Central Banks Facing a Dilemma

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Pixabay CC0 Public Domain. Los bancos centrales se enfrentan a un dilema

Inflation at a level not seen for a long time makes it possible: the topic monetary policy tightening has moved onto the agenda again. In the US, the Fed has begun reducing securities purchases – so-called “tapering”. And in some emerging markets, as well as in Norway, New Zealand and South Korea, key interest rates have already been raised. The European Central Bank (ECB), on the other hand, is being coy and hesitant. However, the markets do not really believe that the ECB will stand still for a longer period of time.

Will monetary policy gradually become more “normal” again – in the sense of balanced, with interest rate reactions upwards as well as downwards? Or is it more likely that, after tentative attempts at tightening, the first signs of displeasure from shareholders and stakeholders will lead central bank to reverse the monetary-policy course again?

Unfortunately, the latter is to be feared. The reason is the foreseeable costs and braking effects of higher interest rates. On the one hand, monetary tightening and the associated rise in real interest rates entail the risk of an unintentionally severe economic slowdown. On the other hand, this could have a massive impact on the financial markets: There, the long-standing central bank actions have seriously interfered with pricing mechanisms, overriding them in large parts of the bond market and leading to misallocations and overheating tendencies via the portfolio channel. Withdrawal of the drug “cheap money” therefore threatens turbulence. And last but not least: Global debt, which is getting out of hand, would no longer be financeable “for free”; fiscal woes would dominate.

Not so long ago, central bankers would probably have said “so what?” in view of such risks and acted within their focused mandate to maintain price stability. In the meantime, however, the regime has changed. Sustained action is therefore less likely: monetary watchdogs are unlikely to be prepared to face these consequences.

In an exchange of traditional behavioural patterns, the principle of reverse authoritativeness has now become established for the relationship between monetary policy and financial markets. Central banks are increasingly responding to the signals and needs of the capital markets rather than the other way round. The result is an asymmetrical policy: rapid and significant interest rate cuts, but only very hesitant and small interest rate increases, if at all.

How could it have come to this? The seeds for this development were sown with the worldwide deregulation and liberalisation of financial markets in the 1980s and 1990s. There is scientific evidence that this led to the birth and subsequent decoupling of the financial-market cycle from the business cycle. What is more, it is now clear that the former even dominates and lives about twice as long as the latter. Moreover, history teaches us that deep recessions and sustained deflationary scenarios result – if at all – from the bursting of asset bubbles.

If one wants to pinpoint the starting point of the change of heart to a specific date, the Fed’s reaction to the 1987 stock market crash can be considered a fall from grace. That was the first time that the central bank explicitly responded to falling stock prices. Wall Street later created a new term for this: the “Greenspan Put”. However, financial dominance really took off after the great financial crisis of 2008. Since then, the reaction pattern has been perfected. In this context, the ECB adopted the PFFC regime: “preserve favourable financing conditions”. And since the middle of this year the euro central bank has been regularly publishing a Survey of Monetary Analysts (SMA), in which it asks market participants for detailed information on when they expect the ECB to take which action. This feeds the suspicion of who is a cook and who is a waiter these days!

Against this backdrop and with a view to the question posed at the outset as to whether monetary policy will return to “normal”, the central banks thus find themselves in a dilemma. At present, no real departure from the aggressively relaxed approach that has been in place for years is to be expected. And this despite the formation of bubbles and sentiment-related exaggerations in sub-markets. Just think of the almost 70% weighting of US equities in the global index, real estate markets, cryptos, SPACs (Special Purpose Acquisition Companies) or meme phenomena.

For investors, this has three implications: First, more than ever, diversification is of utmost importance for any forward-looking investment strategy. Secondly, the same applies to agile active portfolio management, which includes a dynamic risk strategy. Both requirements may seem old-fashioned to investors, but they remain imperative. Thirdly and finally, income strategies are advisable in view of the low interest-rate environment that is likely to persist for a long time to come. In equities, these can be implemented by focusing on dividends, for example.

