the expert highlighted the high risk of losing reinvestment when in cash.

Today, rates can provide good returns over a year, but fixed income exceeds that return over four years.

When and How: The Great Debate on Interest Rate Cuts in the U.S.

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The latest macroeconomic data confirm the robustness of the U.S. economy, presenting a significant debate for the U.S. Federal Reserve (Fed). From today until Wednesday, the Fed will hold its meeting, according to asset managers, with all the necessary ingredients: updated labor market and inflation data; economic projections; various perspectives within the FOMC; and Jerome Powell’s press conference. What should we pay the most attention to?

According to Erik Weisman, Chief Economist and Portfolio Manager at MFS Investment Management, perhaps the most important thing will be whether the Fed considers the April consumer inflation figures to be low enough to mark the start of a weakening trend. “The Fed has indicated that it needs to see several consecutive months of significantly more controlled inflation before beginning to cut interest rates. It is unclear whether the April data on the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) meet these criteria. This may be clarified during the press conference,” he notes.

Secondly, Weisman adds, “Another interesting point is the long-term dots, which indicate what the Fed considers its nominal neutral policy rate. Last quarter, the long-term median dot increased for the first time in a long time. Most market participants believe that the nominal neutral long-term Federal Reserve funds rate should be considerably higher.”

Cristina Gavín, Head of Fixed Income and Fund Manager at Ibercaja Gestión, believes that over the past few months, the Fed has been moderating its discourse regarding the path of rate cuts. “The most interesting thing, as with the ECB, will not be the announcement of maintaining the intervention rate, but Powell’s subsequent speech, where he will assess the country’s economy and what we can expect for the second half of the year. It is most likely that he will emphasize the need to be patient and wait for more convincing data to begin the rate-cutting process,” Gavín argues.

Main Forecasts

According to DWS, the big debate is about how much and how the Fed will cut rates. “Monetary policy is clearly restrictive from the labor market perspective. However, current inflation metrics do not yet justify a cut. It is no surprise that the Fed sees balanced risks and maintains close vigilance, as well as an open mind about incoming data,” argues Christian Scherrmann, U.S. Economist at DWS. The asset manager believes that in the real world, full of complexity and measurement errors, chaining the Fed to a single policy rule has always seemed like a bad idea. “But arguably the other extreme is even worse: letting elected politicians directly interfere in rate-setting, instead of having an independent central bank publicly committed to a stable framework and accountable for achieving its monetary policy goals,” they state.

“After strong employment data on Friday, expectations regarding rate cuts have cooled, and the market now only prices in one and a half cuts by the end of the year. Since the Fed is not expected to cut rates this week, the summary of economic projections should also reflect that the Committee has reduced its forecast for cuts this year. That is where the focus will be. We believe the dot plot will place the median reference rate closer to 5% by the end of the year, compared to the previous 4.6%. We will also be attentive to the language the FOMC may use to describe its growth and inflation outlooks,” says John Velis, Macro Strategist for the Americas at BNY Mellon IM.

According to Enguerrand Artaz, Fund Manager at La Financière de l’Echiquier (LFDE), market actors’ forecasts for the Fed’s trajectory have rarely been so disparate: some still predict a first cut in July and several more in the coming months, while others do not expect any cuts in 2024. “However, the U.S. is perhaps the country that could offer more visibility soon. Indeed, April inflation data were reassuring after negative surprises in the first quarter; price increases are now only driven by a few components that have little correlation with demand; growth was slightly below forecasts in the first quarter, and the labor market is slowly deteriorating, so the economic outlook, if confirmed, could outline a well-marked path for the Fed,” Artaz notes.

For the Head of Fixed Income and Fund Manager at Ibercaja Gestión, there have been voices that even ruled out cuts for this year. However, her forecast is that “in 2024 we will see a shift in the Fed’s monetary policy bias, with the first cut occurring after the summer. From there, and as long as price developments show a downward trajectory, we would bet on another intervention rate cut by the end of the year, once electoral uncertainty is behind us,” she argues.

Meanwhile, Deborah A. Cunningham, Chief Investment Officer of Global Liquidity at Federated Hermes, notes that despite the warnings at the May meeting, they do not anticipate a rate hike and expect one or two cuts for the remainder of the year. “One thing to note is that the idea of the Fed avoiding rate cuts in September to avoid appearing to interfere with the general elections, foregoing rate action when the data justifies it, could also seem politically motivated,” she explains.

