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Geopolitics and Energy: Iran, Israel, and the Risk for Europe

Next week the results of the U.S. midterm elections will become known, and while waiting, speculation is mounting regarding the possibility of new coordinated attacks against Iran between the U.S. and Israel. Several Gulf states have reportedly been asked to prepare for a new, brief, and intense offensive against Iran following the legislative elections.

Much like the U.S., Israel also faced an electoral process—its 6th since 2019—with an uncertain outcome: on the eve of the election, neither the Netanyahu bloc nor that of the opposition (Gadi Eisenkot) appeared positioned to secure the 61 seats required for a parliamentary majority. The results confirmed this stalemate, leaving the country facing political deadlock and potentially another election cycle in which Netanyahu could have stronger prospects of forming a coalition government. Although their political agendas differ on how to address the Iranian issue, both agree on the core objective: halting Tehran’s nuclear development.

In this context, Brent crude hovers around $115 per barrel, and the futures curve has driven the 12-month forward price from $70 to $89 since July. While crack spreads have compressed since September, higher crude prices will push refining margins upward again. This represents one of the primary risks heading into year-end, particularly for Europe, where macroeconomic surprises are rapidly deteriorating and TTF natural gas prices approach €100/MWh—142% above June lows—just as winter begins and storage inventories sit below historically normal levels (75%, compared to a 5-year average between 86% and 89%). In the U.S., the improvement in consumer confidence is likely fleeting under these conditions, having been built on an approximate 6% drop in retail gasoline prices over the past month.

Equities: a favorable year-end if escalation is avoided

If an attack is limited or does not materialize, the year-end could prove very constructive for equity investors. Despite several headwinds—renewed concerns around AI capex and ROIC, crude oil near $115, a rebound in Treasury yields, and modest widening in credit spreads—the S&P 500 has held very close to record highs, and average historical track records following U.S. midterm elections remain overwhelmingly favorable for equity buyers.

Artificial intelligence: demand outstrips supply, but financing concerns persist

Doubts surrounding the AI trade have resurfaced once again. Rising long-term yields and their implications for funding costs across new data centers, fears over whether revenue will materialize before capital is depleted (and whether return on invested capital will prove sufficient), and competition for limited capital have weighed on tech valuations. Recent examples include capital raising of up to $95B, a $40B financing agreement through an off-balance-sheet vehicle leasing GPUs, and a similar $63B structured facility arranged with major institutional lenders to supply ASICs to Anthropic.

Compute demand continues to outpace supply. This is the clearest takeaway from Q3 earnings from Microsoft, Amazon, and Alphabet, as well as Oracle’s fiscal Q1 results, despite sharp subsequent pullbacks. The market is increasingly shifting focus away from raw technology momentum and adoption velocity toward the economics underpinning that demand, penalizing 3 core factors: return on invested capital (even as ROIC for these firms hovers around 30%), the duration of negative free cash flow profiles, and capex funding structures.

Anthropic’s S-1: real demand, profitability, and an immense compute commitment

The official announcement of Anthropic’s initial public offering and the publication of its S-1 registration statement (containing the prospectus alongside previously non-public operational data) provide a catalyst for renewed market optimism. In response, the Philadelphia Semiconductor Index rebounded off its 200-day moving average support, posting its strongest single-session gain since September. Even CoreWeave found brief relief, despite public commentary questioning the viability of the neocloud business model.

The S-1 filing represents some of the most concrete public evidence to date that enterprise-level AI demand is real. Revenue surged from $41M in 2023 to $16.286B in the first half of 2026, followed by a reported Q3 revenue figure of $16.8B (+45% quarter-over-quarter). Customer concentration is diversifying: clients generating over $100,000 annually expanded from 950 to 11,900 in 1 year, roughly 250 accounts now spend over $10M, net revenue retention hovers around 900%, and the revenue contribution of the top 5 clients declined from 36% to 21% over 2 quarters. Enterprise penetration remains low, suggesting substantial runway ahead, with Fortune 500 customers allocating less than 0.1% of their aggregate spend to Claude.

Crucially, this demand is showing operating leverage. Gross margin—factoring in accounting choices such as expensing model training costs exceeding $60B under R&D—reached 85% for the half-year. Furthermore, compute expenses declined from 2.5 times revenue in early 2025 to 48% in Q2 2026, a period in which the company posted positive GAAP operating income, challenging the narrative that frontier AI operates purely at an economic deficit.