Ultimately, this triad is certainly primarily a reminder of traditional, conservative investment principles. However, monetary policy is currently upside down – keywords: financial dominance and the fight for rather than against inflation. Not to mention the Modern Monetary Theory (MMT). Its ultimate consequence would be the loss of central banks’ institutional independence, which would be deeply regrettable. In view of this threatening backdrop, the aforementioned reconsideration seems very suitable for at least putting one’s own capital investment on a solid footing.

Column by Ingo Mainert, CIO Multi Asset Europe at Allianz Global Investors

Dynasty Financial Partners Files for IPO

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Dynasty Financial Partners has filed for a public offering to raise up to $100 million, according to the document disclosed to the SEC. The firm is offering shares of Class A common stock, but it hasn’t been priced yet.

“We intend to use a portion of the net proceeds of this offering to purchase common units of Dynasty Financial Partners, LLC from existing Dynasty Financial Partners, LLC unitholders, at a per-unit price equal to the per-share price paid by the underwriters for shares of the Class A common stock in this offering”, reads the IPO document filed with the SEC.

The RIA services platform also intends to use any remaining net proceeds to facilitate the growth of its existing business, to make strategic acquisitions of businesses that are complementary “and for other general corporate purposes”

Dynasty highlighted that its revenues increased from $32.7 million in the nine months ended September 30, 2020 to $49.2 million in the nine months ended September 30, 2021, representing an increase of 50%. “Our net income was $10.6 million and $2.9 million in the nine months ended September 30, 2021 and 2020, respectively, an increase of 266%”, the document reveals.

As of September 30, 2021, the Dynasty network includes 46 Network Partner Firms representing more than 292 financial advisors who maintain $64.6 billion in Billable AUA on the Dynasty platform, with an average AUA per advisor of $221 million. 

Inexco Opens Miami Office for US Offshore Business

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Panamanian financial services firm Inexco has announced the opening of a RIA office in Miami.

“Inexco is pleased to open a US-based Registered Investment Advisor (RIA) with dedicated investment services for financial advisors throughout Latin America and the state of Florida and their clients who wish to have top-notch service and advice,” posted Luis Alfredo Cercos, CEO, on his LinkedIn account.

Inexco obtained SEC approval on January 14, 2020 for its Brickell Avenue office, according to information available on the U.S. regulator’s website.

The wealth banking, investment and securities brokerage firm is focused on providing financial services to a select base of affluent clients, corporations and financial intermediaries in Latin America. The company also focuses on affluent and high net worth individuals and institutions, as well as financial intermediaries and their clients.

This market movement is in addition to several Latin American companies that have landed in Miami, such as Puente or Bancolombia, which is still subject to regulatory approvals.  

Ben Kirby (Thornburg IM): “Growth Stocks Are Unlikely To Be Winners in 2022”

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Foto cedidaBen Kirby, co director de inversiones de renta variable desarrollada de Thornburg IM. . Ben Kirby

Developed Equities Co-Head of Investments, Ben Kirby, shares his views on the biggest opportunities and challenges in 2022 with Funds Society in the following interview. You can also know more about the expert’s investment view through this video

With 2021 in the rear-view mirror, what are the biggest lessons you’ve learned over the past year? Did anything take you by surprise?

The biggest surprise in 2021 was the rapid recovery in economic activity and the attendant spike in inflation in durable goods. U.S. companies performed strongly, largely passing on higher costs and growing earnings by more than 50% for the full year. It’s worth noting that it only took about a year and a half for U.S. companies to recover their earnings level from the slippage of 2020, and that they are now trending well above their pre-COVID-19 levels. To highlight how remarkable this is, after the global financial crisis of 2008-2009 it took roughly seven years for these numbers to get back to trendline growth. The level of earnings growth and financial-market recovery seen in the U.S. over the past year has been unprecedented as seen in the chart below.

Looking ahead to the new year, what are your expectations for economic growth in 2022 and what does this mean for U.S. equities?

