Foto cedidaJohn Fraser, responsable de Crédito Estructurado Global de Tikehau Capital.. Tikehau Capital nombra a John Fraser socio y presidente de sus estrategias globales de crédito estructurado
Tikehau Capital has announced the appointment of John Fraser as Chairman of its Global Structured Credit strategies, based in New York. In a press release, the firm has highlighted that the designation reinforces its commitment to its CLO business and supports its expansion into the US market.
In this newly created role, Fraser will advise senior Tikehau Capital team members in growing the firm’s existing structured credit businesses including its U.S. and European CLO platforms. He will also help develop and launch new business lines within the structured credit space. His entrepreneurial and institutional experience will support Tikehau Capital Structured Credit and overall company brand building and product marketing including interaction with investors.
Since the creation of its CLO business in 2014, Tikehau Capital has a proven track-record in the structured credit space, in particular through the completion of over 2 billion euros (2.31 billion dollars) in new issuance across five CLOs in Europe and the launch of its first CLO in North America in September 2021.
“We are delighted to welcome John in Tikehau Capital’s teams as we continue to build on the success of our European CLO and Structured Credit strategies in order to expand our offering into the US market. John brings a unique and rare combined entrepreneurial and institutional journey and deep CLO expertise, and we look forward to leveraging his experience as we grow to meet investors’ evolving needs”, said Mathieu Chabran, co-founder of Tikehau Capital.
Fraser brings 30 years of experience in the CLO business. He joins from Investcorp where he was an independent member of its Board of Directors since 2019. Most recently, he was managing director and head of Investcorp’s U.S. credit business, where he was responsible for managing all aspects of U.S. loan-focused credit investments including portfolio management, fund raising, and operations.
From 2012 to 2017, he was managing partner and CIO of 3i Debt Management US LLC. In 2005, he founded Fraser Sullivan Investment Management, LLC, which was subsequently sold to 3i Group. Fraser also previously held management positions with Angelo Gordon, Continental Bank, Merrill Lynch Asset Management and Chase Manhattan Bank North America.
Fraser claimed to be excited to join Tikehau Capital’s team. “The firm’s prospects for growth in the U.S. and global credit markets are impressive, supported by a respected global brand, talented and committed people, an expanding international investor base and its willingness to use balance sheet resources to back new initiatives. I look forward to being part of and adding to the future success of Tikehau Capital”, he added.
Foto cedidaNick Ring, consejero delegado para EMEA de Columbia Threadneedle.. Columbia Threadneedle Investments confirma el cierre de la adquisición del negocio de gestión de activos en EMEA de BMO
Last April, Columbia Threadneedle Investments announced the acquisition of Bank of Montreal’s EMEA asset management business (BMO GAM EMEA). Seven months later, the transaction has now been completed and adds 131 billion dollars to Columbia Threadneedle to bring total assets under management to 714 billion dollars.
In a press release, the asset manager has revealed that the acquisition enables them to build further strength and capability in areas of increasing prominence in the European and global asset management landscape, such as responsible investment. Both firms “combine complementary strengths to create a world class RI capability based on creating value through research intensity, driving real-world change through active ownership, and partnering with clients to deliver innovative solutions”, they say. Together, they manage total assets of 49 billion dollars in RI funds and strategies across asset classes.
Another area that has been reinforced with this transaction is alternatives, since they have established a global business of more than 47 billion dollars, including real estate in the UK, Europe and the US, infrastructure, private equity and hedge fund offerings. Columbia Threadneedle believes that they are now “well set to respond to increasing demand from clients for less liquid, diversifying assets both as standalone strategies and within bespoke solutions”.
Lastly, they have strengthened their capacity of offering investment solutions. Columbia Threadneedle has longstanding relationships with large and complex clients delivering regulatory sensitive portfolios (such as Solvency II and Basel III) for insurance companies and banks as well as customised solutions for sub-advisory partners, while BMO GAM (EMEA) has a top four LDI business in Europe as well as an established fiduciary management business. “Together our Solutions business represents the point of entry of more than 200 billion dollars of client assets, or almost 30% of our expanded AUM”, the asset manager points out.
The acquisition also adds the BMO GAM (EMEA) managed investment trusts and its established multimanager range to Columbia Threadneedle’s offering. Separately, the transaction will result in certain BMO US asset management clients moving to Columbia Threadneedle, at a later date subject to client consent.
“This strategically important acquisition accelerates our growth in the EMEA region and secures our position as a significant global asset manager. Our established strengths in core asset classes and our strong, long-term performance track record are complemented by key strategic capabilities that improve our ability to meet the evolving needs of our clients”, commented Nick Ring, CEO, EMEA, at Columbia Threadneedle.
