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Rally in Long-Term Treasury Yields: What Message Is the Treasury Sending, and How Will the Fed Pick Up the Gauntlet?

As U.S. public debt surpassed the $40 trillion mark for the first time in history, long-term U.S. yields have reignited alarms over the cost of financing debt, in a potentially explosive cocktail that has raised red flags across financial markets, given that interest expenses have already become one of the fastest-growing budget items for the federal government. Markets remain on edge, awaiting the press conference by U.S. Treasury Secretary Scott Bessent, scheduled for today at 14:00 ET.

“Forty trillion dollars of debt does not in itself represent a macroeconomic tipping point,” says Christian Scherrmann, Chief U.S. Economist at DWS. “However, this figure clearly illustrates the extent to which U.S. fiscal policy has strayed from its historical path. In the long run, what will matter is not only the absolute level of debt, but also what proportion of economic output must be allocated to servicing it,” the expert warns.

In this context, the Federal Reserve maintains a restrictive stance, and the Treasury intervened last week to curb the rise in yields. According to analysts, the signal to markets is clear: money will no longer be as cheap or abundant as it was over the past decade. Put another way, the U.S. financial market is sending a signal that stock markets still seem unwilling to hear: the long-term cost of capital is taking on a life of its own.

An increasingly uncomfortable combination

While major equity indices continue to show resilience, the U.S. Treasury bond market—considered the benchmark for pricing virtually every financial asset in the world—is facing an increasingly uncomfortable mix of high inflation, massive government financing needs, strong capital demand for artificial intelligence and infrastructure, and doubts surrounding the future path of interest rates.

Tensions reached a notable milestone on August 19, when the Department of the Treasury announced that, starting in September, it will double the maximum size of its long-term bond buyback operations, raising them from $2 billion to at least $4 billion per operation for securities with maturities between 10 and 30 years.

The market reaction was immediate. The 30-year Treasury yield, which had topped 5.3% last week, fell about 10 basis points following the announcement, while equities and gold advanced. The move was significant because it came after long-term rates reached levels not seen since before the 2008 financial crisis. DWS notes, however, that “markets continue to offer few signs that investors are fundamentally questioning U.S. solvency,” given that demand at Treasury auctions remains solid, U.S. CDS spreads recently fell to 38 basis points, and even repeated sales by foreign investors—for example, during interventions on the Japanese yen—have failed so far to disrupt market balance. “Markets are signaling higher financing costs, but not a crisis of confidence,” the firm asserts.

However, money market specialists consulted by Funds Society point out that the most important message does not lie in the temporary drop in yields. It lies in why Washington felt the need to act.

It was not the Fed, but it was an intervention

The operation announced on August 19 was not a bond purchase by the Federal Reserve, nor was it a new quantitative easing (QE) program. It was a Treasury decision within its debt buyback program, originally designed to improve market liquidity.

The Treasury buys specific off-the-run bonds trading in the secondary market and, in doing so, helps free up balance sheet capacity for primary dealers and improve liquidity in specific segments of the curve.

Wednesday’s decision significantly increased the size of those operations for long maturities. The distinction is crucial: while the Fed controls monetary policy and financial system liquidity conditions, the Treasury manages the government’s financing needs. Nevertheless, both end up influencing the same variable: the price of money. And that is where one of the major market stories for the second half of 2026 emerges.

The Fed is not cutting rates

At its July 28–29 meeting, the U.S. Federal Reserve maintained the federal funds rate target range at 3.5% to 3.75%, a decision approved by a 9 to 3 vote.

The three dissenters—Beth Hammack, Neel Kashkari, and Lorie Logan—wanted to hike the rate by 25 basis points. In other words, a section of the Committee felt that the inflation problem justified additional tightening.

However, there is another particularly important element to understanding the bond market. The Fed continues to operate under an ample reserves regime. Its guidelines permit open market operations and, when necessary, purchases of Treasury bills and potentially other Treasuries with maturities of up to three years to maintain an ample level of bank reserves.

This means that the Federal Reserve is not engaging in QE in the traditional sense, as experts explain to Funds Society, but nor is it allowing bank liquidity to contract in a disorderly manner—a distinction that is highly relevant. Last week’s intervention should be understood more as market “plumbing” than a radical shift in monetary policy. But even that “plumbing” is acquiring enormous importance.

In this sense, the current strategy can be understood as a balance between two objectives. On one hand, the Fed wants to prevent bank reserves from falling too low and causing friction in the money market.

On the other hand, it does not want to return to the massive balance sheet expansion used during the pandemic and other crisis episodes. The Fed has indicated that it can use purchases of Treasury bills and, if necessary, other short-term securities to ensure that the system maintains sufficient reserves.

Furthermore, it maintains standing repo and reverse repo operations. Repo operations allow liquidity to be provided against high-quality collateral, while reverse repos temporarily absorb liquidity. The New York Fed explains that these operations form part of the mechanisms used to keep the federal funds rate within the range established by the FOMC.

Therefore, it would be incorrect to interpret any Fed liquidity operation as an automatic return to monetary expansion. In reality, the Fed is trying to manage liquidity without necessarily expanding its balance sheet aggressively again.

The problem is at the long end of the curve

According to analysts, this is the section that should concern investors the most. The Fed directly controls short-term rates, but it does not set the 10-, 20-, or 30-year Treasury yield.

Those rates depend on expectations for inflation, growth, fiscal deficit, bond supply, international demand, and the term premium. And that is precisely where pressures are emerging.

The 30-year Treasury reached over 5.3% last week, as the market faces a massive supply of U.S. public debt. At the same time, U.S. inflation remains above the Fed’s 2% target. The July minutes note that inflation remains elevated and that energy-related price increases are complicating the outlook.