We witnessed supply-chain issues in 2020 that worsened over the past year, and many companies experienced an inventory run down to very low levels. As a result, in 2022 we expect a major restocking-and-destocking trend on the supply side. Companies will replenish their inventory to healthier levels and the supply bottleneck will be largely worked out over the next year, thus easing pent-up consumer demand. So when you think about a traditional business cycle, the “restock-and-destock” inventory event can become a really important growth driver, and we expect to see it spur an acceptable level of GDP growth next year. The big question is whether this will be enough to deliver a sustainable growth trajectory throughout the rest of 2022, or if the trend will peter out as the year goes on. With all things considered, we’re bullish on U.S. economic growth and stock-market performance this year. But we believe 2022 growth will likely be lower versus the rock star year of 2021, and that we’ll see increased volatility in equities due to overall tightening of the markets.

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How have inflationary risks and the potential for rate hikes impacted your portfolio positioning?

The Federal Reserve has been in denial about inflationary pressures building over the course of the year, and only recently backed away from their “transitory” language. While we believe durable goods inflation exacerbated by supply chain constraints may ease in 2022, we believe there are at least three longer term drivers of above average inflation: owner equivalent rent rising with a lag to rising home prices, wage-price spiral as bargaining power has shifted to labor, and the energy/low carbon transition, which will require trillions of dollars in capital investment and drive higher energy costs in the medium term. We’re through with the easy money part of this economic cycle, and the Fed, already behind the curve, may be forced to hike rates more aggressively than previously believed. From a portfolio-strategy perspective, that means growth stocks are unlikely to be winners in 2022, and this is especially true for aggressive growth companies that have low or no net profit. With inflationary pressures set to persist through next year, we are underweight higher-growth emerging franchises and instead favor strong businesses that have consistent, stable earnings and attractive valuations. We also think companies that have strong pricing power will be better positioned to pass inflationary pressures to the consumer and to maintain revenues. Higher-margin companies for which labor is not a major component of input costs will also fare better in a rising-wage environment. As an example, payment-network names will be less impacted by inflation because their revenues are tied to transaction volume. These types of companies will have the ability to grow with inflation in the long term. Companies with the ability to make money despite the upward inflation pressure will be better positioned overall. We see such companies not only among financials and banks, but also in consumer discretionary and technology. Lastly, in a rising-labor-costs future there’ll be huge demand for labor-saving technologies, and that will breed new investment opportunities in the automation and semiconductor space.

What are the risks worth keeping an eye on in 2022? What’s keeping you up at night?

As world economies become more interconnected and interdependent, a key risk lies in adverse geopolitical events such as the China-Taiwan divide. These sorts of risks aren’t getting as much attention as they deserve, even though they can have huge implications even for a U.S. equity portfolio. As an example, Taiwanese firms are among the world’s largest contract manufacturers of semiconductor chips that power just about everything global consumers interface with on a daily basis—phones, laptops, cars, watches, refrigerators and much more. The world depends on Taiwan for semiconductors, and the country plays a significant role in the digitaltransformation age that we’re living through. If China-Taiwan tensions result in any disruption on the manufacturing side there could be significant shocks, not only in the semiconductor space but across the global economy. And that’s only one example—so U.S. portfolio managers need to be keenly aware of this overall geopolitical risk factor.

 

Thornburg is a global investment firm delivering on strategy for institutions, financial professionals and investors worldwide. The privately held firm, founded in 1982, is an active, high-conviction manager of fixed income, equities, multi-asset solutions and sustainable investments. With $49 billion in client assets ($47 billion AUM and $1.9 billion AUA as of December 31, 2021) the firm offers mutual funds, closed-end funds, institutional accounts, separate accounts for high-net-worth investors and UCITS funds for non-U.S. investors. Thornburg’s U.S. headquarters is in Santa Fe, New Mexico with offices in London, Hong Kong and Shanghai. For more information, please visit www.thornburg.com.