He also highlighted that their combined team of more than 2,500 people share a client-centric culture, a collaborative and research-based investment approach, and a long-held commitment to responsible investment principles. “Together, we look forward to embracing our role as active investors to drive change, deliver client outcomes and continue to make our own contribution to a sustainable future”, he concluded.
Pixabay CC0 Public Domain. Las 500 mayores gestoras del mundo alcanzan los 119,5 billones de dólares en activos gestionados
Assets under management (AuM) at the world’s 500 largest asset managers have reached a new record of 119.5 trillion dollars, according to a new research from the Thinking Ahead Institute. This represents an increase of 14.5% on the previous year when total AuM was 104.4 trillion dollars.
The chart shows that Blackrock has retained its position as the largest asset manager in the ranking, followed by Vanguard holding its second place position for the seventh consecutive year. Of the top 20, 14 are U.S. managers, accounting for 78.6% of the top 20 AUM.
On the whole, passive investments represent 26%, an increase of 16.2% compared to a 15.4% growth in actively managed AUM. According to the research, passively-managed assets under management among the largest firms grew to a total of 8.3 trillion dollars in 2020, up from 4.8 trillion in 2016.
It also shows that asset managers have been addressing the growing demand from more sophisticated asset owners, for more complex and tailored investment solutions. Outsourced CIO, Total Portfolio Approach (TPA) and ETFs have all been popular sources of growth for the world’s top managers, to meet clients’ increasing requirements for returns.
“We have witnessed unprecedented change within the investment industry – accelerated dramatically by the pandemic. In particular, sustainability is no longer just a luxury for some firms. Instead, during the pandemic, asset managers from all corners of the world have became even more aware of the interconnectedness of the financial system with society and the environment”, commented Roger Urwin, co-founder of the Thinking Ahead Institute.
In his opinion, asset managers have always had the ambition to develop and innovate: “We have seen this particularly with ESG mandates, which increased by 40% in 2020. The biggest contributor to this was the growth in ESG ETFs”.
Main trends
Among other trends, the research also found that half of managers increased the proportion of minorities and women in top positions, over the course of the last year and that client interest in sustainable investing increased across 91% of the firms surveyed. Besides, 78% of managers increased resources deployed to technology and big data and 66% increased resources deployed to cyber security.
The number of product offerings increased for 70% of surveyed firms, and aggregate investment management fee levels decreased for 25% but fee levels increased for 21%. Lastly, a majority of managers (59%) experienced an increase in the level of regulatory oversight.
PUENTE, a wealth management and capital markets firm – with its headquarters in the United Kingdom and presence in the United States and Latin America – announced that Fernando Recalde will be the new CEO of the Group.
To date, Recalde served as Country Manager of Larraín Vial in Argentina and, for the last 20 years, held different roles in structuring, trading and distribution in New York. In his extensive career, his time as Director and President of Merrill Lynch Argentina also stands out.
“I am very excited to join a firm with the recognition and trajectory of PUENTE. The growth project we are considering for the next five years is very challenging, but we have professionals with the experience, knowledge and commitment necessary to achieve it,” said Fernando Recalde.
For his part, Federico Tomasevich, main shareholder, said: “I am very satisfied with the evolution that Puente had in the last 10 years thanks to the team of leaders and professionals of excellence that we have. To date, we manage more than 2.5 billion dollars in assets under administration in Wealth Management, we trade more than 15 billion dollars in Institutional Trading and in the last five years and we have structured financing in the Capital Markets for more than 5 billion dollars in more than 400 transactions.”
Tomasevich had been serving until now as CEO and Chairman of the Board of Directors of Puente Holding UK, he will now focus on the strategic management of the group.
“We have great expansion plans in Latin America and the United States for the next five years. With Fernando’s appointment as CEO of the Group, I will dedicate myself – from the presidency of the Group and together with the rest of the board – to the strategic management of PUENTE,” Tomasevich said.
Foto cedidaJerome Powell, president of the Federal Reserve. Con el tapering de la Fed en marcha, el mercado pone el foco en la inflación y las subidas de tipos
The United States Federal Reserve (Fed) yesterday met the expectations of the market and analysts by announcing that it will begin to reduce its purchases by US$15 billion a month. Officially, tapering begins, but the Fed has not specified or committed to any calendar, keeping its flexibility to adjust the pace of purchases in 2022.