The result is a difficult equation: more debt + higher issuance + above-target inflation + strong capital demand for AI and infrastructure = upward pressure on long-term rates.

The market is starting to demand a premium

For much of the past decade, investors grew accustomed to a world of ultra-low rates and abundant liquidity. That environment allowed equity, real estate, and private asset valuations to expand significantly.

Now the landscape is changing. An investor purchasing a 10- or 30-year Treasury is not only evaluating whether the Fed will cut or raise rates at its next meeting. They are also asking how much risk is involved in lending money to the U.S. government over decades.

That question increases the so-called term premium—that is, the additional yield investors demand to hold long-term debt given uncertainty surrounding inflation, growth, deficits, and economic policy.

And if that premium continues to rise, the Fed could lower short-term rates and still find that the rates that truly matter for much of the economy remain high. That is why the Treasury’s move is so important.

The Treasury’s announcement has a relatively small immediate effect compared to the overall size of the Treasury market, which stands at around $31 trillion. But its importance does not lie solely in the $4 billion per operation; in fact, that figure is also modest—what is truly important is the signal.

In practice, the powerful U.S. Treasury is telling the market that it is not indifferent to excessive turbulence at the long end of the curve.

“Policy makers do not have to be passive observers. When pressure emerged at the long end of the curve, the Treasury showed it has tools and is willing to use them,” commented Brian Levitt, Chief Global Market Strategist and Head of Strategy & Insights at Invesco. According to Levitt, the Treasury’s announcement reinforces something he has long believed: “The U.S. government is unlikely to sit idly by and allow a disorderly debt crisis to unfold if it has mechanisms to help address it.”

Paradoxically, the U.S. administration needs to keep the cost of financing its massive debt under control, while at the same time the Fed needs to maintain a sufficiently restrictive stance to combat inflation. There are signs that the problem may grow: according to a note published by DWS on Friday, August 21, if current borrowing trends persist, total U.S. Treasury debt could reach $50 trillion by 2029.

The Treasury wants to prevent long-term rates from spiking, whereas the Fed does not want to give the impression that it is bailing out the bond market. These are objectives that may align at times, but they are not exactly the same.

The real risk

The real risk is that equities could continue rising while the bond market deteriorates for a period of time.

However, that divergence cannot widen indefinitely because a higher long-term Treasury rate means, among other things: higher financing costs for corporations; higher mortgage rates; higher borrowing costs for governments; lower valuations for growth equities; higher cost of capital for infrastructure projects; pressure on private equity; higher return hurdles for private credit; and a higher discount rate for virtually all financial assets.

That is why the behavior of the Treasury is particularly relevant for investment funds, asset managers, wealth management, and family offices. It is not simply a matter of deciding whether to buy or sell bonds. It is a matter of determining what price every financial asset should carry in a world where long-term Treasuries are once again demanding significantly higher yields.

There is also a variable that sets this cycle apart. The U.S. economy is entering a phase of massive investments in data centers, semiconductors, energy, power grids, and technology tied to artificial intelligence, meaning the government is not the only major seeker of capital.

This competition can help keep financing costs elevated even if the Fed eventually begins cutting short-term rates; the problem, therefore, may not be purely monetary—it may be structural.

What does it mean for investors?

For portfolio managers, the scenario forces a review of a premise that dominated much of the past decade: that a drop in Fed rates would necessarily trigger a broad-based bond rally.

Today, that premise might not hold true. If short rates fall but long rates remain elevated due to deficits, inflation, debt supply, and capital demand, the yield curve could behave very differently than expected.

The Fed is keeping its benchmark rate at 3.50%–3.75%, retains tools to guarantee an ample supply of reserves, and has not reactivated a policy of massive asset purchases. At the same time, the Treasury has just increased its long bond purchases to improve market conditions. The combination leaves an open question for the coming months:

Can the United States keep inflation under control, finance a debt exceeding $40 trillion, and simultaneously fund the gigantic investment cycle in artificial intelligence without causing the long-term cost of capital to remain elevated?

The answer will be decisive not only for Wall Street, but will also define the returns investors worldwide will demand in the coming years, experts warn.

Franklin Templeton Announces the Closing of Its First CFO for $1.5 Billion

| By Amaya Uriarte | 0 Comentarios

Asset manager Franklin Templeton has announced the successful closing of Franklin Templeton Structured Solutions 2026, L.P., its first Collateralized Fund Obligation (CFO), raising $1.5 billion from investors worldwide.

CFOs are a structured form of financing for diversified private equity portfolios, establishing multiple debt tranches with priority over equity holders. According to the firm, the product is designed to provide investors with diversified, capital-efficient exposure to Franklin Templeton’s primary private markets strategies. This includes private equity secondaries and continuation vehicles managed by Lexington Partners, as well as U.S. middle-market direct lending managed by Benefit Street Partners (BSP)—Franklin Templeton’s alternative credit specialist—across multiple vintages and a broad array of underlying portfolio companies.

Growing Demand for Private Market Diversification

“We are seeing growing client demand for access to differentiated private market strategies through efficient, scalable structures,” said George Stephan, Global Chief Operating Officer, Wealth Management Private Markets at Franklin Templeton. “This first CFO responds directly to that demand by combining the specialized expertise of our private market managers into an offering that reflects the full scope of capabilities Franklin Templeton can deliver.”

“This transaction demonstrates how structured solutions can bring together distinct private market capabilities to meet the evolving needs of institutional portfolios,” noted Jake Williams, Co-Head, Private Markets Product at Franklin Templeton. “The transaction leverages the breadth of Franklin Templeton’s private markets platform and our ongoing commitment to developing innovative solutions that help clients achieve their objectives.”

The successful closing marks a significant milestone for Franklin Templeton, establishing a new capital-raising channel for its private markets platform and positioning the firm to capitalize on rising demand for structured private market solutions as adoption spreads across a broader range of investors, including registered investment advisors (RIAs), family offices, insurance companies, and wealth distributors.