“Canada and the Eurozone have started the cycle of rate cuts in developed markets, following the trend of emerging markets. But it is likely that this week Jerome Powell will confirm that the U.S. will arrive late to the party, as the Fed is not expected to cut rates before September, at the earliest. Global fixed-income investors are already benefiting from rate cuts, while those only exposed to the U.S. will have to keep waiting,” concludes Brendan Murphy, Head of Fixed Income, North America, at Insight (part of BNY Mellon IM).

Data Flows

According to Gilles Moëc, Chief Economist at AXA IM, the market will focus on the new “dot plot” from the FOMC this week. “We expect a change in the median forecasts to two cuts this year, compared to three in March. There is a risk that it will be reduced to just one, but we believe this would eliminate too much optionality, as it would send the message that the Fed cannot cut before the elections,” he explains.

In his opinion, market prices for the Fed changed drastically again last week in response to higher-than-expected job creation data in the U.S. in May, according to the Establishment survey (+272K, compared to a consensus of +180K), accompanied by faster wage increases (+4.1% on a three-month annualized basis, well above April’s 3.0%). Before the publication, two rate cuts were almost fully priced in for December (48 basis points), with 22 basis points already in September. “After the publication, the market was only pricing in 14 basis points of cuts in September and a total of 34 for December. But more than the directionality, it is the confusion that, in our opinion, is the main ‘message’ of the recent data flow from the U.S.,” he nuances.

In this “data fog,” Moëc sees it likely that the Fed’s forecast of its trajectory will be the focal point of this week’s FOMC meeting. “We believe the median of FOMC voters will forecast two cuts in 2024—which happens to be our base case—compared to three in March. Of course, there is a debate around the possibility of maintaining only one cut in the framework, but we believe this would send too harsh a message, indicating that the Fed has given up on cutting before the elections (a solitary cut for 2024 would be interpreted as no easing before December), which we believe would leave the Fed with very little optionality. While time is running out, we still see the possibility that the data flow will clear up enough over the summer to allow the central bank to begin removing some restrictions in September,” he concludes.

In the opinion of Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin Sustainable AM, slower economic growth and a more balanced labor market should reduce inflationary pressures. In his view, the problem is that inflation will take time to return to its target, requiring a gradual approach to monetary policy easing. Nevertheless, given that the labor market has returned to where the Federal Reserve wants it, some Fed members will point to the risk of waiting too long. He believes that the Fed’s new projections could point to two rate cuts this year, but the distribution seems likely to tilt downward.

“The distribution of market participants’ expectations for the federal funds rate at the end of the year will likely shift to the right (a higher official interest rate). While the median ‘dot’ could point to two cuts this year, we believe a greater number of officials will forecast that the official interest rate will only be cut once or not at all this year. Overall, the slower-than-expected progress of inflation could limit the speed and promptness with which the Fed wants to cut rates,” argues Olszyna-Marzys.

Patria Buys a Real Estate Management Company in Colombia

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Patria Investimentos, one of the leading alternative asset managers in Latin America, announced an agreement to acquire Nexus Capital, an independent real estate asset management company in Colombia. The transaction, which is expected to be completed in the third quarter of 2024, will add approximately 800 million dollars in assets to Patria’s portfolio.

With this acquisition, Patria’s Real Estate vertical in Colombia will reach a total of 2.2 billion dollars in assets under management.

Alfonso Duval, partner and head of the Andean region at Patria, highlighted that Nexus Capital has a robust portfolio and an innovative investment approach. “Nexus will be a great addition to our platform, significantly contributing to our growth objectives and strengthening our relationships with investors in Colombia and the region,” said Duval.

Marcelo Fedak, partner and head of Real Estate at Patria, expressed his enthusiasm for the integration of Nexus Capital into the company’s platform. “We are very pleased to welcome this talented team to Patria. Nexus’s diverse platform represents a valuable addition that will expand our product offerings and strengthen our relationships with key investors in Colombia,” said Fedak.

Founded in 2008, Nexus Capital focuses on the office, retail, industrial, and residential segments. The manager has a diversified portfolio, with around 90% of its assets in permanent or long-term capital structures. Nexus is one of the leading independent real estate managers in the country, led by a team of 28 professionals under the direction of Fuad Velasco.

