The Fed’s Structure Under Review: What Are the Implications for Investment?

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President Trump’s Pressure to Cut Interest Rates in 2025 Has Dominated Headlines. However, in My View, There Are Several Reasons to Anticipate a Significant Shift in the Structure, Responsibilities, and Processes of the Federal Reserve Next Year. These changes could affect the central bank’s independence and its ability to set effective monetary and supervisory policy, ultimately influencing the value of the dollar, long-term bond term premiums, and the multiples at which equities trade.

Personnel Policy

Moderation in the Fed’s interest rate decisions will only be viewed positively if data supports it; otherwise, the dollar could depreciate and long-end yields could rise, as the market would price in higher inflation and less confidence in monetary policy. In other words, government pressure to cut rates in the short term may come at a cost if the Fed deviates from its usual playbook.

That playbook, moreover, only works if those implementing it are equally effective. A change in the Fed chair was already expected in May 2026, but now, with the president’s attempt to remove Lisa Cook, a member of the Board of Governors, it is likely that most of the seven members will be Trump appointees: a possible replacement for Cook, in addition to Michelle Bowman, Christopher Waller, and the newly added Stephen Miran. The governors are part of the 12-member FOMC (Federal Open Market Committee — responsible for setting interest rates), along with the president of the Federal Reserve Bank of New York and four other rotating regional Fed presidents who serve one-year terms. Although there are 12 regional presidents, only the New York Fed president holds a permanent seat on the FOMC.

The composition of the Board in 2026 will matter for three key reasons:

  1. The terms of the 12 regional presidents expire on the last day of February 2026, and the Board will decide who fills those posts for the next five years. It is plausible that a Board aligned with Trump could block the reappointment of a more hawkish regional president, or at minimum, influence the thinking of those seeking reappointment.

  2. The Board, not the FOMC, is responsible for banking regulation, although this responsibility could change, as explained below. Therefore, Trump’s ideas about deregulation could gain traction in a newly configured Board.

  3. The Board has the final say over the discount rate, the rate at which financial institutions can borrow directly from a Federal Reserve Bank; this rate acts as the ceiling for the federal funds rate.

Potential Interference in Fed Tools

As appointments unfold in the coming months, several areas should be monitored where the Fed’s authorities and tools could change:

Interest on Excess Reserves: One area of bipartisan agreement is the desire for the Fed to stop paying interest on excess reserves that banks are required to hold. Could we see a tiering of these payments starting next year, as scrutiny of the Fed increases? This would bring the Fed closer to the practices of other central banks and eliminate controversy around payments to commercial banks — including foreign ones — instead of to the Treasury.

Quantitative Tightening (QT): QT may conclude in 2026 when reserves reach a level that begins to affect market liquidity. So far, the Fed has reduced its balance sheet through QT, initially by trimming repo operations and more recently the Treasury General Account, without affecting bank reserves. It is worth recalling that earlier this year, the Fed significantly slowed its reduction of Treasury securities to prolong the process and ease the impact on liquidity. An independent Fed would likely consider equating the Treasury General Account with Treasury bill holdings and may be interested in shortening the duration of its fixed-income portfolio over time. But this is another area where personnel changes could be decisive, with implications for the composition and size of the Fed’s balance sheet.

Supervisory Powers: Treasury Secretary Scott Bessent recently highlighted the need to reduce the Fed’s role as the “chief regulator of U.S. finance,” a role he believes has yielded disappointing results since it was expanded under the Dodd-Frank Act. Specifically, Bessent has advocated transferring banking supervision to the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

Implications for the Dollar, Fixed Income, and Equity Markets

Any change in the Fed’s powers and policies can have wide-ranging consequences, particularly in the following areas:

U.S. Dollar Liquidity: Currency swap lines — agreements in which the Fed exchanges dollars for foreign currencies with other central banks — are gaining importance globally. While the Fed has been a reliable source of dollar liquidity during times of global stress, the upcoming appointment of a new chair has raised concerns among other central banks about a potential shift. The Trump administration argues that such liquidity is a favor to allies, not an obligation. In response, proposals have emerged to allow central banks with large dollar reserves to lend to each other instead of relying on the Fed. If this materializes, in a crisis, those banks might liquidate their dollar reserves — invested in U.S. Treasury securities — destabilizing the debt market and forcing the Fed to act as buyer of last resort or to cap repo rates.

Yield Suppression: Bessent and other administration members have repeatedly emphasized the need for Treasury and the Fed to “row in the same direction” to redirect the economy. The implicit message is that it may be necessary to lower yields at some point to boost domestic production and reduce reliance on China — a strategy that would require continued fiscal spending and higher federal debt. Fiscal discipline can only come from the bond market and an independent Fed that bases its policies on the economy, not the Treasury’s needs. But if the Fed’s independence is constrained by those promoting more spending, bond markets may demand higher term premiums. Over time, in the event of a recession, a compliant Fed would likely be called upon to step in and cap interest rates to reduce the cost of public debt.