This is an important fact because it allows the Fed an accelerated reduction if inflation turns out to be harder than expected, although the adjustment can occur in any direction. “From now on, the pace of purchases is most likely to slow by $15 billion a month: $10 billion in Treasury bonds and $5 billion in mortgage-backed securities. Most likely because the Fed is open to adjusting those reductions at future meetings if the economic outlook demands it,” clarifies Christian Scherrmann, Economist for the United States for DWS.
In a sense, Jon Day, Manager of Newton, part of BNY Mellon IM, explains that this flexibility will allow the Fed to increase or reduce the rate of the reduction based on the data; that is, how transitory inflation is. “The Fed has taken its first steps on the path of hawkishness, but it is still far behind its counterparts from the north of the border (Bank of Canada), on the other side of the ocean (Bank of England) and the south (Bank of the New Zealand Reserve), so patience remains the key word,” Day points out.
The positive note was that the market naturally welcomed the announcement. In the opinion of Víctor Alvargonzález, Founding Partner and Chief Strategy Officer of Nextep Finance, the market reaction has been logical given how the Fed has prepared this moment. “It began with the launch of probe balloons by Fed members, more than six months ago. Then, at the end of the summer, at Jackson Hole, he announced his intention to reduce his bonus purchases, but kindly and gradually. And he confirmed it at subsequent meetings. Thus, when it has finally announced the closure of the monetary tap, the market had it discounted in prices and has reacted even upwards, due to the tranquility of a predictable monetary policy without surprises,” he explains.
For his part, Carlos del Campo, a member of Diaphanum’s Investment department, considers that the dovish position shown by the monetary institution continues to weigh in the market: “Powell insisted that the high inflation is due to transitory factors and not to a very tight labor market, as Phillips’ curve used to historically suggest. In our opinion, the Fed is behind the curve and does not want to surprise the market, but if the labor market accelerates its improvement and inflation persists at these levels, Powell should accelerate the withdrawal of stimuli if he does not want to lose its credibility,” adds.
The focus on inflation
In the opinion of Paolo Zanghieri, senior economist at Generali Investments, what was a little more surprising was the reiteration of the opinion that the upturn in inflation is largely “expected as transitory” and caused by imbalances in supply and demand related to the reopening of the economy. “This deserved an added paragraph in the press release, as well as the explicit mention of supply bottlenecks and labor shortages as main factors of slow employment growth and volatility of activity data. But the Fed continues to believe that the mitigation of these limitations and advances in vaccination will allow strong employment and activity growth and contribute to moderating inflation,” Zanghieri adds.
For Benjamin Melman, Edmond de Rothschild AM’s Global CIO, the nervousness of inflation is mitigating. According to Melman, the continuous rise in energy prices and prolonged capacity limitations raise doubts about the transitory nature of inflation: “These questions are gaining ground and many central banks, such as the Bank of England, are now reporting a faster-than-expected cycle of rate increases. The Fed and the ECB, which have recently modified their inflation targets, in particular so as not to have to react automatically when inflation temporarily exceeds 2%, do not rush. At the moment, the main indicators show that there is no derangement of long-term inflation expectations of economic agents or investors, which justifies the current assessment of transitional inflation and, therefore, the inertia of the two large central banks.”
From PIMCO, Tiffany Wildin and Allison Boxer, Economists for the United States of the asset management firm, consider that precisely inflation risks put the Fed in an uncomfortable situation. As they explain in their latest analysis, inflation that remains high for a longer period, even if attributed to temporary factors, increases the risk that longer-term inflation expectations will also adjust upwards, something that the Fed wants to avoid. “In fact, it is likely that in the coming months they will test the patience of its members, and we see a significant risk that expectations of Fed rate increases will be further advanced when the Fed’s next economic projections are published in December,” they point out.
It should be remembered that, during the press conference, Powell continued to affirm that inflation is probably transitory, but he also emphasized the willingness and ability of the Fed to act to control inflation if necessary. “Although we are still waiting for US inflation to return to the Fed target by the end of 2022, the additional months of inflation above the target increase the risk that inflation expectations will accelerate beyond the levels consistent with the 2% target, something that the Fed will want to avoid. Consequently, effectively communicating the monetary policy prospects in the coming quarters is likely to be a challenge for the Fed for this and several other reasons,” add PIMCO experts.
In this sense, Axel Botte, Global Strategist of Ostrum AM, an affiliated manager of Natixis Investment Managers, considers that the Fed is risking inflation. As he highlights, the wording of the inflation risk assessment has changed slightly: “The factors that affect prices are expected to be transitory. Therefore, monetary policy makers are less sure that high inflation will not persist. Powell believes that there is still room for improvement on the employment front, although wages have rebounded strongly in the third quarter. In essence, the Fed is taking risks with inflation and the markets recognize that it would have to act even more convincingly if inflation does not slow down.”