In recent years, Patria has committed to expanding its presence in the real estate sector in Latin America. In 2022, the manager acquired 50% of VBI, with an option to purchase the remaining 50% in 2024. Additionally, the recent acquisition of the Real Estate unit of CSHG in Brazil consolidated Patria’s position as the largest independent real estate investment fund in the country, with over 4 billion dollars in assets under management.

In November 2023, Patria also celebrated a joint venture with Bancolombia, adding more than 1.3 billion dollars in real estate assets and leveraging the bank’s strong distribution platform in Colombia. With the integration of Nexus Capital, Patria expects to reach 7 billion dollars in assets under management in Latin America, with 90% of these assets in permanent capital vehicles.

Insigneo Strengthens its Position in Chile Through an Alliance With Nevasa

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Three years after establishing its presence in the Chilean market, Insigneo is strengthening its operations in the country through a strategic alliance with the local firm Nevasa Corredores de Bolsa. This agreement aims to enhance the presence and improve the offerings of both companies in the Santiago market.

According to a statement, this partnership will leverage the expertise of the Miami-based wealth management firm and the local strength of the Chilean brokerage in the national wealth management business. Thus, Insigneo strengthens its operations in Chile while Nevasa enhances its international offerings.

Specifically, the U.S. firm highlights that this business expands its network not only with financial advisors in the Andean country but also through established companies in the Chilean market. This is a market where the firm has been operating since 2021, focusing on services for independent advisors, multi-family offices, and regulated financial firms.

The alliance aims to diversify both firms’ business through Insigneo’s platform, which will also strengthen the research and information network available to Nevasa’s clients. Nevasa manages assets worth over 866 billion Chilean pesos (around 944 million dollars).

The Chilean firm will focus on adding value in its role as advisors, investment decision-making, and portfolio analysis. The partnership will grant its clients access to offshore custody provided by Pershing, as well as more international investment alternatives, in line with the demands of clients in the country.

Top executives from both companies highlight the potential of the agreement.

“This alliance is a crucial step in strengthening our position in the local market. We are committed to long-term growth and success, and this strategic agreement is proof of that. Currently, we have 12 agreements with independent advisors and local financial services companies, which allows us to consolidate our expansion strategy in Chile,” said José Luis Carreño, Market Head of Insigneo in Chile, in the statement.

“This alliance, along with others that Nevasa maintains, gives us access to a large network of instruments, funds, and financial instruments in international markets, complementing the traditional Chilean product offerings and thus meeting the investment and diversification needs of our current and potential clients,” added Ramiro Fernández, General Manager of Nevasa Corredores de Bolsa.

90th Anniversary of the SEC: Born in the Wake of the 1929 Crash Under the Principle of Disclosure

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June 6 marked the 90th anniversary of the Securities Exchange Act of 1934 (known as the Exchange Act), which established the Securities and Exchange Commission (SEC). This Act, together with the Securities Act of 1933, forms the legal basis governing the capital markets in the USA. Built on the concept of a disclosure-based, merit-neutral regulatory framework, these laws have facilitated tremendous economic growth, job creation and innovation for the U.S. economy over the past 90 years.

“It’s a period that reflects our country’s rise to becoming an economic superpower, and not by mere coincidence,” emphasized Mark T. Uyeda, SEC commissioner at the Boston Regional Office. He explained that like any organization, the SEC is just a legal instrument that only exists on paper. “What gives life to the Commission is its people and its culture. Today we celebrate the dedication of the officials who have made this agency what it is over the last nine decades. We owe a debt of gratitude to all those who have preceded us. It is an honor to have Chairman Breeden, Chair Schapiro, and Chairman White with us this evening to represent those predecessors,” he noted.

To understand its history and creation, it is necessary to go back to 1930, when the U.S. faced immense challenges. Firstly, the 1929 stock market crash had shaken public confidence in our markets, and our economy suffered. “At that point in history, Congress had an alternative. Several states had already adopted securities laws that were often referred to as blue sky laws. In fact, before joining the Commission in 2006, I was a regulator at the California Department of Corporations, created by the California legislature in 1913 to oversee the offering and sale of securities,” Uyeda pointed out.