Higher term premiums could also weigh on equity valuation multiples, by increasing uncertainty around the institutional framework of U.S. monetary and fiscal policy. The possible outcome: Fixed income and equity market participants could react negatively to any signs of a diminished Fed ability to fight inflation. Greater inflation volatility is typically negative for long-term asset returns.

Beyond Interest Rates: A Question of Institutional Control and Long-Term Efficiency

If the administration increases its influence over the Fed, scrutiny over resource allocation, research agendas, and staffing decisions at the central bank is likely to rise. Criticism over staff size and daily operations could also lead to higher turnover at the institution. Additionally, efforts to audit the Fed may resurface, reinforcing demands for accountability. If realized, all these factors could significantly impact the Fed’s decision-making process and its ability to act independently and swiftly in times of crisis.

While markets tend to focus on short-term interest rate decisions, a broader issue is at play related to the regulation, supervision, and operation — the architecture — of central banks, with much wider implications, which I will continue to monitor closely in the coming months.

Opinion Column by Juhi Dhawan, Macro Strategist at Wellington Management

Thornburg Partners With Capital Strategies Partners to Expand Its Distribution in Italy and the Middle East

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Thornburg Investment Management has announced a new strategic partnership with Capital Strategies Partners to serve institutional and wholesale investors in Italy and the Middle East. Through this collaboration, Thornburg IM will expand its international presence and offer investors in both regions access to its range of UCITS funds, including its flagship strategies: Equity Income Builder Fund, Global Opportunities Fund, and Strategic Income Fund.

“The partnership with Capital Strategies Partners represents an important milestone in our ongoing international expansion. Italy and the Middle East are important and growing markets for Thornburg IM, and we believe that Capital Strategies’ deep local knowledge, established relationships, and proven expertise make them the ideal partner to connect investors with Thornburg’s differentiated investment solutions,” said Jonathan Schuman, Head of International at Thornburg IM.

In this regard, Thornburg IM continues to strengthen its distribution network across Europe, Asia, and Latin America. The addition of Capital Strategies also reinforces the firm’s commitment to providing exemplary service to its clients. This agreement broadens Thornburg IM’s global reach and reflects the firm’s mission to deliver independent, research-driven, and disciplined investment solutions that help investors achieve their long-term financial goals.

“We are excited to partner with Thornburg IM. Their track record in managing high-conviction global equity and multi-sector credit strategies complements the evolving needs of institutional and professional investors in our regions. We look forward to bringing Thornburg’s expertise to our clients in Italy and the Middle East,” added Daniel Rubio, Founder and CEO of Capital Strategies.

According to Riccardo Milan, Head of Italy at Capital Strategies, the country continues to show strong demand for research-based global strategies. “Thornburg IM’s disciplined investment approach and ability to combine performance with risk management will be highly relevant for institutional and wholesale clients in Italy,” he noted.

Finally, Paolo Svetlich, Head of Sales at local Middle Eastern partner FMP Capital, added: “The Middle East is experiencing growing interest in high-quality international strategies. By partnering with Thornburg, we can offer our professional clients differentiated solutions aligned with their long-term objectives.”

“The Obesity Market Could Exceed $150 Billion in Size”

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While technology stocks continue to attract investor interest, there is one sector that continues to deliver positive returns yet remains overlooked: healthcare. “It’s a sector that has been out of favor for several years now, and this situation became even more pronounced over the past twelve months,” explains Dan Lyons, co-manager of the Global Life Sciences strategy at Janus Henderson. Lyons notes that the sector is currently trading at its lowest level in the past 25 years.

Funds Society sat down with Lyons in October 2024 to discuss the team’s outlook at the time, when the U.S. presidential election was still a month away. Since last November, the manager acknowledges that concerns around regulation and drug pricing have weighed on a “substantial portion” of the sector. On top of that, tariff announcements have added another layer of complexity for these companies, many of which operate multinational businesses. All of this has led to outflows from the sector, putting pressure on valuations. “We could call it a perfect storm of negativity for our sector,” concludes Lyons.

Throughout the conversation, the manager repeatedly emphasizes that the core of their investment process lies in identifying the most innovative companies in the health segment and then determining whether they are trading at attractive valuations. Within the sector, biotech firms are generally the innovation leaders: “Two-thirds of the industry’s pipeline comes from biotech. Last year, over 80% of new launches came from the biotech industry,” Lyons illustrates, explaining why the Global Life Sciences strategy typically has a structural overweight in this segment. The manager anticipates further innovation in 2026, citing medical advances in early treatment of Alzheimer’s disease, cardiovascular conditions, and new therapies for pancreatic cancer.