Franklin Templeton currently manages $295 billion in alternative assets under management (as of July 31, 2026) and offers a diversified private markets platform that includes Lexington Partners (secondaries and co-investments), Clarion Partners (private real estate), Benefit Street Partners (private credit), and Franklin Ventures (hedge strategies and digital asset capabilities).

Crypto Investors Rethink Their Jurisdictional Strategy Amid Global Regulatory Convergence

| By Amaya Uriarte | 0 Comentarios

As regulatory frameworks across the U.S., Europe, Asia, and the Gulf mature and converge in their treatment of digital assets, crypto investors are rethinking not only asset allocation but also their legal domicile. The core question has shifted from which assets to hold to which jurisdiction enables compliant holding, banking, and reporting under increasingly stringent oversight standards. This is the central finding of “Crypto Secure Jurisdictions: Where Crypto Actually Works,” a global report produced by Global Citizen Solutions (GCS), an international firm specializing in residence and citizenship planning.

The report evaluates how 22 jurisdictions integrate digital assets into tax systems, licensing regimes, and banking frameworks as cryptocurrencies transition into regulated financial infrastructure.

“Residency or citizenship determines how digital assets are taxed, reported, and maintained within the banking system,” stated Artur Saraiva, COO of GCS. “As crypto oversight expands, mobility serves as a structural hedge.”

Distinct Market Profiles

The study identifies three core traits common to resilient crypto jurisdictions: regulatory clarity (defined legal status and formal oversight), institutional infrastructure (regulated exchanges, custodians, and banking access), and predictable tax and compliance treatment.

Rather than naming a single “best” destination, the report categorizes countries by function:

Institutional Benchmark Jurisdictions: Switzerland, Singapore, Germany, the UK, and Canada prioritize legal certainty and integration into broader capital markets.

Structuring & Mobility Hubs: Portugal, Malta, Estonia, and the UAE balance regulatory alignment with attractive residency and tax-planning frameworks.

Deep Capital Markets: The U.S. remains the deepest market for digital capital, albeit under a multi-agency regulatory perimeter.

The report asserts that investment-driven migration now acts as a form of jurisdictional optionality, allowing cross-border investors to diversify regulatory exposure and structure operations under stable legal frameworks.

Regional and Emerging Paradigms

In Latin America, Brazil leads adoption while formalizing its framework under the Banco Central do Brasil to strengthen virtual asset service provider (VASP) compliance. El Salvador continues its state-level adoption model anchored by its Digital Assets Law, offering a high-conviction ecosystem distinct from traditional financial centers. Elsewhere, Caribbean nations with Citizenship by Investment programs are embedding digital assets into existing AML/CFT structures to safeguard credibility while accommodating financial innovation.

The Lessons of the South Sea Company Stock Bubble

| By Amaya Uriarte | 0 Comentarios

Wikimedia Commons"The South Sea Bubble, a Scene in 'Change Alley in 1720" by Edward Matthew Ward

The AI craze and the rallies it has generated in stock markets—especially in the United States—have put the debate over valuations back on the table. While some contend that this is a technology so revolutionary that it can handle all investor dreams, others see a promise too overblown to meet the market’s heavy expectations. Although the question of whether there is a bubble in AI-related stocks remains unanswered for now, the history of financial markets contains some relevant examples.

One of these is the so-called South Sea Bubble, which starred a British company that found successive new heights based on the excitement generated by its royal backing and the slave trade. In a matter of months, the stock inflated to unsustainable levels, and when the bubble burst, the scandal reached the doors of the English Parliament.

Founded in 1711 as a public-private partnership aimed at consolidating, controlling, and reducing the national debt and helping the United Kingdom participate in the lucrative slave trade, The South Sea Company sparked the interest of investors of the era.

In 1713, they secured the monopoly for the trade of enslaved Africans in the South Pacific Ocean, among the Spanish colonies in the Americas. The document known as the “asiento de negros,” a monopoly contract signed between the Spanish Crown and merchants from other countries, served as the framework for the business. This was because the Spanish monarchy preferred not to participate directly in the practice, instead subcontracting services from other European powers.

The Fever Begins

Considering how profitable the slave trade had been over the previous two centuries, the expectation was that the operation would be highly lucrative. The enthusiasm was boosted by the idea that foreign trade would normalize following the end of the War of the Spanish Succession in 1713.

This prospect, along with the confidence generated by the royal backing of the company, attracted a variety of English investors. There are even reports that the physicist and mathematician Sir Isaac Newton participated in this financial fad, investing the modern equivalent of millions of pounds sterling.

Initially, the firm offered a 6% interest rate to those who bought the stock, but the excitement around the shares drove them to a peak in 1720. And the stock maintained its strength, even though no slave trade boom materialized after the signing of the Treaty of Utrecht, which ended the war.

The Spanish gave the British a limited portion of the business and even kept part of the profits, placed taxes on the importation of slaves, and put strict restrictions on the fleets of ships they could send. This undermined the profit prospects of the business.

However, the stock price continued to scale, supported by royal backing. In 1718, King George I of Great Britain assumed the governorship of The South Sea Company, which generated further confidence among the investing public, driving prices higher and coming to generate a 100% interest in the shares.

The Beginning of the End

As happens with many bubbles, prices detached from business fundamentals. Considering that the trade of enslaved Africans was not generating the necessary revenue to justify the stock boom, the rally began to falter.

Furthermore, the company was trading more and more of its own shares and was beginning to participate in questionable practices. There are records of people within the company pressuring—or bribing—their friends and acquaintances to buy shares, keeping valuations high, and there were even bribes and other acts of corruption involving British ministers and officials.