He continued: “Instead of adopting the merit-based blue sky laws that many states, including California, had implemented, Congress chose to implement a disclosure-based regime. It was a fortuitous choice, made long before the debate on the efficient market hypothesis became widespread, and it laid the groundwork for subsequent economic growth.”

In his opinion, by emphasizing transparency and accountability, the SEC laid the foundation for capital markets that thrive on the free flow of information. “Investors were empowered to make informed decisions on their own, while the SEC facilitated an environment of credible information and market integrity. This approach has been a fundamental reason why our markets have become the envy of the world,” he highlighted.

In September 1970, Chairman Hamer Budge succinctly expressed these points: “Investors, both large and small, can invest in our markets with the assurance that it is market forces, not manipulators, that determine the daily prices they pay and receive for their securities. It is vital to our economic growth and development that our securities markets continue to function fairly and without artificial restraints.”

According to Uyeda, who has been part of the SEC for the past 18 years, first as a staff member and then as a Commissioner, despite the achievements made, “we cannot rest on our laurels.” He indicated: “Just as the drafters of the Securities Act probably could not have imagined a world in which an investor could buy and sell baskets of securities on a tiny mobile communication device from anywhere in the country, we must reflect on how the SEC fulfills its mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation in an ever-evolving technological environment.” Therefore, the Commissioner invites reaffirming the commitment to the principles on which this agency was founded. “I look forward to working with you on this journey,” he concluded.

UBS Wealth Management International Adds Déa Caldas in New York

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Boreal Capital Management Roberto Vélez Miami
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Déa Caldas has joined UBS Wealth Management for the international office in New York.

“I am pleased to announce that Déa Caldas, CFP, has joined UBS International in the New York International Market,” posted Michael Sarlanis on his LinkedIn.

The banker, with more than 23 years in the industry, comes from J.P. Morgan, where she worked for over 10 years between Rio de Janeiro, Miami, and New York.

Originally from Brazil, Caldas worked at Citibank and Banco Santander in Rio de Janeiro.

She holds an MBA from the Pontifical Catholic University of Rio de Janeiro.

While Europe Changes Course, the Markets Focus on the Key Event of the Week: the Fed Meeting

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The European Parliament elections have yielded three clear conclusions: far-right parties with an anti-establishment nuance have gained influence; a centrist majority persists; and the results have significantly impacted local politics in France and Belgium. The market’s immediate concern, however, remains on the upcoming decisions by the U.S. Federal Reserve.

According to the initial official results published by the European Parliament, far-right political groups have increased their presence. Nevertheless, the European People’s Party (EPP) emerged victorious with 191 seats, followed by the Socialists and Democrats (S&D) with 135 seats, and the Liberals (Renew) with 83 seats. These results have prompted a snap election in France, as President Emmanuel Macron dissolved the National Assembly and called for legislative elections later this month, and the resignation of Belgian Prime Minister Alexander de Croo, both due to their parties’ losses and the rise of more extreme right-wing parties.

According to Gilles Moëc, chief economist at AXA Investment Managers, the results of the European elections were not expected to trigger a significant shift in the EU’s stance. “Although the overall political space of the major parties is shrinking, the European Parliament has a long tradition of cooperation among the main groups – center-right, liberals, and social democrats – which, based on the national results seen so far, will likely maintain a comfortable majority of the seats together. It may be more difficult to reach the necessary compromises, and changes in public opinion will need to be considered, but a radical change of course is not to be expected. However, the decision of the French president to dissolve the National Assembly, the lower house of the French Parliament, in response to the European vote, changes the perspective,” he says.

Regarding Macron’s decision, Lizzy Galbraith, a political economist at abrdn, explained that “while these elections won’t affect Macron’s presidency, they might force him to work with opposition parties in Parliament, complicating his legislative agenda”. Axel Botte of Ostrum AM highlighted the uncertainty in France, questioning whether the far-right RN could secure a majority government, potentially leaving Macron’s centrist party as the viable option.”In any case, these elections are extremely important with a view to the upcoming presidential elections in 2027.”