It is worth noting, however, that due to the inherently riskier nature of their business, biotech companies also tend to suffer the most in uncertain markets. This has happened again: the sector plunged 50% between November 2025 and April 2024, although it has since rebounded sharply. “It has been a challenging environment for our portfolios,” the manager admits. Still, he prefers to see the glass as half full, interpreting the sector’s recovery as a sign that the market may be starting to believe “the regulatory environment might not be that bad after all.”

How Has the Portfolio Rotated in 2025?

It’s been a year of two halves. In the first half, we rotated toward companies in earlier commercial stages and, to some extent, scaled back our enthusiasm for early-stage development firms that weren’t being properly rewarded for taking on risk.

As we enter the second half of the year, we’re seeing that the market is more willing to take on risk. The context of interest rates has also helped, with the first rate cuts. As a result, we are now slowly increasing our exposure again to early-stage development companies. We’re also excited about companies in the late-stage development phase with solid access to capital. These are firms developing new drugs for rare diseases, such as Avidity or Dyne.

Last Year You Were Very Bullish on Obesity Treatments. Do You Still Hold That View?

We remain very bullish on the potential size of this market opportunity. We believe the obesity market could exceed $150 billion. There is more than enough room to capture even a 10% market share.

We’ve seen leadership, particularly from companies like Eli Lilly, consolidate even further. The next-generation product it launched last year, ZepFound, is capturing three-quarters of new patients—it has become the preferred choice for people starting obesity treatment. And we believe the market could open up even more now that they’re able to launch the drug both in the U.S. and globally, making it more accessible.

Last year, Eli Lilly also reported positive phase 3 data for an oral drug using the same mechanism, called Orfoglipron. So during 2026, we’ll see the launch of an oral option, which will help expand access and somewhat democratize the market, as it won’t require cold chain storage.

We are playing this theme both through large companies like Eli Lilly and smaller biotechs, such as Medcera, which we hold in the portfolio. They were in early-stage development of a similar drug to Eli Lilly’s, and they were acquired by Pfizer, which will now lead the remaining trials.

Innovation Is the Compass of Your Research Process. Where Is It Pointing in 2025?

It’s truly been a year of tremendous breakthroughs. In this uncertain environment, we’ve focused heavily on companies that have recently received drug approvals and have successfully delivered those treatments to patients despite the regulatory noise. Many of these companies are seeing spectacular new drug launches. One example is Madrigal, which launched a drug called Rosdifra (also known as MASH) for fatty liver disease. It’s the first of its kind, and it’s on track to become a blockbuster, since many patients in the U.S. suffer from this condition, which is a major cause of liver transplants. If this disease can be treated early and transplants avoided, it results in huge savings for the healthcare system and better outcomes for patients.

Another example is Verona (VRNA), a UK-based biotech that developed a new type of medication for COPD, a nebulized therapy that’s gaining strong market traction. It’s a new area meeting an unmet need. The company was just acquired by Merck for over $10 billion. In the case of Verona and Madrigal, we’re talking about market opportunities between $5 billion and $10 billion.

Another emerging market is autoimmune diseases, where companies like Argenx are active. It already has a drug with $4 billion revenue potential. But this is on a different scale—it’s like the NVIDIA of the healthcare sector.

So, Do You Anticipate More M&A in the Healthcare Market?

Yes, because big pharma needs additional revenue and is looking to biotech companies to get it. Firms like Pfizer or Bristol-Myers are losing patent exclusivity and seeing sales fall. They need to bring in these new products. Across the industry, we estimate they have around $1 trillion in spending power, which allows them to engage in many deals to build their product pipelines.

We are already seeing this reflected in our portfolios, with more big pharmaceutical companies becoming comfortable with the regulatory and pricing environment, as they are starting to deploy capital. We’ve seen over five of the companies in our portfolio involved in M&A activity in the second half of the year.

What Impact Could the Big Beautiful Bill Have on the Pharmaceutical Sector?

We’ve come from several years of expanding healthcare coverage, with more people gaining access to healthcare services. This law has started a period of contraction, reducing access to some of those services. There’s a lot of work to be done in Congress to avoid that, because it’s extremely unpopular to remove a benefit people already enjoy. But in percentage terms, the contraction is relatively small, and I believe it’s very manageable.

The law also includes some positive aspects that have helped the sector. For example, for companies developing orphan drugs for rare diseases: under the previous IRA law, these producers faced the risk of future price caps, and the current legislation has corrected that.

You Have Kept Some Underperforming Companies in the Portfolio. Why?

When we hold companies going through challenges, as we have with United Healthcare, we always assess whether the valuation still looks attractive and whether the original compelling element of their business model remains. We also evaluate if they can return to more normalized margins. In United Healthcare’s case, we believe the return of the former management team can fix the situation, which is why we not only held the position but slightly increased it.