 

For more information, please visit www.thornburg.com

 

 

Unicorn Strategic Partners Hires Carlos Ravachi as a New Partner

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Foto cedidaCarlos Ravachi, nuevo socio de Unicorn Strategic Partners . Foto cedida

Unicorn Strategic Partners has announced in a press release the appointment of Carlos Ravachi as a partner. Based in Miami, he will lead the firm’s US Offshore wholesale business and the institutional market in Colombia.

Ravachi spent almost nine years at Robeco in Miami where he led the US Offshore wholesale business and Latin America institutional business in Perú and Colombia. 

“We are very proud to expand our team with such talented members like Ravachi. The partners who started this project 4 years ago – Florencia Bunge, Head of Wholesale Latin America; Eduardo Ruiz Moreno, Head of Institutional Business in Latin America; and Mike Kearns, Head of US Offshore – believe that investing in talent is the key to success”, commented David Ayastuy, managing partner at Unicorn Strategic Partners.

Prior to landing in Miami in 2013, Ravachi worked in the financial industry in his native Colombia. Between 2002 and 2013 he worked for Banco Finandina, Colombian pension manager La Previsora, Citi, HSBC and Credicorp Capital, according to his LinkedIn profile.

After welcoming Ravachi, Ayastuy pointed out that their goal is to become one of the leading distributors in the financial industry. In this sense, “we have partnered with prestigious asset managers such as Vontobel and BNY Mellon Investment Management for the US Offshore market, Muzinich&Co and Vontobel for the LATAM wholesale space; and Union Bancaire Privée AM, Muzinich&Co and La Financiere de L’Echiquier for the LATAM institutional market.”

Unicorn SP has expanded its team during the past two years. In addition to Ravachi, the latest members to join the team include several well-known industry professionals; Matías Paulsen from Larrain Vial, Gonzalo Viana from Compass Group, Maggie Cabrera from HSBC, Andres Casais from BNY Mellon, Roberto Paut from AFP Cuprum, and Milagros Silva from Legg Mason.

Axel P. Lehmann Replaces Antonio Horta-Osório as Chairman of Credit Suisse

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Foto cedida. Axel P. Lehmann sustituye a Antonio Horta-Osório como presidente de Credit Suisse

Uncivic behavior during the hardest moments of the pandemic is not only taking its toll on politicians, but also on top executives of large companies. The clearest example has been the case of Antonio Horta-Osório, who has resigned from his position as chairman of Credit Suisse Group in view of his behavior during the COVID-19 quarantine.

According to Spanish news agency Europa Press, an investigation by the bank’s Board of Directors has shown that Horta-Osório violated the COVID-19 quarantine rule on more than one occasion. “I regret that a number of my personal actions have led to difficulties for the bank and compromised my ability to represent the bank internally and externally. I therefore believe that my resignation is in the interest of the bank and its stakeholders at this crucial time. I wish my colleagues at Credit Suisse every success for the future”, the executive said in a statement released by the company.

Consequently, Credit Suisse Group has appointed Axel P. Lehmann as the bank’s new Chairman effective immediately. The bank believes that under his leadership, the Board and the Executive Board will continue to execute Credit Suisse’s strategy, driving forward the transformation of the bank.

“We respect António’s decision and owe him considerable thanks for his leadership in defining the new strategy, which we will continue to implement over the coming months and years. Axel Lehmann as the new Chairman, with his extensive international and Swiss industry experience, is ideally suited to drive forward the strategic and cultural transformation of the bank. We wish Axel every success in his new role and António all the best for the future”, commented Severin Schwan, Vice-Chairman and Lead Independent Director of the Board of Credit Suisse.

Following his appointment, Lehmann has taken office as Chairman. The Board will also propose him for election as Chairman at the upcoming Annual General Meeting on April 29, 2022. Lehman thanked the Board for the trust it has placed in him and looks forward to working even more closely with the Board and the Executive Board.