According to Mabrouk Chetouane, head of global strategy at Natixis IM Solutions, “the economic and financial consequences of this political thunder are already palpable” in France, where the main stock index, the CAC 40, opened with sharp declines, reflecting market operators’ concerns about the visibility of the French economy’s trajectory. “Reform plans could be abruptly halted by the likely formation of a coalition, which would result in a coalition government in a context where the state of public finances leaves no room for maneuver for the future government. France, a pillar of the eurozone, could find itself in a possible deadlock. This would reduce investor visibility, increase national stock market volatility, and raise the cost of debt… A deleterious trio that would temporarily deter foreign investors from French markets,” Chetouane points out.

Where is the Market Looking?

Against this new political backdrop, the markets are currently calm and focused on what they consider to be the key event of the week: the monetary policy meeting of the U.S. Federal Reserve. The crucial question is whether the Fed will announce its first rate cut of the year this Thursday, following the ECB’s rate cut last week.

To understand what the Fed might do, it’s essential to look at the data. “The latest U.S. employment data gave mixed signals. The ratio of job openings to unemployed workers fell to 2019 levels, suggesting a relaxation in labor market tension. However, the strong growth in non-farm payrolls and the 0.5% increase in average hourly earnings for production and non-supervisory workers could indicate wage inflation pressures. This week’s CPI could help clarify whether the U.S. is enjoying a Goldilocks moment of slowing inflation combined with resilient employment or if inflationary pressures persist,” says Ron Temple, head of market strategy at Lazard.

According to Javier Molina, senior market analyst at eToro, following the latest data on the state of the U.S. economy, the Fed faces significant challenges in achieving its 2% inflation target, given the solid performance of the economy and labor market. “At the next Federal Open Market Committee (FOMC) meeting on June 12, it is unlikely that the Fed will change its guidance on future rate cuts given the lack of confidence in the sustainability of the current disinflationary trajectory,” Molina notes.

Meanwhile, Paolo Zanghieri, senior economist at Generali AM, part of the Generali Investments ecosystem, recalls that in recent weeks, members of the Federal Open Market Committee (FOMC) have called for more patience in easing policy, which will likely result in an upward revision of the median appropriate level for the federal funds rate by year-end. “Our baseline scenario remains two rate cuts (in September and December), with a single cut as the second most likely scenario. More important for long-term rates, the FOMC is likely to continue raising its estimate of the long-term neutral interest rate, an indicator of the level at which the easing cycle will stop. The current median of 2.6%, which corresponds to a real rate of 0.6%, is well below what most analysts think: market-based estimates are consistent with a rate above 3%.”

Implications for Investors

According to Reto Cueni, economist at Vontobel, the election results show a strengthening of far-right “anti-system” parties in Europe, but they have not exceeded expectations. This means the centrist majority remains intact in the European Parliament, likely securing more than 55% of the total votes, while green parties across Europe have lost parliamentary seats.

In his view, this has three implications for investors. Firstly, Cueni notes that this centrist majority provides stability in a Europe facing high geopolitical uncertainty. “For now, this is positive news for investors. However, in the coming weeks, it will be seen if the centrist parties can work together and elect a centrist president of the European Commission for the new five-year term,” he asserts.

Secondly, Cueni believes that the shift towards right-wing “anti-system” parties, which politically oppose the “Green New Deal” and prioritize national security and border control, demonstrates a change in Europe’s political focus. “Investors need to pay attention to the presentation of the programs of the candidates for the next EU presidency, scheduled for mid-July, to understand the parties’ agendas and the political momentum in Europe,” he advises.

Lastly, Cueni adds that the early parliamentary elections in France will increase uncertainty about the political course of Europe’s second-largest economy. Given that the country’s political system makes foreign and defense policy largely a presidential prerogative, “the uncertainty about France’s future cooperation in Europe and geopolitically remains controlled, at least until the spring of 2027, when the next French presidential elections are scheduled.”

Views on the European Elections

Experts from investment firms had already warned that there could be a greater presence of the far right, as some polls had predicted. Nicolas Wylenzek, a macroeconomic strategist at Wellington Management, noted before the elections that these could accelerate a shift in the EU’s political priorities, which could have potentially significant implications for European equities. However, he clarified that this adjustment would depend on several factors, such as the composition of the European Commission, changes in the political landscape of member states, and international events like the war in Ukraine and the U.S. elections.

“While a reduction in administrative burden could be clearly positive for EU companies, I consider the overall shift to be marginally negative. Reforms that promote greater integration, such as banking union and capital markets union, would strengthen the resilience of the EU economy and facilitate growth, while allowing and encouraging the immigration of skilled labor could be important to help limit inflation and improve trend growth,” he explained.