We’ve had similar experiences with another portfolio name—a company developing a vaccine for a market estimated at $7 billion that we believe will become the market leader. But due to controversy around vaccines and the anti-vaccine stance of Robert F. Kennedy, the company’s valuation is heavily depressed. We’ve held onto our investment because we don’t believe that market is going away.

Asia-Pacific: The Largest UCITS-Holding Region After Europe

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Asia Pacific largest UCITS holder
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Within the European fund industry, the acronym UCITS enjoys great popularity and trust—but what about beyond Europe’s borders? The reality is that, according to aggregated data from the ECB, it is estimated that out of the €21.5 trillion held in UCITS and AIFs domiciled in the EU, €9.7 trillion corresponded to domestic funds. This means that €11.8 trillion are in the hands of investors outside the EU member states.

According to the latest report published by the European Fund and Asset Management Association (Efama) and prepared with exclusive data from Broadridge’s Global Market Intelligence (GMI) to analyze international UCITS distribution trends, thanks to the European passport regime, those €11.8 trillion are divided into two segments. On one hand, there are funds domiciled in EU countries and held by investors located in another member state, which reached €6.1 trillion at the end of 2024. On the other hand, there are those funds domiciled in the EU and held by investors located outside the EU, which reached €5.7 trillion.

“Over the past decade, the net assets of cross-border funds have grown considerably faster than those of domestic funds. While the assets of domestic funds increased by 83%, the assets of cross-border funds held in another EU country grew by 145%, and cross-border funds held outside the EU grew by 133%. Interestingly, in the past two years, the growth rate of cross-border funds outside the EU has outpaced that of intra-European cross-border funds, underscoring their increasing relevance on a global scale,” the report reveals.

According to the report, one of the main drivers behind this growth has been the increase in net sales. As the figures show, cross-border funds—especially those marketed outside the EU—have consistently attracted greater investment flows compared to domestic funds and cross-border funds within the EU.

Asia-Pacific: Largest Holder

One of the conclusions presented in the report is that, as of the end of June 2025, the Asia-Pacific region accounted for 8.7% of cross-border UCITS holdings. Specifically, net UCITS assets in the region grew by 18% during 2024, although they declined slightly in the first half of 2025 (-4%).

“Over the past five years, cumulative asset growth has been 22%. This relatively moderate long-term growth reflects the impact of the sharp decline recorded in 2022, after which net assets took two years to fully recover. Net sales have generally been positive in recent years, with 2022 as the only exception,” the report explains.

Specifically, Hong Kong, Singapore, Japan, and Taiwan are the main Asian markets for cross-border UCITS. According to the report, following widespread redemptions in 2022, Singapore and Taiwan drove the regional recovery in 2023, recording net inflows of €9 billion and €4 billion, respectively.

In 2024, total net inflows into Asia-Pacific rose significantly to €34 billion, supported by continued strong demand in Singapore (€12 billion) and Taiwan (€6 billion), as well as a notable recovery in Hong Kong, where investors contributed €11 billion in new net investments. During the first six months of 2025, this positive momentum continued, with significant net inflows into Singapore and Hong Kong totaling €7 billion.

Geographic Overview

Looking at other regions, it is notable that the countries of South America and Central America accounted for approximately 3.3% of cross-border UCITS holdings at the end of the first half of 2025. According to the report’s data, as of the end of June 2025, Latin American investors held €246 billion in cross-border UCITS, excluding ETFs, and net assets fell by approximately 8.5% in the first half of 2025, after growing by 15% the previous year and 24% over the past five years.

“Total holdings remain below their 2021 peak. Net sales have been relatively weak in recent years, with two consecutive years of net outflows in 2022 and 2023. The market returned to positive territory in 2024, with net inflows of €4 billion, but so far in 2025, it has once again recorded net redemptions of €5 billion,” the document states.

Regarding the Middle East and Africa (MEA), the countries in this region accounted for approximately 1.2% of cross-border UCITS holdings at the end of June 2025. In the case of North America, the United States and Canada account for only 0.2% of cross-border UCITS holdings. “All of these are concentrated in Canada, since, although the United States is the largest fund market in the world—with total net assets exceeding €40 trillion in 2024—regulatory barriers effectively prevent the distribution of non-U.S. funds in that country,” the report explains.

It also highlights that U.S. fund managers widely use UCITS to market funds to investors outside the U.S., given that funds domiciled in that country cannot easily be marketed to international investors for tax and regulatory reasons. According to the report, it is also important to note that U.S. investors residing outside the U.S. do invest in UCITS, mainly through wealth managers in Latin America, offshore jurisdictions, or international regions.

Lastly, the offshore region represents 0.8% of European cross-border UCITS and includes several Caribbean countries and the Channel Islands, commonly defined as offshore financial centers, such as Bermuda, Curaçao, Guernsey, and Jersey. There is also an “unassigned international” region, as referred to in the report, which represents approximately 17.6% of cross-border UCITS assets that cannot be linked to a specific end-investor location.