According to Brian O’Reilly, Head of Market Strategy at Mediolanum International Funds Ltd (MIFL), the Committee noted that “substantial progress” has been made to reach the mandate of the Federal Reserve, but at the press conference President Powell emphasized that the way will depend on the data. “Following recent economic better than expected data, the fall in unemployment and still high and persistent inflation (above the Fed’s objective), it is not clear why the Federal Reserve continues to use extraordinary measures to support the economy. Now the pressure will increase on Christine Lagarde to justify the ECB’s transitional vision of inflation,” says O’Reilly.
Expectations about rates
In the opinion of Anna Stupnytska, Global Economist at Fidelity International, the focus is now on the question of what this means for official interest rates. “At the Jackson Hole summit in August, Fed President Jerome Powell explicitly recognized two different tests for tapering on the one hand and rate increases on the other, breaking the link between the two. But since inflation has continuously surprised the rise since then, the Fed’s thinking must have changed towards a greater probability of an earlier takeoff, which could begin as soon as quantitative easing ends,” Stupnytska adds.
During his speech, Powell made it clear that “this is not a good time to raise interest rates because we want to give the labor market time to improve even more,” an argument that readjusts expectations about future rate increases. In the opinion of Hernán Cortés, partner of Olea Gestión and co-manager of the Olea Neutral fund, the market begins to discount a possible increase in the intervention rate in June 2022 and another in December 2022. “It is possible that the Fed will take the rate hike slowly, as it did when announcing the tapering in 2013 and delaying the first increase to 2015. Nor should we forget that monetary expansion has been historically exceptional, with the Fed increasing the balance sheet by four trillion dollars in the last two years, while between 2008 and 2018 it increased it by three trillion, from one trillion to four trillion,” Cortés clarifies.
Finally, according to Scherrmann, although the decision to start the exit from his very accommodative monetary policy is the main news, market participants are already looking at the implicit substantive orientation after the Fed’s announcement. “The most likely trajectory of inflation and the Fed’s assessment in this regard may be the real question of the moment. Looking at the updated statement, the Fed clings to the narrative that the current high inflation largely reflects factors that are expected to be transitory,” he explains.
Foto cedidaGolin Graham, director de Estrategias Multiactivos y co-director de Soluciones Multiactivos Sostenibles de Robeco.. Robeco nombra a Colin Graham nuevo director de Estrategias Multiactivos y co-director de Soluciones Multiactivos Sostenibles
Robeco has announced the strategic expansion of its Sustainable Multi Asset Solutions capability with the appointment of Colin Graham as Head of Multi Asset Strategies and Co-Head of Sustainable Multi Asset Solutions. In this newly created role, he will be “essential to the growth” of the team, said the firm in a press release.
Graham brings a 25-year track record of investment performance, team leadership and innovation in Global, European and Asian multi asset solutions. Most recently he was Chief Investment Officer, Multi Asset Solutions at Eastspring Investments (part of Prudential plc). Prior to this, he was Chief Investment Officer, Multi Asset Solutions for BNP Paribas Asset Management in London, and Managing Director, Co-Head of Global Multi Asset Strategies at Blackrock.
Robeco highlighted that the appointment further bolsters the Sustainable Multi Asset Solutions team, which is expanding to 15 dedicated investment professionals. The team provides wholesale and institutional clients with bespoke outcome-oriented solutions to achieve their financial and sustainability goals, both in an asset-only and asset-liability matching context. It currently manages approximately 15 billion euros (17.37 billion dollars) in assets globally, including multi asset funds, discretionary multi asset solutions, and bespoke liability and cash flow driven fixed income solutions.
“We’re very pleased to welcome a seasoned investment professional like Colin to our team. His extensive international experience and proven track record will undoubtedly bring our Sustainable Multi Asset team to the next level. I am confident that with the expansion of the team and Colin joining, we can continue to provide our clients with sustainable investment solutions that meet their objectives”, commented Remmert Koekkoek, Head of Sustainable Multi Asset Solutions.
Lastly, Graham claimed to be “delighted” to join Robeco, as it’s a company that he has admired for their long-standing and genuine commitment to sustainability and future-oriented solutions. “Clients are increasingly looking beyond traditional risk and return metrics; they want their capital to be sustainably deployed and to have a positive and measurable impact on the environment and wider society. We have a compelling offering and I’m delighted to be joining Robeco to contribute to its growth”, he concluded.