Similarly, John Polinski, vice president and fixed income portfolio manager at Federated Hermes, recently pointed out how the 2024 European Parliament elections could result in the first center-right coalition in the EU, with the European People’s Party joining forces with the European Conservatives and Reformists and Identity and Democracy. According to Polinski, this change could moderate environmental and migration policies and alter spending and debt dynamics within the EU. “We believe a political shift to the right will have a moderate effect on European fixed income markets in the short term. But in the longer term, a change could significantly affect the markets, especially concerning cross-border mergers and acquisitions, and industrial, ESG, and fiscal policies,” he asserted.

Lastly, Felipe Villarroel, a manager at TwentyFour AM (a Vontobel boutique), offered a clear reflection on not being swayed by today’s headlines: “In our opinion, the macroeconomic consequences are unlikely to be as significant as some of the headlines following the elections might suggest. While it is very likely that the average MEP will shift to the right, that does not mean that macropolitics will change drastically. Without a doubt, there will be microeconomic consequences for sectors heavily affected by climate policy, for example, if some policies are reversed. But we tend to think that most macroeconomic variables and aggregate company data, such as leverage or default rates, will not change too much as a result of the elections. The most disruptive theoretical macroeconomic impact would be a scenario in which European integration is questioned. Even if the far right achieves a massive victory next week, they will not have nearly enough seats to seriously threaten this. There may be incendiary headlines after the elections, but we believe that from a macro perspective and fixed income portfolio management point of view, the headlines will not translate into facts.”

Phillip Hackleman, Alexandra Valentin, and Juan Carlos Freile Found a New Multi-Family Office in Miami

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Former J.P. Morgan bankers Alexandra Valentin and Juan Carlos Freile joined forces with Phillip Hackleman to establish the multi-family office Tiempo Capital in Miami.

The company has been registered with the SEC as an RIA. However, the partners distinguish between the regulatory status and the services they provide.

“We like to be known as a multi-family office because our work is more selective, both in terms of clients and the operations we undertake,” Valentin told Funds Society.

The firm, which already has approximately $320 million in assets under management, aims to reach $500 million in the next two months, with the goal of reaching $1 billion within the next year, Freile told.

The client profile consists of Latin American families residing both in the U.S. and in the southern region.

“Our work at J.P. Morgan allowed us to develop an excellent relationship with clients from Puerto Rico, and our experience in the industry also helped us forge connections with families from Venezuela, Colombia, Mexico, and Argentina,” added Valentin.

Additionally, the bankers mentioned that Hackleman’s participation as the third partner is crucial for managing investment operations and strategy.

“Phillip has extensive experience in investment matters,” Freile commented.

Regarding custodians, Tiempo Capital will work with J.P. Morgan, “due to the great trust that has been built” during their experience at the firm. However, they also diversify custody with Northern Trust and Morgan Stanley.

A Vision Towards Alternatives

Tiempo Capital emerged from clients’ need to invest in a more diverse range of products than those offered by wirehouses.

Freile described that the multi-family office will create selected and customized portfolios for each client with all types of alternative products. The goal is to expand the universe of alternative offerings that banks have.

For this reason, the firm’s partners mentioned that they will work with direct investments such as Real Estate, Private Equity, among others.

About the Partners

The three partners, Juan Carlos Freile, who serves as CEO, Alexandra Valentin, as Chief Strategy Officer and Head of the Puerto Rico business, and Phillip Hackleman, as Chief Investment Officer, are recognized in the industry for their extensive careers.

Juan Carlos Freile

Before founding Tiempo Capital, he was an executive director and banker at J.P. Morgan Private Bank, where he advised wealthy individuals and families in the United States, Puerto Rico, and Latin America, managing over $2 billion in client relationships.

During nearly 15 years at J.P. Morgan, he led an integrated team that provided customized wealth management solutions, including investments, wealth structuring, fiduciary services, philanthropy, banking, and credit. Previously, he worked in Investment Banking at Goldman Sachs & Co. in New York, advising and executing for Latin American institutional clients on Fixed Income, Currency, and Commodity trading and hedging solutions.