In 1720, the year the house of cards fell, the British Parliament allowed The South Sea Company to buy the national debt. The company paid out 7.5 million pounds to acquire a debt of 32 million pounds. The plan was to use the profits from share sales to pay the interest on the debt.

It was at this moment that the stock price reached its peak. The company’s shares went from about 100 pounds sterling in 1719 to 128.5 pounds in January 1720. From that point, widespread market enthusiasm took it over 1,000 pounds in August of that year.

Shortly after, the price collapsed to little more than its IPO price.

The dilemma of the model created by The South Sea Company is that it was a kind of financial carousel, where the expected added value from the slave trade did not materialize. Instead, the company was inflating its stock price with its own market operations against the public debt it acquired.

The Bursting

The turning point was in September 1720, when the shares began to fall. Once doubt set in, investors began to lose faith and sell the stock, causing prices to plummet. The British company’s stock ended up falling back to 124 pounds in a matter of days, accumulating a drop of more than 80% from its highest point.

The end of the bubble brought heavy losses with it and, along with them, outrage among the investing public. Because the collapse happened in the dawn of the English stock market—the creation of The Royal Exchange dates back to 1571, driven by Queen Elizabeth I—there were no explanations available for the level of speculation the bubble generated in the first place.

A significant number of people lost a lot of money, to the point that the suicide rate increased, according to reports of the era, and those affected reached the political sphere demanding explanations. Thus, Parliament launched an investigation that uncovered the company’s bad practices, turning into a financial and political scandal.

In response, lawmakers passed the Bubble Act of 1720, prohibiting the creation of joint-stock companies like The South Sea Company without special permission by royal charter.

Mind you, although the effect was highly publicized, it did not have a major impact on the general economy and did not generate a recession, unlike other famous bubbles in history.

The company, for its part, continued to trade until 1853, undergoing a restructuring in the interim.

Europe Is Enticing Investors Once Again: Five Perspectives Ahead of a New Cycle

| By Amaya Uriarte | 0 Comentarios

Over the past decade, Europe appeared condemned to lower growth, less innovation, and more modest returns. However, this consensus is beginning to reverse. An improving economic cycle, increased spending on infrastructure and defense, a push toward reindustrialization, and the development of new technologies are putting Europe back on investors’ radars. Lazard, Edmond de Rothschild, MFS, Aberdeen, and Neuberger agree that the continent is reaching an inflection point, opening up investment opportunities in both equities and fixed income—though they warn that the potential lies not so much in overall indexes, but in the sectors and companies capable of benefiting from this new cycle.

This shift in perception is not driven solely by better economic performance. Underlying fundamental economic improvements are beginning to back the investment thesis. Benoit Anne, strategist at MFS Investment Management, highlights that Eurozone growth has positively surprised in recent weeks, with leading indicators pointing to a stronger-than-expected recovery. Specifically, he underscores that the Eurozone Citi Economic Surprise Index reached its highest level since early 2023—a sign that the European economy’s resilience is proving greater than anticipated by the market. In his view, this environment reinforces the appeal of both European equities and credit.

This macroeconomic improvement coincides with a structural shift that several asset managers view as a primary investment driver for the coming years. Edmond de Rothschild Asset Management contends that Europe is undergoing a “silent revolution” propelled by increased investment in infrastructure, defense, electrification, and artificial intelligence. Unlike other cycles, they explain, the potential is not limited to a handful of large-cap companies, but spans the entire industrial value chain, with small- and mid-cap companies playing a particularly prominent role.

Reindustrialization Shifts From Narrative to Opportunity

In this regard, Craig Wright, Head of European and Asia-Pacific Real Estate Investment Research at Aberdeen, points to the new global European policy, “Made in Europe.” Designed to raise manufacturing industry output to 20% of GDP by 2035, this initiative is driving a structural transformation that Wright believes will require massive investments in factories, logistics, pharmaceuticals, energy, and semiconductors.

According to the Aberdeen manager, certain figures are striking: reaching the target of industry representing 20% of European GDP by 2035 will require building roughly 20 million square meters of industrial and logistics space every year for a decade. Furthermore, defense spending alone could generate demand for an additional 37 million square meters, over and above e-commerce growth.

Capital Looks Toward European Fixed Income

Benoit Anne of MFS considers Euro high yield to currently be the most attractive asset class in global fixed income from a risk-adjusted carry perspective. Meanwhile, Paul Grainger, Managing Director and Senior Portfolio Manager for Fixed Income at Neuberger, offers a counterpoint: Europe remains more interest-rate sensitive, and growth still displays vulnerabilities. Yet, precisely for these reasons, he believes European fixed income is once again offering compelling opportunities.

“European real yields have also risen as the ECB raised rates and continued to guide or allow the market to price in further hikes; currently, the market is pricing in two additional hikes over the coming year, which would put official rates at 2.75%. The impact of AI spending appears smaller in Europe, but we must still account for positive correlations and links between major developed bond markets,” Grainger explained.

The Major Catalyst: Increased Public Spending

Rising expenditure on infrastructure and defense could become one of the primary drivers of European growth over the coming years, provided the geopolitical landscape does not significantly impair the economy. On this point, Ronald Temple, Chief Market Strategist at Lazard, explained that the war with Iran penalized Eurozone growth forecasts more than those of any other major developed economy this year.

“Even so, I maintain an optimistic outlook and believe the region’s GDP will accelerate heading into 2027, driven by higher infrastructure and defense spending. As long as the war continues, Eurozone inflation will remain exposed to energy price volatility. However, there are few signs of spillover from energy into the broader economy, giving me confidence that inflation will ease by 2027,” Temple emphasized.

Without a doubt, expert consensus presents Europe as a major investment opportunity ahead of the next economic cycle. While international geopolitical ambiguity means conditions could evolve rapidly, experts remain notably optimistic regarding the continent’s outlook.