“We have set the right course with the new strategy and will continue to embed a stronger risk culture across the firm. By executing our strategic plan in a timely and disciplined manner, without distraction, I am convinced that Credit Suisse will demonstrate the renewed strength and business focus needed to generate sustainable value for all of our stakeholders”, he added.

Lastly, after his resignation, Horta-Osório highlighted that he has worked hard to return Credit Suisse to a successful course, and I claimed to be proud of what they have achieved together in his short time at the bank. “Credit Suisse’s strategic realignment will provide for a clear focus on strengthening, simplifying and investing for growth. I am convinced that Credit Suisse is well positioned today and on the right track for the future”, he concluded.

Gio Onate Joins KKR to Boost Latam and US Offshore Markets

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Pixabay CC0 Public DomainFoto: ArmbrustAnna. Foto:

Giovanni Onate has joined KKR to drive the firm’s growth in Latin America and US offshore.1

The executive, who joined PIMCO last year as Senior Vice President tasked with leading business development efforts in Mexico, started in his new role on January 18, Funds Society has learned.

Onate will report directly to Monica Mandelli, who is in charge of Latin America for the group.

Prior to PIMCO, Onate led the Mexico institutional client business at BlackRock, where he worked for more than ten years.
 

 

M&G Investments Strengthens Its Miami Team and Appoints Andrés Uriarte as Senior Sales Manager

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Andrés Uriarte Senior Sales Manager (Linkedin). ,,

M&G has announced in a press release the appointment of Andrés Uriarte as Senior Sales Manager “to better serve its clients based in Miami and continue to grow its footprint in the region”.

Reporting directly to Ander Lopez, Sales Director LatAM at M&G Investments, Uriarte will be based in Miami and will be responsible for M&G’s business development and enhancing client relationships, particularly with regard to financial advisors and financial institutions in the US offshore space.

With over 15 years of experience in the asset management sector, he joins from Schroders where, as an Offshore Sales Director, was responsible for managing business in the Southeast and Midwest regions. Prior to that, he worked for Citibank as a VP of Investments, collaborating alongside the group’s private bankers to provide guidance to their clients. Earlier in his career Andres also worked at Invex Inc. and Bank of America.

Andrés’s arrival follows the recent appointment of Marlene Suárez, who has joined the Miami team as Office Manager, further strengthening M&G’s team looking after Americas clientsSince the setup of the Miami office in 2018, the team has established strong relationships with some leading local market players in the offshore space, as well as with key third party marketers in Latin America.

“We are pleased to welcome Andrés Uriarte to our team in Miami. Thanks to his solid experience, he will be a key asset to better serve our clients in the region”, said Ignacio Rodríguez, Head of Distribution for the Americas, M&G Investments.

AllianzGI Hires Samantha Muratori for its US Offshore and Latin America Sales Team

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Samantha Muratori, foto cedida. foto

Allianz Global Investors has appointed Samantha Muratori as Bussiness Developer to strengthen its US offshore and Latin America sales team. She started last Tuesday, January 18.

As we have learned at Funds Society, Muratori will report to Alberto D’Avenia, head of US non-resident business (NRB) and LatAm Retail at AllianzGI, and will be based in New York. In her new role, she will be responsible for sales relationships with distribution partners, brokers, private bankers, and discretionary managers in the New York and Texas offshore markets.

Muratori joins from Axa Investment Managers where she was US offshore sales associate for over three years charged with raising assets among offshore financial advisors for the asset manager’s Ucits range. Prior to this, she worked at Citywire Americas as head of Latin America and US offshore audience development where she led offshore business efforts and managed relationships with the publication’s readership across the region.

Blackrock’s CEO Larry Fink Sees “Stakeholder Capitalism” and Sustainability as Key to Delivering Value to Clients

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Foto cedidaLarry Fink, CEO de BlackRock.. Larry Fink ve clave el “capitalismo de stakeholders” y la sostenibilidad para navegar en el nuevo entorno que deja la pandemia

Larry Fink, CEO of BlackRock, has published his annual letter to the CEOs of the companies around the world in which the firm invests on behalf of its clients. As every year, this missive seeks to encourage business leaders to manage companies with a long-term mindset that offers shareholders consistent returns over time.