A new agreement signed by HMC Itajubá –HMC Capital’s Brazilian branch– will grant Latin American investors access to boutique CRUX Asset Management’s specialized strategies.
According to a press release, the agreement with the London-based firm will allow HMC Itajubá to distribute their strategies, that have strong investing capabilities in Asia, Europe, and the UK.
CRUX is an active equity investment manager with 1.7 billion pounds in AUM (over 2.3 billion dollars). Established in 2014, the firm’s three core equity teams focus on Europe, the UK and Asia, with a bottom-up, high-conviction stock selection approach.
According to their press release, HMC will distribute CRUX’s strategies, including two of their outstanding funds: the CRUX Asia ex-Japan Fund, which was launched in October 2021, and the CRUX China Fund. Both vehicles are managed by Ewan Markson-Brown, who joined the London-based manager in September 2021 and has spent over 20 years managing emerging markets and Asia portfolios.
This distribution agreement strengthens HMC Itajubá’s goal of representing leading fund managers, offering specialized investment opportunities to its clients in Chile and Brazil.
“CRUX Asset Management is one of the top boutique asset managers. We look forward to working with them and are proud to represent and help expand the firm’s presence in Latin America and to offering our clients access to top fund managers with a long and consistent track record of positive alpha” said Nicolás Fonseca, Head of Institutional Sales in HMC.
“We are pleased to partner with HMC Itajubá and to have the opportunity to expand our international distribution to new potential clients”, said CRUX’s CEO, Karen Zachary. “Investors may find additional diversification and yield benefits in our UK, European and Asian equity offerings which could help to position portfolios for the mid and late cycle environments”, she added.
HMC Capital has offices in Chile, Perú, Colombia, México, Brazil and the United States, and has 15 billion dollars in assets under management and distribution from institutional, multilateral & private investors.
Pixabay CC0 Public Domain. T. Rowe Price Group compra Oak Hill Advisors POR 4.200 millones de dólares
T. Rowe Price Group has reached a definitive agreement to purchase alternative credit manager Oak Hill Advisors, L.P. (OHA). With 53 billion dollars of capital under management, OHA will become its private markets platform, accelerating its expansion into alternative investments and complementing its global strategies and distribution capabilities.
In a press release, T. Rowe Price has revealed that it will acquire 100% of the equity of OHA and certain other entities that have common ownership for a purchase price of up to approximately 4.2 billion dollars. This will consist of 3.3 billion payable at closing, approximately 74% in cash and 26% in T. Rowe Price common stock, and up to an additional 900 million in cash upon the achievement of certain business milestones beginning in 2025.
The firm has pointed out that alternative credit strategies continue to be in demand from institutional and retail investors across the globe “seeking attractive yields and risk-adjusted returns”. Across its private, distressed, special situations, liquid, structured credit, and real asset strategies and more than 300 employees in its global offices, OHA has generated attractive risk-adjusted returns over its more than 30-year history. Its performance, global institutional client base, and the positive industry backdrop have positioned it to raise 19.4 billion dollars of capital since January 2020.
T. Rowe Price believes that scale is increasingly important as a competitive advantage in sourcing financing opportunities and driving differentiated returns across alternative credit markets. Its full range of equity, fixed income, and multi-asset solutions, along with its global footprint, is anticipated to facilitate these benefits of scale, offering greater opportunities for investors, borrowers, and financial sponsors. Given the limited overlap in investment strategies and client bases, the two firms expect to leverage complementary distribution opportunities. In addition, they plan to codevelop new products and strategies for T. Rowe Price’s wealth and retail channels, including its broker-dealer, bank, RIA, and platform businesses.
T. Rowe Price has also agreed to commit 500 million dollars for co-investment and seed capital alongside OHA management and investors. Over time, both firms intend to explore opportunities to expand into other alternative asset categories.
A combination of expertise and scale
“While we are committed to our long-term strategy to grow our business organically, we have also taken a deliberate and thoughtful approach to considering adding new capabilities through acquisitions that advance our business strategy. OHA meets the high bar we have set for inorganic opportunities, and their proven private credit expertise will help us meet our clients’ demand for alternative credit”, stated Bill Stromberg, chair of T. Rowe Price’s Board of Directors and chief executive officer.
Rob Sharps, president, head of Investments, and group chief investment officer, added that both firms share organizational cultures that focus on long-term investment excellence and delivering value for clients and that are grounded in collaboration, trust, and integrity. “As we bring together complementary capabilities and distribution, we can capitalize on growth opportunities for new product development that add value for our clients and stockholders. We share a vision with OHA’s seasoned management team to build a broader business in private markets by combining their specialty in alternative credit with our global scale”, he added.