Insurers’ Interest in Private Credit Continues to Grow

| By Amaya Uriarte | 0 Comentarios

More than half of surveyed insurers plan to increase their exposure to private credit over the next 12 to 24 months, outpacing investment-grade public fixed income, which was cited by 48% of participants. These findings from the 2026 Global Insurance Asset Survey by Mercer (a business of Marsh) confirm that insurer demand for private credit remains robust. Indeed, the 2026 results contrast significantly with the 2024 survey, when 37% and 32% of insurers planned to increase their allocations to fixed income and private credit, respectively.

However, the study reflects that while demand remains strong, insurers are becoming increasingly selective. Within private credit, allocation priorities are focused on direct lending, investment-grade private placements, investment-grade structured credit, asset-backed finance, net asset value (NAV) lending, and fund finance.

“Private credit represents an attractive opportunity for insurers, particularly in the asset-backed space. It allows for the diversification of corporate risk and access to higher yields compared to similarly rated public investment-grade bonds,” says David Morrow, Global Insurance Proposition Leader at Mercer.

The study indicates that appetite for private credit is particularly strong in North America. In the United States, 65% of respondents plan to increase their allocations, a figure that rises to 74% in Canada. In contrast, only half of European insurers plan to increase their exposure, dropping to 46% in the United Kingdom.

Interest is most pronounced among larger insurers: 81% of those managing over $25 billion plan to increase their exposure, compared to 46% of entities with assets below that threshold. By segment, life insurers show a higher propensity to invest in private credit than health and property and casualty (non-life) insurers.

Aligned with Private Credit Risks

Insurers are fully aware of the risks involved in private credit. According to the Mercer study, the primary concerns highlighted are the compression of the illiquidity premium and the narrowing of spreads, reflecting a desire to be adequately compensated for liquidity constraints. Other noted issues include the deterioration of underwriting standards and covenants, as well as an increase in defaults, spread widening, or payment-in-kind (PIK) structures—factors associated with borrower stress or a potential loosening of lending standards as the market matures.

“Capitalizing on the benefits of private credit requires insurers to conduct a rigorous manager selection process, choosing those with proven capabilities in origination, underwriting, portfolio construction, and special situations management to navigate the next phase of the credit cycle,” notes Amit Popat, Global Head of Financial Institutions at Mercer.

Capabilities Gap in Private Markets

The survey reveals a clear gap between insurers’ interest in private markets and their readiness to capitalize on opportunities. Only 30% state they possess “most” of the necessary capabilities to invest with confidence, while 29% acknowledge having only “some” of them.

This lack of resources limits insurers’ ability to allocate capital, achieve sufficient diversification in private markets, and maintain appropriate allocations with ongoing due diligence. Against this backdrop, investment partnerships are growing to secure required expertise in manager evaluation, cash flow modeling, capital treatment, liquidity management, and execution support.

“Even the largest insurers recognize they do not possess all origination capabilities or resources internally, leading them to seek specialized external managers in private credit to fill gaps and enhance risk-adjusted returns,” points out Josh Zwick, partner in the Insurance and Asset Management practice at Oliver Wyman. “Everyone wants to strengthen their capabilities, and that often means bringing in partners to navigate the complexity across the diverse segments of the private credit market,” he adds.

AI Still Plays a Limited Role in Insurer Investing

The capability gap is also mirrored in the adoption of artificial intelligence. More than half of insurers report not using AI in a significant manner. Fewer than a third employ it in data analytics and alternative investment research. The most immediate AI applications within investment teams are data integration, scenario generation, document review, manager monitoring, and risk analysis.

Finally, the study highlights that scale is a decisive factor: 75% of entities managing over $100 billion report significant AI use, compared to barely 10% of those managing under $1 billion.

Retail Investor Shift Reshapes Private Markets

| By Amaya Uriarte | 0 Comentarios

\Private markets are entering a new growth phase, as strong investor demand and expanded access for retail investors reshape how capital is raised, structured, and distributed, according to new research by State Street Corporation.

The fifth annual Private Markets Study from State Street, titled “Resilience Meets Opportunity,” shows that demand in private markets remains exceptionally resilient, even against a backdrop of geopolitical uncertainty, inflationary pressures, and market volatility. Only 7% of firms expect to reduce their allocations, while half plan to increase their exposure, reinforcing the role of private markets as an essential component in long-term portfolio construction.

Retail Participation

At the same time, the sector is undergoing a structural shift toward retail investor participation as firms broaden access through wealth management channels. Specifically, more than 84% of asset and wealth managers already offer or plan to offer private market strategies to retail investors, demonstrating that retail access has moved from a long-term ambition to a core component of industry strategy.

“The private markets story is defined by resilience on one side and reinvention on the other. Demand remains strong, but bringing private markets to a broader investor base at scale is fundamentally reshaping how the industry operates. Success will depend on who can manage complexity and deliver consistent results to a much broader set of clients,” explains Joerg Ambrosius, President of Investment Services at State Street.

According to the firm, while expanding access to retail investors remains the primary opportunity, firms are taking a more measured approach regarding the pace of growth. The report notes that around 43% of organizations now expect retail-oriented vehicles to account for at least half of private market fundraising within the next three years (down from 56% in the previous year’s survey), reflecting a more realistic view of distribution and operational challenges. Demand is driven mainly by diversification and return potential, as well as access to key investment themes.

Capital Allocation Trends

The study also points to a clear shift in where capital is directed. Findings indicate that artificial intelligence and AI infrastructure rank as the top investment theme globally, underscoring the role of private markets in financing long-term structural growth across economies.