He obtained his degree in Economics and History cum Laude from Dartmouth College in Hanover. He also studied at University College London as a Research Scholar of early 20th-century financial history. Over the last decade, he achieved the CFA charter holder designation and is a member of the CFA Society of Miami.

Alexandra Valentin

She was an executive director and banker in the Miami office of J.P. Morgan Private Bank, where she led the expansion of Puerto Rico and the team covering the Island. Under her leadership and guidance, J.P. Morgan became one of the largest custodians of high-net-worth assets on the Island, according to information provided by the firm.

Alexandra began her financial services career in 2003 and spent over a decade covering ultra-high-net-worth families in Latin America at UBS International.

Phillip Hackleman

He has experience managing various strategies, including Long-Short Equity, Global Macro, Classic Asset Allocation, Liability Management through Currency Arbitrage, and Absolute Return Fixed Income.

Before founding Tiempo Capital, he was a portfolio manager at a global multi-family office. He also worked for a Swiss global family office with $5.5 billion in AUM, participating in the investment committee representing the North American office. Previously, Philip worked at a multi-family office of a Fortune 500 founder, focusing on growth capital and real estate investments.

BTG Pactual Buys Minority Stake in Bill Ackman’s Asset Manager Before IPO

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BTG Pactual recently announced the acquisition of a minority stake in the asset management firm led by Bill Ackman, Pershing Square Capital Management.

This strategic move comes at a crucial moment, just before the asset manager’s IPO, which is scheduled for the coming months.

The sale, of a 10% stake in the hedge fund, was carried out for $1.05 billion, to a consortium of institutional investors, including Arch Capital, Consulta Limited, Iconiq Investment, Menora Mivtachim, as well as family offices.

“We are very pleased to invite a group of international and long-term partners as investors in our company, which has been entirely employee-owned at Pershing Square since our founding more than 20 years ago,” said Ackman.

The relationship between Bill Ackman and BTG Pactual leaders André Esteves and Roberto Sallouti already has a history of collaboration in events and stock offerings. In February of this year, Ackman was in Brazil for a bank event. He has also been interviewed live by Esteves on other occasions.

In 2010, BTG was one of the coordinators of the stock offering of a Pershing Square branch on Euronext Amsterdam. This long-standing relationship facilitated the recent acquisition of a minority stake in Pershing Square Capital Management.

The Balanced and Predictable Decision of the ECB Leaves the Debate Open for Two or Three More Cuts This Year

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The European Central Bank (ECB), which did not disappoint in its meeting yesterday, has taken the lead over the Fed. However, experts from international asset management firms note that the ECB has made this first-rate cut without providing firm guidance beyond June.

The Governing Council justified the moderation of policy restriction based on greater confidence in the disinflation process and the strength of monetary transmission. Expert projections on growth were revised upwards. ECB President Christine Lagarde was clear: “We are determined to ensure that inflation returns to our 2% target in the medium term. We will keep official interest rates at sufficiently restrictive levels for as long as necessary to achieve this goal. We will continue to apply a data-dependent approach, making decisions at each meeting to determine the appropriate level and duration of restriction. In particular, our decisions on interest rates will be based on our assessment of inflation prospects considering new economic and financial data, underlying inflation dynamics, and the intensity of monetary policy transmission, without committing to any specific rate path in advance.”

Beyond the official statement, firms maintain that Lagarde’s subsequent declaration refrained from committing to future cuts and maintained a data-dependent stance. “It is likely that recent wage and inflation surprises will keep Council members in a cautious position. Therefore, a cut in July seems clearly ruled out. The ECB’s rate trajectory will depend on data evolution from now on and the Fed, which we believe cannot cut rates this year due to the rigidity of U.S. inflation,” says Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International.

Officials not only referred to data dependency but also to flexibility. Indeed, the monetary policy decision statement was clear: “The Governing Council does not commit in advance to follow a determined rate path.” Felix Feather, Economist at abrdn, believes that in practice, the data-dependent approach is likely to be cautious. “The ECB will have little additional data before its July meeting. In particular, there will be no reliable data on second-quarter wage growth. Therefore, we consider that reiterating the emphasis on data dependency is consistent with our request to keep the deposit rate at 3.75% in July.”