Capital Strategies Partners Reaches a Distribution Agreement with ARK Invest

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Capital Strategies Partners has signed an agreement to distribute the investment products of ARK Investment Management (ARK Invest or ARK) in Spain, Portugal, Chile, Colombia, Peru, and Brazil.

The asset manager highlights that ARK Invest, founded in 2014 by Cathie Wood, “has established itself as one of the most globally recognized asset managers, thanks to its exclusive focus on disruptive innovation.” Its strategies, centered on artificial intelligence, robotics, biotechnology, blockchain, and next-generation energy, position it as a reference for investors seeking exposure to the drivers of technological and economic change.

“We are very pleased to welcome ARK to our group of represented managers. Cathie Wood and her team bring a distinctive vision, aligned with our mission to offer investors innovative, high-quality solutions,” said Daniel Rubio, founder and CEO of Capital Strategies Partners, following the announcement.

For her part, Cathie Wood, founder, CEO, and Chief Investment Officer of ARK Invest, commented: “At ARK, our mission has always been to democratize access to the most relevant investment opportunities of our time, driven by disruptive innovation. We already work with investors in Europe and Latin America, and this collaboration with Capital Strategies strengthens our ability to expand that mission in Spain, Portugal, and other key markets in the region. This agreement allows us to empower more investors to participate in the technological transformations that are redefining the world, and to position their portfolios with a long-term growth vision.”

According to Stuart Forbes, Global Head of Distribution at ARK Invest, this agreement with Capital Strategies builds on their established presence in Europe and enables them to strengthen their reach in Latin America, especially in Chile, Peru, Brazil, and Colombia. “Thanks to their local expertise and trusted relationships, we can bring our research-based strategies to new investors and expand access to the disruptive technologies that will define the economy of the future,” he noted.

U.S. and China: Staged Performance or Possible Trade Escalation?

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In this last quarter of the year, geopolitical developments appear to have shifted the focus away from tensions surrounding the U.S. administration’s tariff policy. However, since last week, we have witnessed a resurgence of tensions between China and the United States, occurring just ahead of the scheduled meeting between Trump and Xi at the APEC summit later this month.

What happened? “On Thursday, October 9, China’s Ministry of Commerce announced the expansion of restrictions on rare earth exports, extending the limitations to foreign exporters and technologies related to rare earth elements. The following day, the Trump administration responded swiftly by imposing a 100% tariff on all Chinese products, in addition to those already in place,” summarizes Elizabeth Kwik, Director of Asian Equity Investments at Aberdeen Investments.

As clarified by Nannette Hechler-Fayd’herbe, Head of Investment Strategy, Sustainability and Research, CIO EMEA at Lombard Odier, since a meeting in Geneva in May 2025, the United States and China had been consistently postponing the implementation of tariffs and import restrictions that had been mutually threatened. According to the expert, with just a few weeks remaining until the formal end—on November 10—of the negotiated truce, the diplomatic tone has shifted, and the stakes are now higher.

“In the short term, Chinese restrictions complicate U.S. efforts to stockpile rare earth elements—metallic components essential for everything from electric vehicle motor magnets to smartphones, medical imaging, and missiles. In response, President Trump threatened to impose 100% tariffs on Chinese imports, as well as new export controls on critical chips and software aimed at curbing China’s technological advances starting November 1, and suggested he might cancel a planned meeting with President Xi Jinping. More recent comments from both sides have been more conciliatory, but escalation remains possible, and we expect a volatile few weeks ahead,” adds Hechler-Fayd’herbe.

In her view, this escalation in trade relations should not be underestimated, although it could be interpreted as a prelude to negotiations ahead of a series of deadlines. “Our expectation is that the United States and China will reach a compromise, given their level of economic interdependence; however, the risks of further escalation persist, so we are closely monitoring every development,” she notes.

Impact for Investors
Following last week’s events, Christian Gattiker, Head of Research at Julius Baer, believes that what was supposed to be a refreshing pause for the markets felt more like an “ice bucket challenge” by the close of last Friday’s session.

In his assessment, the impact was uncomfortable but ultimately healthy. “As in previous instances, we expect an eventual resumption of dialogue and some symbolic concession thereafter. From an investment perspective, we advise staying calm. The political calendar, inflation dynamics, and sentiment constraints argue against a prolonged tariff campaign. Volatility at this stage should be seen as part of the normalization process, not the beginning of a new bearish phase. The ‘cold shower’ could ultimately prove to be the healthiest outcome of all,” states Gattiker.

In this context, investors have shown concern and, as a result, Chinese stocks and Asian markets in general have suffered. “Although part of this may be short-term noise and profit-taking after the recent rally, the retaliatory measures may be more about posturing ahead of the summit. There is a possibility that both sides will ultimately find common ground to limit the impact on the markets and, in particular, Trump has previously calmed tensions when U.S. stocks and bonds began to suffer the consequences of such escalations. Moreover, on Sunday, he struck a more conciliatory tone. We will continue to closely monitor the situation,” acknowledges the Director of Asian Equity Investments at Aberdeen Investments.