“Even in a more uncertain environment, private markets are increasingly where investors access the most important long-term growth trends, serving as a critical source of return and diversification. AI, infrastructure, and other structural opportunities are reinforcing the role of this asset class as a core allocation in portfolios. Firms will need to keep adapting to meet demand from a broader range of investors,” comments Donna Milrod, Chief Product Officer at State Street.

As firms scale their private market strategies toward retail investors, operational complexity emerges as the ultimate hurdle while asset and wealth managers adapt to serve a larger, more diverse client base. In this regard, nearly eight out of ten respondents cite liquidity management as a key challenge, with specific pain points including redemption management, cash forecasting, and liquidity stress testing as firms adjust to more dynamic investor flows. Regulatory compliance, reporting, and investor servicing are also intensifying as firms expand beyond their institutional client bases.

“Democratization is raising the bar for how private markets are structured and supported. Delivering these strategies at scale requires more than product innovation. It demands the operational, data, and infrastructure capabilities needed to deliver transparency, manage liquidity, and meet the expectations of a very different investor base,” clarifies Scott Carpenter, Global Head of Alternatives at State Street.

The Distribution Channel

The study highlights a clear consensus on distribution: wealth management platforms are viewed as the primary channel to access private markets, whereas defined contribution structures remain a secondary route for most firms. According to State Street, this reflects both investor suitability considerations and the role of financial advisors in navigating more complex investment structures.

Furthermore, the survey reveals that institutional investor demand for private markets remains remarkably resilient despite ongoing market and geopolitical uncertainty. “Demand is driven primarily by return expectations and diversification benefits, reinforcing the role of private markets as an essential allocation in long-term portfolio construction,” the report notes.

Taken together, the findings point to an industry entering a more demanding phase where growth, resilience, and innovation must be matched with operational discipline and scalability. Private markets are no longer defined solely by access. Instead, competitive advantage is shifting toward firms that can offer agile liquidity frameworks, transparency, and performance at scale.

Venezuela: On the Verge of a New Era of Return to Capital Markets, Although the Path Is Long

| By Amaya Uriarte | 0 Comentarios

Venezuela is leaving behind, at least partially, one of the greatest financial isolations in Latin American history. The gradual easing of United States sanctions is no longer limited to the oil sector.

Washington and Caracas began opening spaces for financial services, debt advisory, banking operations, and certain transactions linked to PDVSA, creating the conditions for the country to attempt a return to international capital markets.

The move is particularly relevant for fixed-income investors. Venezuela and its state oil company, PDVSA, have accumulated around $60 billion in defaulted bonds, while the total amount of obligations potentially involved in the restructuring could range between $200 billion and up to $240 billion when overdue interest, bilateral loans, corporate claims, and arbitration awards are added.

Calculations by analysts consulted by international agencies indicate that bond claims alone, including past-due interest, could reach about $102 billion.

The regulatory shift began taking a concrete financial shape on May 5, when the U.S. Treasury’s Office of Foreign Assets Control (OFAC) issued General License 58, which allows certain legal, financial, and consulting services related to an eventual restructuring of Venezuelan and PDVSA debt. The license, however, did not yet authorize the payment or settlement of debt nor direct negotiations between Caracas and its creditors.

That nuance is fundamental for markets because Washington did not open the Venezuelan market all at once; rather, it began removing one of the main regulatory obstacles so that a financial resolution could be reached.

Bond Market, First to React

The reaction of Venezuelan bonds shows the extent to which investors were awaiting a normalization of the financial situation in Venezuela after years of isolation.

When the United States authorized certain operations with PDVSA in March, the Venezuelan sovereign bond maturing in 2031 rose to 50.25 cents on the dollar, while the PDVSA 2027 advanced to 35.35 cents, according to LSEG data cited by Reuters.

The movement was not a simple reflection of better oil prospects. The market began discounting the possibility of an orderly restructuring and, above all, that Venezuela could once again generate sufficient income to support some form of recovery for creditors.

By mid-July, the Venezuela 2031 bond reached trading levels around 56 cents on the dollar, although it later pulled back toward the 54–55 cent range. Market records show that the instrument was well above its levels from the beginning of the year.

The signal is clear: the market is assigning a much higher value to debt that for years was virtually a frozen asset.

The next step was Caracas’s decision to formally initiate the restructuring of its external debt and that of PDVSA.

The Venezuelan government announced a process in May that it described as “comprehensive and orderly,” aiming to reduce the burden of accumulated obligations. In parallel, it hired Centerview Partners as financial advisor to lead the process.

The decision was received positively by markets, but it also opened a much more complex debate: what is Venezuela actually worth?

The absence of updated financial information is one of the main obstacles. Reuters noted in July that Venezuela had gone years without publishing complete debt statistics and that the universe of obligations could reach $240 billion, well above previous estimates of between $150 billion and $200 billion.

The problem is not only the size of the debt, but also its composition.

Venezuela owes approximately $25 billion to bilateral creditors; about $8.69 billion corresponds to the Paris Club, and between $13 billion and $15 billion are estimated to be obligations owed to China, according to estimates cited by Reuters.

Added to this are nearly $4 billion owed to multilateral banks such as CAF and the Inter-American Development Bank, along with over $20 billion in arbitral and judicial claims.

The complexity increases due to corporate obligations: Repsol has indicated that Venezuela owes it around 4.55 billion euros, while ENI reported about $3.3 billion in overdue accounts from PDVSA as of the end of 2025.

An Opportunity for Distressed Debt Funds

For the asset management industry, the Venezuelan case could become one of the most interesting distressed debt operations of the decade.

The reason is simple: there is an enormous volume of debt trading at deep discounts, a country with the largest proven oil reserves in the world, and a geopolitical shift that is progressively reducing entry barriers to the financial system.