Meanwhile, Glenn August, founder and chief executive officer of OHA, stated that joining with T. Rowe Price will better position them to meet the evolving investment needs of clients, as well as the financing needs of companies and financial sponsors, while maintaining their record of measured and thoughtful growth. “T. Rowe Price and OHA share a consistent approach, focusing on investment excellence, integrity, collaborative culture, and client partnership, that will help us build a stronger combined organization. I am grateful for the hard work and commitment of our team members and looking forward to the opportunities ahead”, he concluded.
While seeking to leverage the combined strengths of the two businesses, OHA will operate as a standalone business within T. Rowe Price; have autonomy over its investment process; and maintain its team, culture, and investment approach. August will continue in his current role and is expected to join T. Rowe Price’s Board of Directors and Management Committee following closing. Alongside August, all members of OHA’s partner management team will sign long-term agreements and continue to lead the business in their current roles.
The transaction has been unanimously approved by the T. Rowe Price Board of Directors and the partners of OHA and is expected to close late in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including the receipt of regulatory clearances and approvals and client consents.
Pixabay CC0 Public Domain. Las tres transformaciones que nos lanzarán a un nuevo contexto de mercado divergente donde ser activos será clave para lograr alfa
Joachim Fels, Managing Director at PIMCO, believes that investors and policymakers will likely face a radically different macro environment over the next five years as the New Normal decade of subpar-but-stable growth, below-target inflation, subdued volatility, and juicy asset returns fades into the rearview mirror. In this context, active investors capable of navigating a difficult environment are best positioned for opportunities.
“What lies ahead is a more uncertain and uneven growth and inflation environment in which overall capital market returns are likely to be lower and more volatile”, he explained during the presentation of the latest Secular Outlook, “Age of Transformation”. In this report, PIMCO discusses ongoing disruptors as well as trends will drive a major transformation of the global economy and markets.
Both Fels and Andrew Balls, CIO Global Fixed Income, pointed out that this transformation should yield good alpha opportunities for active investors capable of navigating the difficult terrain. The asset manager already highlighted in 2020 that the COVID-19 pandemic would serve as a catalyst for accelerating and amplifying four important secular disruptors: the China–U.S. rivalry, populism, technology, and climate change. “Developments over the past year have reinforced those expectations”, they say.
Three trends: green, technology and equality
In the firm’s view, these four disruptors, along with the three secular trends, will have important implications for economic and investment outcomes in the Age of Transformation. The first one is the transition from brown to green. “Efforts to achieve net zero carbon emissions by 2050 mean that both private and public investment in renewable energy will be boosted for years to come. Of course, higher spending on clean energy is likely to be partly, but not fully, offset by lower investment and capital destruction in brown energy sectors such as coal and oil”, commented Fels.
In his opinion, during the transition there is a potential for supply disruptions and sharp rises in energy prices that sap growth and boost inflation. Moreover, as the process creates winners and losers, there is a potential for political backlash in response to job losses in brown industries, higher carbon taxes and prices, or carbon border adjustment mechanisms that make imports more expensive.
The second transformation is the faster adoption of new technologies: “Data so far show a significant rise in corporate spending on technology. Similar increases in investment in the past, e.g., during the 1990s in the U.S., have been accompanied by an acceleration in productivity growth. Yet it remains to be seen whether the recent surge in tech investment and productivity growth is a one-off or the beginning of a stronger trend”.
In this sense, Fels believes that digitalization and automation will create new jobs and make existing jobs more productive. But it will also be disruptive for those whose jobs will disappear and who may lack the right skills to find employment elsewhere. As with globalization, he highlighted that the dark side of digitalization and automation will likely be rising inequality and more support for populist policies.
The third trend has to do with the heightened focus by policymakers and society at large on addressing widening income and wealth inequality and making growth more inclusive: “For example, anecdotal evidence suggests that in many companies, the balance of power in the employer-employee relationship has started to shift from the former to the latter, thus improving workers’ bargaining power. It remains to be seen whether this trend continues or whether work from home with the help of technology eventually allows companies to outsource more jobs to cheaper domestic and global locations, thus preserving or even increasing employers’ bargaining power”.
Investment conclusions
PIMCO believes that the “Age of Transformation” will present more difficult terrain for investors than the experience of the New Normal over the past decade; but that it will also provide good alpha opportunities for active investors who are equipped to take advantage of what they expect to be a period of higher volatility and “fatter tails” than the common bell curve distribution.