Masterclass on CLOs: Everything You Need to Know Before Investing in This Asset

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Registro cripto bajo MiCA en la CNMV
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CLOs Have Become the Third Most Liquid Fixed Income Market in the U.S., Behind Only Treasuries and Agency MBS. This was stated by John Kerschner, Global Head of Securitized Products and Portfolio Manager at Janus Henderson, during the Madrid Investment Summit held by the firm in September.

However, Kerschner acknowledged that this asset still offers a certain complexity premium, as not all investors are equally informed about how it works. The firm has been making ongoing efforts to educate its clients—even if that means this premium disappears—because they believe the investment opportunity in CLOs is more alive than ever. Thus, Kerschner—who manages the world’s largest actively managed CLO ETF (JAAA)—used his appearance at the event to give a class on the structuring, functioning, and characteristics of these investment instruments.

Demystifying Asset Securitization


His presentation began by addressing the very concept of securitization, with the manager noting that “it’s a big word that for some is complicated and, for others, even scary—but it doesn’t have to be.”

“Securitization is, and always has been, about gathering a pool of loans, bundling them, establishing a framework for them, and then taking the cash flow from those loans and splitting it into different levels of risk and return. That’s it. Nothing more, nothing less,” he explained simply. This applies to an auto loan, a mortgage, real estate credit, or a corporate loan—though the process has evolved over time.

Kerschner recalled that the loan market was born in the 1980s as a solution for companies that were too small or illiquid to access financing through high-yield debt. Initially, these companies turned to banks for loans, although under very strict conditions. Later, Wall Street saw an opportunity in this market, and several players started what we now know as the leveraged loan market. “The problem is that leveraged loans are fairly risky, even today, with an average rating of B,” the manager pointed out.

Continuing his explanation, Kerschner noted that “even with all the institutional investors available, the leveraged loan market began to run out of investors.” At that point, the idea emerged to use securitization technology—already present in ABS, mortgages, or real estate markets—and apply it to corporate loans. “That’s the magic of CLOs: you take something that’s relatively risky, somewhat liquid and volatile, and create other assets that are much safer, more liquid, less volatile, and with better ratings,” he summarized.

Key Facts About CLOs


The expert shared several important data points to better understand the size and behavior of this asset class. For starters, he estimates that auto ABS represent a $200 billion market and have not experienced any defaults since the late 1980s—“not even in the AAA segment.” He clarified that while some loans did default, “the securitization was structured to handle it,” which is why CLOs have not seen a single default in 40 years. Furthermore, Kerschner added, “since the Global Financial Crisis (GFC), no investment-grade CLO has ever defaulted.” “The safety works, and securitization works most of the time—especially in CLOs,” he concluded.

He pointed out that U.S. GDP amounts to $30 trillion and the EU’s to $20 trillion, while the U.S. securitization market is valued at $5 trillion—that is, about 17% of GDP “excluding agency mortgages.” In Europe, securitizations amount to just $660 billion. In short, the U.S. market is five times larger than the European one, and according to Kerschner, this distinction matters because “loans that are not securitized sit on the balance sheets of European banks; that’s why European banks are not as dynamic as U.S. banks.”

Overall, based on the expert’s data, the global CLO market is valued at $1.7 trillion, while the European market stands at about $400 billion. “Obviously, it’s not as large as the U.S. market, but proportionally it’s fairly close,” he concluded.

What Makes CLOs Special?


The remainder of Kerschner’s masterclass focused on the four main characteristics attributed to CLOs: return, safety, liquidity, and diversification.

On the first point, the expert noted that an asset combining higher yield with lower volatility clearly points to a better Sharpe ratio; CLO returns exceed those of corporate credit, with lower volatility. While acknowledging that CLO yields are floating, “even if you hedged that component, they would still show lower volatility,” he explained.

Regarding safety, Kerschner stressed that no AAA CLO has defaulted since the GFC, thanks to tightened rating agency criteria.

On liquidity, the portfolio manager highlighted the firm’s experience trading CLOs during the extreme market conditions of March 2020 at the onset of the pandemic. “This experience—especially with AAA CLOs—gave us the confidence to launch JAAA in October 2020.” Today, this ETF can trade “hundreds of millions in market value in a single day, with a one-cent bid-ask spread,” and has reached a record volume of $1.2 billion in a single session. During the significant volatility seen on April’s Liberation Day, the ETF dropped between 1% and 2%, leading the manager to note that this vehicle “has more volatility than cash, but only during dislocations.” “CLOs are much more liquid than people think,” the expert concluded.