However, an exceptional set of risks also exists: the true magnitude of the debt, the quality of financial information, legal uncertainty, creditor claims, the status of Citgo, PDVSA’s production capacity, and the possibility that the restructuring process will drag on. In other words, Venezuela is becoming investable again before becoming normal again.

That nuance may be the key for specialized managers. The opportunity lies not necessarily in buying Venezuelan debt as if it were traditional emerging market debt, but in evaluating recovery scenarios, creditor hierarchy, collateral, underlying assets, and the probability of normalization.

Private banking is also watching the return with interest, and the financial reopening is starting to alter the positioning of Venezuelan banking as well.

Private entities such as Banesco and Banco Nacional de Crédito continue operating in the local foreign exchange market and publishing financial information during 2026, while the banking system adapts to an environment of greater foreign currency usage and an eventual normalization of international financial relations.

In this sense, there is evidence that international banking is laying the groundwork: JPMorgan and Jefferies evaluated visits to Caracas amid growing investor interest in the economic recovery and debt restructuring, although both banks declined to comment publicly on their plans.

However, it seems the story still has several chapters left to unfold—at least that is also what some relevant global actors are saying.

The True Return Will Come When the Primary Market Returns

The biggest change for Venezuela will not be that its existing bonds rise in price. It will be that the country can issue new debt again under normal conditions, and it appears that moment is still far off.

The removal of secondary sanctions or the authorization of operations on existing debt can improve liquidity and the pricing of old instruments, but a full return to the primary market requires much more, including factors such as: reliable statistics, audits, a credible macroeconomic framework, a restructuring accepted by creditors, legal recognition of obligations, and a demonstrable capacity to pay.

The resumption of relations with the IMF and the World Bank constitutes another relevant component. Both institutions resumed relations with Caracas in April after several years of interruption, opening the door for technical assistance and eventually the use of approximately $5 billion in Special Drawing Rights (SDRs) that Venezuela holds unutilized.

IMF Managing Director Kristalina Georgieva warned, however, that Venezuela still faces a “very difficult road” to recover macroeconomic and financial stability.

U.S. regulatory development reflects precisely this gradual nature.

OFAC maintains numerous restrictions on Venezuela and its state entities. Even after the new licenses, not all debt, equity, PDVSA asset, or sanctioned entity operations are authorized.

A particularly important example is the PDVSA 2020 bond with an 8.5% coupon, backed by an equity stake in Citgo. OFAC has issued specific licenses for certain operations related to this instrument, showing that Washington is advancing through specific exceptions and permits rather than an immediate, general elimination of the sanctions regime.

That mechanism has a direct consequence for investors: regulatory risk remains priced in.

For this reason, even though Venezuelan bonds have left their lows behind, they cannot yet be treated as conventional emerging market debt.

Oil Is the Key to Capital Markets

Venezuela’s recovery largely depends on its ability to convert its massive oil reserves into cash flow.

Reuters reported in July that oil companies and refiners are resuming direct deals with PDVSA as sanctions ease. Phillips 66, Valero, Reliance Industries, and Tipco Asphalt are among the companies that have resumed or prepared direct purchases of Venezuelan crude, while Chevron, Repsol, and Eni expand operations linked to Venezuela.

Currently, Venezuelan oil production stands at around 1.2 million barrels per day, according to Reuters, with expectations of reaching 1.37 million toward the end of 2026.

For debt markets, that evolution is crucial. Higher production means more external revenue, greater fiscal capacity, and, potentially, a source of resources to sustain a restructuring.

Yet a risk remains: that markets discount an oil recovery too quickly when it actually requires investment, infrastructure, technology, and legal stability.

Stepping Out of the System’s “Shadows”

Venezuela’s own monetary authority has described the shift as an opportunity to return to the international financial system.

Luis Pérez, interim president of the Central Bank of Venezuela, told Reuters in May that restructuring the Republic and PDVSA’s debt would allow the country to be brought “out of the shadows” of the global financial system.

Pérez also maintained that the United States plays a central role in lifting restrictions and highlighted the rapprochement between the Venezuelan central bank and the U.S. Treasury. Washington had previously authorized the Central Bank of Venezuela to conduct certain operations with foreign entities.

The statement is significant because it reflects the shift in perception within Caracas: lifting sanctions is no longer seen solely as a diplomatic or oil matter, but as the necessary condition for rebuilding financial channels that allow for debt refinancing, attracting investment, and eventually returning to the international capital market.

Perhaps the most important shift is that Venezuela is ceasing to be exclusively a geopolitical problem and becoming an investment thesis once again.

The gradual lifting of sanctions has reactivated bond prices, put PDVSA back on the radar of international investors, and set off a race among banks, distressed funds, financial advisors, and creditors to determine how much can be recovered from a debt load that could top $200 billion.

However, the market is also sending a message: the first stage of normalization may yield huge profits for those who bought debt at crisis prices, but the second—rebuilding a functional Venezuelan capital market—will require something far more difficult than an OFAC license. It will require trust, and the price of that trust cannot be measured entirely in monetary terms.

That trust must be built through financial transparency, predictable legal rules, sustainable oil production, and a debt restructuring that creditors consider credible.

For now, Washington has opened the door and investors are already entering the foyer; but Venezuela’s true return to Wall Street still depends on Caracas demonstrating that it can once again become an issuer, not just a distressed asset.

Mabrouk Chetouane (Natixis IM Solutions): “There Is Room for Surprises After Abandoning Forward Guidance”

| By Amaya Uriarte | 0 Comentarios

Photo courtesyMabrouk Chetouane, Global Head of Market Strategy at Natixis IM Solutions.

Mabrouk Chetouane, Global Head of Market Strategy at Natixis IM Solutions, believes that the cyclical decoupling observed during the first half of the year between the United States and the eurozone will likely continue for the remainder of the year. Specifically, the expert expects U.S. GDP growth to hover around its potential rate (2.4%), while eurozone growth will struggle to exceed an annual average of 0.7%.