“Higher macroeconomic and market volatility is very likely to mean lower returns across fixed income and equity markets. Starting valuations – low real and nominal yields in fixed income markets and historically high equity multiples – reinforce the expectation”, highlighted Balls.
In their baseline, they expect low central bank rates to prevail and anchor global fixed income markets. “Although we see upside risks to interest rates over the short term as economies continue to recover, over the secular horizon we expect rates to remain relatively range-bound. We expect lower but positive returns for core bond allocations”, he added.
Lastly, while a sustained period of high inflation is not their baseline outlook, they continue to think that U.S. Treasury Inflation-Protected Securities (TIPS), as well as commodities and other real assets, “make sense as hedges against inflation risks”.
Pixabay CC0 Public DomainAdolfo Felix. Adolfo Felix
In recent years, environmental or “green” investing has attracted investor interest. However, quantifying the impact of a portfolio’s investments on the environment remains a persistent challenge. One solution to this problem is the Planetary Boundaries framework developed by a team of eminent scientists at the Stockholm Resilience Center (SRC). In a recent talk moderated by Matthew Miskin, Co-Chief Investment Strategist at John Hancock Investment Management, Dr. Sarah Cornell, Associate Professor at the SRC, explained what the key components of this framework are and how it can help investors better understand the environmental cost of economic activity. Meanwhile, Dr. Steve Freedman, Sustainability and Research Manager on Thematic equities at Pictet Asset Management, and Gabriel Micheli, Senior Investment Manager, explored effective ways to use sustainable and impact investing strategies as a tool to enhance returns.
According to Freedman, the best way to avoid falling into the greenwashing trap is to really understand environmental science and ensure that the best thinking within this science is reflected in how an investment portfolio is constructed and managed. Because there are still many shades of gray within sustainable, responsible and impact investing, and there is no consensus on whether all investing that the sustainable label has deserves to be called that.
Prior to the launch of the Global Environmental Opportunities strategy in 2014 in Europe, Pictet Asset Management conducted a huge debate to assess the available frameworks for sustainable investing with an in-depth analysis of their robustness and integrity. When choosing a framework, it was also necessary that it could be applied in practice, so the fund manager opted for the Planetary Boundaries framework developed by the SRC.
Environmental damage
In Sarah Cornell’s view, there is a need to understand the resilience of all social-ecological systems, at all scales, from the household to the whole planet, and to propose ways to navigate the complex processes of change that the planet is undergoing.
The global environment is changing. Climate change and biodiversity loss are in the news almost daily. Even without going into the scientific details, people have come to realize that, year after year, global warming is intensifying with a pattern of degradation, damage, and destruction of life on Earth, caused directly and indirectly through collective human activity.
The list of environmental damages is extensive, but damage to climate and biodiversity stand out because in a sense these two aspects are what define this planet. In a warmer and more turbulent climate the operating environment for businesses will be much less predictable in the future than it has been in the past. It is living nature that sets the Earth apart from other planets; the loss of that nature makes the world less resilient to climate change and other potential climate-related changes that affect large-scale use of land, water and natural resources such as forests.
At large scales, these changes lead to multiple stresses and vulnerabilities on the Earth’s ecosystems. Regenerative and productive landscapes are needed because there are increasing calls to move away from fossil fuels and these landscapes are needed to buffer the impact on society of resource scarcity and problems of inefficiencies in their distribution.
Humans collectively are changing the chemistry of life, even at its most basic level, such as the nutrients that support growth: nitrogen and phosphorus are changing, more than doubling their natural rate of fixation. These global changes in the fundamental biochemistry of life are not being translated into environmental agendas, nor are they being considered as global problems in the nutrients that sustain life.
A particular concern at this time is the transition from a fossil fuel economy to a bio-based economy. Because this is creating an urgent need to understand the role of society in these perhaps quite archaic global flows of nitrogen and phosphorus and other essential elements to and the wonderful human ingenuity and illogical capacity also introduces problems, in particular, new chemicals, substances of very high concern, we might call them, this kind of pollution creates planetary pressures as well.
The Planetary Boundaries framework
Developed a decade ago, the Planetary Boundaries framework covers nine dimensions that point to the set of critical issues for environmental sustainability. Originally, it was a scientific agenda for strategic work on issues such as climate, biodiversity, natural resource use, waste and pollution. Between 2008 and 2009, a group of experts in international global climate change research programs met to try to develop a strategy for international research and collaboration, but the true genesis is the collective effort of more than 50 years of international collaborative science.