Finally, on diversification, Kerschner stated that “CLOs are quite similar to corporate credit but offer much better diversification than leveraged loans and high yield.” He believes this is especially relevant for investors in fixed income products based on Aggregate-type indexes, where CLOs are not represented due to their floating-rate nature. “Many people are underexposed to this asset class simply because it’s not in the indexes,” the manager concluded.

Outlook for Latin America: Electoral Processes, the Dollar, Trade Tensions, and Inflation

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According to the latest report by Solunion, a credit insurance company offering services related to commercial risk management, the region is experiencing a combination of consumption dependence, low investment, and the challenge of balancing external competitiveness with internal purchasing power, all within a context of persistent inflation, political tensions, and increased exposure to trade and security risks.

Among its findings, the report notes that Latin America’s growth in recent years has been driven by the boom in commodities, increased agricultural volumes, and strong domestic consumption—factors that led to upward revisions in economic forecasts between 2022 and 2024. However, this expansion period appears to be giving way in 2025 to a phase of stalled growth.

Key Findings


“Systemic uncertainty—stemming from trade tensions, geopolitical conflicts, and financial volatility—is combining with the appreciation of regional currencies against the dollar. This movement, while improving internal purchasing power, reduces export competitiveness and encourages an increase in imports, displacing local production,” notes Luca Moneta, Senior Economist for Emerging Markets & Country Risk at Allianz Trade, one of Solunion‘s shareholders.

According to the report, in some cases, this effect has been amplified by the acceleration of trade operations to avoid tariffs, adding volatility to trade flows. For 2025, stagnant growth is expected in many economies, as well as additional risks in 2026 for key markets like Mexico and Brazil, where factors such as slowing consumption, declining remittances, and falling commodity prices could negatively impact economic activity.

“This is a scenario in which Argentina gains prominence and partially offsets the lower contribution of these two economies to regional growth,” the report adds.

According to the report, inflation remains one of the region’s main challenges, with persistent pressures in several markets despite restrictive monetary policies. In various countries, benchmark interest rates appear to have reached their peak and, based on central bank communications, could begin to decline. The average real interest rate in the region remains approximately two percentage points above that of the United States, which has contributed to the strength of local currencies.

“If interest rates were to fall prematurely and the Fed did not resume an expansionary cycle, local currencies could weaken and inflation could rise. In more dollarized economies such as Mexico and Chile, the additional boost to growth would be almost entirely offset by this price effect,” the report explains.

A Tightly Packed Electoral Calendar

A key point in the report is that the 2025–2026 electoral cycle in Latin America is unfolding in a context of growing polarization and a lack of clear majorities—a widespread phenomenon that adds uncertainty to the economic outlook.

“Insecurity is another factor impacting investment, especially in consumer-oriented sectors. Added to this is a rise in international litigation, including cases initiated between countries and investors within the region itself, with particular impact on strategic sectors such as mining and energy resources,” it states.

How Do These Factors Impact Each Economy?

From a country-by-country perspective, the report highlights that Mexico has weathered U.S. protectionism better than expected; however, consumer confidence declined following the U.S. elections. The strength of the peso has enabled some degree of monetary easing, although the upcoming 2026 review of the USMCA (T-MEC) represents a significant challenge for trade relations and investor sentiment.

In the case of Brazil, the country is experiencing modest but steady growth, driven by resilient domestic consumption and higher-than-anticipated public spending. Nonetheless, the economy faces headwinds in the form of a credit slowdown and persistent investment difficulties, which could limit the sustainability of its current growth trajectory.

For its part, Argentina is beginning to emerge from recession thanks to economic stabilization measures, although inflation is expected to remain high (24% by the end of 2025).

In Chile, consumption is rebounding due to the revaluation of copper and macroeconomic stability, but investment is constrained by the volatility of the peso.

Colombia maintains growth driven by consumption (77% of GDP), but suffers from low fixed investment, elevated fiscal risk, and political uncertainty.

Lastly, Peru maintains macroeconomic stability, with inflation below 2% and low unemployment, although domestic consumption remains weak and mining output is declining.

Ecuador, meanwhile, is showing signs of recovery, with cocoa emerging as a new key sector in primary production.

Toward More Balanced Growth

The report’s main conclusion is that growth in the region is ongoing, but overly reliant on consumption and lacking sufficient investment—with the exception of countries like Peru.

“The main challenges are high interest rates, external factors limiting room for maneuver, and a politically and socially uncertain environment. The key to sustaining the recovery will be to diversify production and improve investment conditions, thereby reducing exposure to internal and external risks that could hinder momentum,” the report argues.

Five Countries That Are Redefining the Digital Asset Landscape

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As Cryptocurrency Markets Rebound in 2025—Driven by Price Surges and the Growth of Financial Products Like Spot Bitcoin ETFs in the United States—the True Transformation Is Taking Place in a Less Visible Arena: The Geopolitical One. According to WisdomTree, Beyond Charts and Headlines, a Global Race for Digital Asset Dominance Is Taking Shape.