In his view, the pressure exerted by the exogenous supply shock associated with the Middle East conflict on energy prices continues to weigh on the European economy and business activity. Without a doubt, the big question is what we can expect between now and December. We asked Chetouane about this in our latest interview at Funds Society.

What factors do you think will drive the markets during the second half of the year?

We identify three key factors that will mark the evolution of financial markets in the second half of the year. First, geopolitical factors will continue to cloud the outlook for risk assets. Although investors have largely grown accustomed to an environment characterized by the proliferation of conflicts, any escalation will translate into a new surge in market volatility.

Second, monetary factors will play a decisive role in shaping monetary and financial conditions and, consequently, the performance of equity markets. Finally, corporate earnings growth will be the determining variable in whether stock markets can continue to advance.

How will these factors influence the positioning of investment portfolios?

Logically, a resurgence of hostilities would cause renewed tension in energy markets, bond yields, and currency markets, although it would not necessarily trigger a significant correction in financial markets. Conversely, an easing of tensions in the Middle East—coupled with the absence of new conflict flashpoints globally—would present a favorable scenario for capital markets.

The monetary factor is probably the most unpredictable. Central banks have abandoned forward guidance, leaving greater room for monetary policy surprises. This new environment could increase capital market volatility and significantly raise the cost of capital.

How do you think portfolios should be adjusted for the rest of the year?

We believe that upward pressure on bond yields will persist during the second half. In this context, it is appropriate to reduce portfolio duration by increasing allocations to liquidity or high-yield corporate debt. Although equities—especially the technology sector—will continue to experience episodes of volatility and short-term rallies, we believe stock markets will remain supported by solid corporate earnings growth. Therefore, we maintain an overweight position in equities, particularly in markets driven by growth companies.

What factor do you consider the market is overlooking that, in your opinion, will be relevant?

Generally speaking, the market is aware of the main risks that could impact its functioning. However, at present, it is ignoring the domestic political factor in the United States. The approach of the midterm elections could become a major source of division within American society and ultimately disrupt the behavior of financial markets.

What can we expect from Warsh’s Fed, and what implications will it have for investors?

The arrival of the Federal Reserve’s new leadership marks a clear break from the approach adopted in recent years. By abandoning forward guidance, Kevin Warsh favors a more discretionary strategy regarding monetary policy, which may generate greater uncertainty among investors regarding the institution’s future decisions. The reduced visibility stemming from this new governance model will, de facto, translate into increased uncertainty, which is expected to trigger greater volatility in capital markets and a higher risk premium, particularly in sovereign bonds.

Comprehensive Response and AI: The Survival of Asset Managers Hinges on Repositioning Their Business Model

| By Amaya Uriarte | 0 Comentarios

Global asset managers face growing pressure to transform their business models or risk falling behind in a sector where client expectations are being profoundly redefined. This is the warning from the study “An Expanding Mandate: A Systems Level Framework for Asset Management,” jointly produced by WTW’s Thinking Ahead Institute (TAI) and the CAIA Association. The report argues that traditional approaches, focused exclusively on returns relative to a benchmark index, are losing relevance in an environment increasingly shaped by interconnected risks, structural shifts, and rising client demands.

The research highlights a widening gap between firms adapting to this new reality and those continuing to operate under legacy frameworks. The report calls this new approach “systems-level investing,” a model that recognizes that long-term investment outcomes depend on the health and resilience of the broader economic, social, and environmental systems in which markets operate.

While firms generally acknowledge the importance of major structural themes such as geopolitics, artificial intelligence, or the convergence between public and private markets, the research indicates that many are not yet able to respond to them in an integrated manner—a capability that will be decisive for future success.

In contrast, some large asset owners—including sovereign wealth funds and pension plans—are adopting increasingly integrated approaches, with a greater emphasis on real-world outcomes and long-term resilience, and they expect the same from the asset managers they appoint.

The study also reveals that, despite intense industry rhetoric surrounding artificial intelligence, asset managers are not investing in AI at the pace public perception suggests. Five-year projections show that firms intend to keep human capital investment at the forefront, while technology spending increases only marginally. This finding underscores the need to balance the push for AI with other priorities such as talent, governance, and decision-making.

A Return to the Traditional Model

In this landscape, the portfolio management sector is undergoing strategic repositioning and accelerated consolidation. Although these trends stem from multiple factors, firms slower to evolve their capabilities and business models could find themselves more exposed to these pressures as client expectations continue to shift.

Therefore, the Thinking Ahead Institute and CAIA Association urge leaders in the asset management industry to rethink how success is defined within their organizations, strengthen their ability to make decisions in a more interconnected environment, and develop the talent and cultures necessary to operate effectively in a more complex world.

“Asset management is running out of room to maneuver with traditional approaches. In a world defined by interconnected risks, structural changes, and growing client demand, benchmark-only thinking is no longer enough. Firms need to adopt a more integrated, systemic view to remain relevant,” notes Marisa Hall, Director of the Thinking Ahead Institute.

In the view of Brenda Szymanowski, Investments Director at WTW Spain, many asset managers remain attached to models built for a simpler context. “The reality, uncomfortable as it may be, is that relevance is already being quietly but decisively redistributed by asset owners toward those who have transformed their organizations for this new reality,” she comments.

Finally, for John Bowman, CEO of CAIA, the era of training in technical skills within investment management has definitively given way to lateral and cross-disciplinary thinking. “Geopolitical fragmentation, technological disruption, demographic shifts, and the growing convergence between public and private markets demand a broader view, capable of connecting dots across different disciplines. This report highlights why systems thinking is becoming a strategic necessity for investment organizations seeking to stay relevant, resilient, and aligned with the evolving needs of asset owners,” he maintains.