The scientific community brings together observations such as satellite data, global modeling and, in addition, a careful compilation of ecological changes within the framework of geological changes in Earth’s history. This information along with data models and other sources of evidence have given the scientific community the current understanding of the dynamics and magnitude of global environmental change.
Each of the nine dimensions of the framework alerts to one of the global biophysical processes and how societal changes are shifting the fundamental behavior of the planet away from the relatively stable climatic and ecological conditions that have prevailed over the past 10,000 years.
The Planetary Boundaries framework takes a very long-term, large-scale view of the human enterprise. For each dimension, the magnitude of change away from the long-term baseline of stability is characterized by a quantified boundary that marks the safe operating space, in which civilization, large-scale settlement, long-distance trade, agriculture, and everything else that has happened in the last 10,000 years takes place. Now, this long-term, large-scale approach really means that the metrics of the frame of reference are those that define the control variables of the Earth system, global quantifications, rather than the more familiar local quantifications of damage to the environment or human health.
For Sarah Cornell, it is important to take a macro perspective because it provides a precautionary approach. From the stability of the Holocene, the world is entering a new geological era with very unpredictable conditions, which more and more scientists are calling the Anthropocene, because of human influence on a global scale on the functioning of the planet. In the last decade, part of the warnings outlined within the framework have been taken up by government authorities, especially in Europe, to some extent by the United Nations and through the Sustainable Development Goals have been adopted by companies and industrial groups.
Companies and in particular funding sources are increasingly in the spotlight of global sustainability action. Both the Paris Agreement for climate change and the 2030 agenda for global sustainability explicitly emphasize that market actors must work together with states and citizens if the goals set for sustainability are to be achieved. Translating scientific metrics into business-relevant metrics requires significant simplifications and sharply defined assumptions.
Companies need a transparent basis for decision making. This is a really important issue when it comes to quantification, because a number without its history, without a qualification in a complex system such as the social and ecological systems of a planet, introduces risks when the prospect is unprecedented and highly unpredictable change. That is why there needs to be more and more dialogue between science, business sustainability and investment prospects that mobilize energy and innovation.
Their application in the investment process
For his part, Gabriel Micheli defended the role played by Pictet Asset Management in managing investments according to the Planetary Boundaries framework. Within this framework, the asset manager set up a relatively complex system in which each company was assigned a score on each of the nine planetary boundaries to see if the company operates within the boundaries of the safe operating space and if it actually has a positive impact on those boundaries.
Pictet Asset Management created specific metrics that analyzed the life cycle of a product or service, from the sourcing of raw materials to the use of the product and the waste generated once it is discarded, with a perspective that evaluates from the origin to the end of the life of a product or service that allows us to know its true impact.
With this process, the asset management company has identified a universe of 400 companies that are within a safe operating space and that also have a positive contribution in at least one of the aspects of the reference framework: for example, renewable energies, companies in the energy efficiency sector, production of electric vehicles, implementation of industrial automation processes.
On the other hand, there is also sustainable agriculture and forestry. Regenerative agriculture is quite polluting in the biodiversity dimension, while forestry is being used to create carbon-storing products with renewable material. Likewise, waste management and recycling, as well as water supply control, which use technologies that will create very relevant business opportunities.
Another segment to consider is the dematerialized economy. It is mostly composed of software companies that help make everything more efficient through simulations that can be applied in the construction process of a building or in the production process of a reactor or an automobile. These are very interesting companies with high barriers to entry and very good cash flows.
Pictet Asset Management also looks at pollution control at the end of the production chain. Filters and machinery are still needed to measure pollution, so they see a lot of business opportunities in this sector.
The common characteristic of these segments is that they are experiencing higher growth than the rest of the world economy. In the last decade and especially in the last two or three years, there is a greater awareness among the population that has caused a change in consumer preferences and has pushed for changes in regulation, as examples China, the United States and Europe have driven investment in green technologies.
As Gabriel Micheli explained, the COVID-19 crisis has accelerated this trend. Governments felt the need to stimulate the economy and about a third of the stimulus will be dedicated to boosting renewable energies, electric vehicles and more sustainable buildings. Currently, the universe created using the Planetary Boundary framework clearly outperforms the bulk of the market at 5% per year over time and they expect this growth to continue over time.
In their view, the beauty of the Planetary Boundary benchmark is that it includes some relevant and well-known companies, but also includes companies that have a positive impact on the environment in other segments of the economy that often go unrecognized by market participants. These companies are well positioned to continue to outperform the market.