“Nigeria, the United States, the United Arab Emirates, Brazil, and South Korea are positioning themselves as strategic hubs for the future of cryptocurrencies. They’re not just adopting these assets—they’re operationalizing them,” says Dovile Silenskyte, Director of Digital Asset Research at WisdomTree. According to the expert, Nigeria has become “ground zero” for cryptocurrencies as a financial lifeline.

“In Lagos, Nigeria’s economic capital, cryptocurrency use is not a speculative trend but a vital financial tool. Nigeria tops global adoption rankings, driven by a combination of a digitally active youth, persistent inflation, and ineffective banking systems. Peer-to-peer use of stablecoins (especially USDT on Tron) is booming. Moreover, despite past hostility from the Central Bank, users have developed parallel pathways. The central bank’s digital currency (CBDC) pilot project, the eNaira, has failed—reaffirming the strong popular preference for decentralized alternatives,” comments Silenskyte.

U.S. and United Arab Emirates: Regulation and Testing

In the case of the United States, it remains the epicenter of global crypto financing, with unmatched institutional strength. “U.S. regulation continues to be a complex landscape, but institutional capital has begun to shape the ecosystem. The 2024 approval of spot bitcoin ETFs triggered an inflow of more than $40 billion in assets under management,” she recalls.

In this regard, major asset managers are building integrated crypto infrastructures: from tokenized treasuries to stablecoin-based solutions. “Another noteworthy development is that the state of New Hampshire made history by allowing public investments in large-cap cryptocurrencies,” the expert adds.

As for the United Arab Emirates, she notes that they have established themselves as a global-scale regulatory laboratory for digital assets. She believes Dubai is not waiting for the West to lead the way. With the Virtual Assets Regulatory Authority (VARA) at the helm, the UAE has established a clear and business-friendly licensing regime, attracting major platforms like Binance, OKX, and Bybit.

Additionally, blockchain technology is being integrated into trade finance and the real estate sector through national digital economy initiatives.

Brazil and South Korea: Two Regional Leaders

“The case of Brazil shows that the combination of technological innovation and progressive regulation leads to real adoption. The country is moving beyond being just a Latin American benchmark to becoming a central node in the regional crypto economy. PIX, the central bank’s instant payment system, integrates seamlessly with stablecoin flows; exchanges such as Mercado Bitcoin are scaling under a clear regime with tax incentives; and the digital Brazilian real (DREX) and tokenized public debt instruments are under development,” she explains.

Finally, she highlights that the South Korean crypto scene combines one of the world’s strongest retail appetites with strict regulatory oversight. It represents a mature, liquid, and increasingly regulated ecosystem that is key to the crypto map of Asia. “Local exchanges report volumes comparable to the stock market. Additionally, authorities enforce strict rules on verified identity trading, taxation, and licensing, and the country is also advancing regulatory frameworks for security tokens and DeFi,” she concludes.

Principal Partners With Barings to Strengthen Its Private Credit Platform

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Principal Financial Group has announced a strategic partnership with Barings to expand Principal’s portfolio through an allocation of up to $1 billion in high-quality customized private investments. According to the statement, the investments will be made through a separately managed account and a co-investment structure. The co-investment structure will be managed by Principal AM, Principal’s dedicated in-house asset manager, which oversees approximately 95% of Principal’s general account portfolio.

“This announcement is part of our broader approach to private markets at Principal: building selective partnerships that complement our internal expertise in credit analysis and portfolio management, within differentiated structures and assets,” said Kamal Bhatia, President and CEO of Principal Asset Management.

The partnership will focus on high-quality customized private investments, with Barings serving as the originating manager of the assets. This strengthens Principal’s commitment to enhancing the company’s general account through diversified and scalable private credit strategies, offering strong risk-adjusted returns aligned with its liabilities. Partnering with Barings Portfolio Finance, a specialized direct originator with deep experience and capability, and combining it with the strong credit analysis and portfolio management expertise of Principal Asset Management, creates a beneficial structure for the company.

“We continue to look for ways to evolve and diversify our private credit portfolio in ways that add value. This partnership deepens our presence in the private markets ecosystem, aligning our strong insurance entity and internal asset management platform with the strengths of an experienced external manager,” added Ken McCullum, Executive Vice President and Chief Risk Officer of Principal Financial Group.

For his part, Dadong Yan, Head of Barings Portfolio Finance, commented: “We are excited to partner with Principal and bring the direct investment origination platform of Barings Portfolio Finance to benefit Principal’s policyholders and shareholders. In a shifting market environment, Barings Portfolio Finance is uniquely positioned to understand the evolving needs of insurers.”

The partnership with Barings allows Principal to access a differentiated segment of the private credit market, complementing the internal capabilities of Principal Asset Management in real estate, direct middle-market lending, private corporate credit, and infrastructure credit.