Fink points out the importance of “stakeholder capitalism”, which, for him, is not about politics: “It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism”.

He believes in its ability to help individuals achieve better futures, to drive innovation, to build resilient economies, and to solve some of our most intractable challenges: “In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long term. Make no mistake, the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success”.

The CEO also highlights that the pandemic is “dramatically accelerating” how technology is reshaping life and business, has deepened the erosion of trust in traditional institutions and has exacerbated polarization in many Western societies. “This polarization presents a host of new challenges for CEOs. Political activists, or the media, may politicize things your company does. They may hijack your brand to advance their own agendas. In this environment, facts themselves are frequently in dispute, but businesses have an opportunity to lead. Employees are increasingly looking to their employer as the most trusted, competent, and ethical source of information – more so than government, the media, and NGOs”, he adds.

In this context, Fink arguments that “it’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy, and a long-term view”. That is why he encourages them to put their company’s purpose at the foundation of their relationships with stakeholders in order to achieve long-term success.

“Employees need to understand and connect with your purpose; when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it”, he says.

A new world of work

In the CEO’s view, no relationship has been changed more by the pandemic than the one between employers and employees: “As companies rebuild themselves coming out of the pandemic, CEOs face a profoundly different paradigm than we are used to. Companies expected workers to come to the office five days a week. Mental health was rarely discussed in the workplace. And wages for those on low and middle incomes barely grew”.

That’s why companies not adjusting to this new reality and responding to their workers do so at their own peril. “In addition to upending our relationship with where we physically work, the pandemic also shone a light on issues like racial equity, childcare, and mental health – and revealed the gap between generational expectations at work. These themes are now center stage for CEOs, who must be thoughtful about how they use their voice and connect on social issues important to their employees. Those who show humility and stay grounded in their purpose are more likely to build the kind of bond that endures the span of someone’s career”, Fink adds.

Besides, his letter shows that new sources of capital are fueling market disruption as over the past four decades, there has been an explosion in the availability of capital. “Young, innovative companies have never had easier access to capital. Never has there been more money available for new ideas to become reality. This is fueling a dynamic landscape of innovation. It means that virtually every sector has an abundance of disruptive startups trying to topple market leaders”, he says.

In his view, CEOs of established companies need to understand this changing landscape and the diversity of available capital if they want to stay competitive in the face of smaller, more nimble businesses. That’s why BlackRock wants to see the companies they invest in for their clients evolve and grow so that they generate attractive returns for decades to come. “We too must be nimble and ensure our clients’ assets are invested, consistent with their goals, in the most dynamic companies – whether startups or established players – with the best chances at succeeding over time”, he insists.

Sustainability and ESG

Regarding sustainability, Fink highlights that they focus on it not because they’re environmentalists, but because they are “capitalists and fiduciaries” to their clients. “That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the longterm economic interests of your shareholders. It’s also why we ask you to issue reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD): because we believe these are essential tools for understanding a company’s ability to adapt for the future”, he reveals.

In his opinion, divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. “Foresighted companies across a wide range of carbon-intensive sectors are transforming their businesses, and their actions are a critical part of decarbonization. We believe the companies leading the transition present a vital investment opportunity for our clients and driving capital towards these phoenixes will be essential to achieving a net zero world”, he says.

In this sense, he thinks that governments need to provide clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets. They must also support communities affected by the transition, help catalyze capital for the emerging markets, and invest in the innovation and technology that will be essential to decarbonizing the global economy. “When we harness the power of both the public and private sectors, we can achieve truly incredible things. This is what we must do to get to net zero”, the letter says.

Lastly, Fink points out that just as other stakeholders are adjusting their relationships with companies, many people are rethinking their relationships with companies as shareholders. “We see a growing interest among shareholders – including among our own clients – in the corporate governance of public companies”, he concludes.