Hugo Le Damany and François Cabau, Economist and Senior Economist for the Eurozone at AXA Investment Managers, consider the approach to be cautious but exaggerated. “We believe the ECB made this decision because it considers this rate cut relatively safe, with no significant risk of re-stimulating subsequent inflationary pressures. However, the ECB immediately reminded that internal price pressures remain strong. They reiterated that official interest rates will remain restrictive for as long as necessary to timely achieve their medium-term 2% target. The Governing Council insisted they will remain data-dependent and not commit to any specific rate path in advance,” they explain.

So far, the market reaction has not been very violent, but volatility persists in sovereign debt amid growing rhetoric that rates will take longer to return to expected levels, concentrating the likelihood of more cuts in the last quarter meetings of the year. “In the stock markets, attention is increasingly focused on upward revisions of corporate profits, although the banking sector performed well during the session due to the ECB’s hawkish tone, which augurs better margins for the rest of the year,” explains Carlos del Campo from Diaphanum’s investment team.

Forecast on upcoming cuts

In light of Lagarde’s words, Ulrike Kastens, Economist for Europe at DWS, estimates that the ECB will pause in July before “probably,” she notes, cutting rates again in September and December. “Data dependency remains key. At the same time, the upward revision of inflation forecasts for 2025 suggests that it may now take longer to reach the inflation target. These forecasts are much more restrictive than expected and imply very gradual rate cuts,” she argues.

Mauro Valle, Head of Fixed Income at Generali AM, part of the Generali Investments ecosystem, believes the ECB has room to cut again in the second half of the year, as monetary policies will still be perceived as restrictive. “The debate revolves around the probabilities of a third cut in December 2024: the market is pricing about a 50% probability, while our analysis indicates three cuts. The decision will depend on upcoming economic data, mainly inflation and wage trends, as Lagarde reiterated during the press conference,” Valle notes.

“Given the ECB’s reaction function, we anticipate the entity will continue cutting rates in meetings where projections are evaluated. September offers the next opportunity to globally reassess the disinflation process. Unlike earlier this year, market prices seem reasonable and generally align with our baseline of three cuts for this year. We expect additional cuts in September and December. Risks tilt towards fewer cuts, especially due to the rigidity of service inflation, labor market resilience, financial condition easing, and the ECB’s risk management considerations,” adds Konstantin Veit, Portfolio Manager at PIMCO.

Tomasz Wieladek, Chief Economist at T. Rowe Price, also shares his forecast: “I believe the ECB will end up making two more cuts this year. The bar for new short-term surprises in its forecasts is high. However, markets should not expect any future guidance. All of this year’s future rate cuts will likely be hawkish. However, this purely data-dependent approach also means the ECB could easily cut less than twice. We might only see one more cut towards the end of the year if inflation remains much more persistent than expected.”

In this regard, Axel Botte, Head of Market Strategy at Ostrum AM (Natixis IM), recalls that it was not a unanimous decision. “This implies that the prior commitment to a cut may have been largely motivated by political reasons. In fact, the ECB raised its inflation forecast to an average of 2.2% for next year but kept it at 1.9% for 2026. In any case, Christine Lagarde struggled to justify a rate cut at a time when wage increases remain uncomfortably high. Wage growth should hover around 4% until the end of 2024. The ECB’s message is hard to understand, as ECB rate cuts are applied alongside quantitative tightening. Still, the ECB could cut more in September when it updates its macroeconomic forecasts,” Botte adds.

Divergence with the Fed

For international asset managers, yesterday’s ECB decision is also relevant because it shows the divergence between the European institution and the Fed, something that hasn’t happened since 2011. “The real point of interest is to know how far the ECB can diverge from the Federal Reserve. We believe the scope of this divergence will be limited, given the incipient signs of a slowdown in the U.S. will give the Fed room to ease rates. This is our base scenario and means we see minimal risk of importing inflation. However, any prolonged divergence in policy could have a side effect on the currency market,” notes Monica Defend, Head of the Amundi Investment Institute.

Tim Winstone, Portfolio Manager in the Corporate Credit team at Janus Henderson, believes we started seeing a divergence in central bank communication earlier this year. “Compared to Europe, demand-driven inflation in the U.S. has been firmer; growth/employment, better; and the consumer, exceptionally strong. The Eurozone economy is experiencing less rigid inflation, largely driven by energy prices. This divergence provides us an opportunity as active managers,” explains Winstone.