Conversely, the firm is heavily positioned for continued exponential growth, with roughly $855B in total compute commitments, representing approximately 13 times current annualized revenue. These commitments, predominantly non-cancelable, were contracted 12-18 months in advance across cloud and chip suppliers including Google, Amazon, Microsoft, and Broadcom. For hyperscalers, this provides significant order-book visibility; for Anthropic, it introduces substantial operating leverage risk if top-line growth decelerates before absorbing that capacity, alongside enormous upside if projected demand is realized.

The Boom in Alternatives Could Drive Private Markets Above $34 Trillion by 2031

| By Amaya Uriarte | 0 Comentarios

Although there has been some noise across different asset classes within the alternative spectrum, the boom in these investments remains in full swing. Growth is expected to continue forward, propelling expanding private markets to unprecedented heights.

Considering the dynamics of private equity, venture capital, private debt, and real assets, alongside a slower pace of AUM expansion, alternative assets—including hedge funds—are projected to grow at an 8.5% CAGR over the next 5 years.

All told, private markets are projected to reach $34.12 trillion by 2031. Even so, that remains a small share of the $290 trillion total investable market estimated across public and private markets.

The fundamental drivers behind private market growth remain intact. Private companies possess increasingly diverse financing options, making staying private a viable alternative alongside going public.

Now, with a new technological wave driven by the rollout of artificial intelligence, private equity and venture capital in particular are well positioned to capture a significant share of the value created. Recent examples of large private companies achieving considerable scale before accessing public markets underscore how much value can accrue before public investors have the opportunity to participate.

Financing needs and portfolio demands

Additionally, there is the infrastructure component, marked by the scale of long-term capital requirements demanded by energy security, AI infrastructure, supply chain onshoring, and traditional construction. These factors will continue attracting investors to areas where financing was previously predominantly governmental.

Deep fiscal deficits across many developed economies reinforce this dynamic, as public balance sheets are less capable of fully funding investment requirements.

At the same time, an evolution is unfolding on the allocator side, shifting how investors view private markets. The growing adoption of the total portfolio approach by prominent institutional investors means that traditional asset-class silos are beginning to be abandoned in favor of evaluating aggregate exposures across public and private investments.

Product offerings have likewise evolved, enabling diverse investors to access the benefits of private markets while managing liquidity amid progressively longer holding periods.

Advances in secondary market depth are expected to continue, increasing the flexibility LPs have when managing their positions.

Shifts in the alternatives environment

Even though prospects remain favorable for alternative asset classes, a shifting backdrop is nonetheless reshaping market conditions. Private markets are operating under fundamentally different economic conditions compared to the recent past.

Some managers are contending with transactions agreed upon during an era of low nominal interest rates, creating a backlog of mature assets, leading certain funds to extend holding periods, and dampening performance expectations on those holdings.

In tandem, slower capital distributions to LPs have complicated fundraising for successor vehicles. This confluence of factors creates an environment where dispersion is clearer than ever.

The impact is not uniform; wider dispersion across performance, fundraising, realizations, and overall outcomes means manager selection will remain a critical priority for investors.

This dynamic also creates a paradoxical situation, generating improved prospects for capital deployed in today’s market environment. Bidding processes may be less crowded than during the 2021 peak, potentially leading to softer competition and lower entry multiples.

Given current cycle positioning, vintage 2026 and 2027 funds may offer stronger return prospects than vehicles that deployed capital in earlier years.

Looking ahead, the path of long-term interest rates will undoubtedly remain a central consideration for investment decision-makers, particularly as structural long-term capital demands remain elevated for both sovereigns and hyperscalers.

Foreigners Buy U.S. Stocks at a Historic Pace, but What Are They Not Buying?

| By Amaya Uriarte | 0 Comentarios

International investors allocated more than $1 trillion net to U.S. equities in the 12 months through August 2026. While corporate debt also gained ground, sales of short-term instruments and the shift in Treasury bond purchases raise new questions about global asset allocation.

That figure not only illustrates international investors’ appetite for Wall Street, but also poses a fundamental question for asset managers: what are they sacrificing, if anything, to increase exposure to the equity market of the world’s largest economy?

Data shows that during the 12 months through May 2026, foreign investors accumulated net equity purchases of $909 billion. Over that same period, their net purchases of U.S. corporate bonds reached $449 billion, while long-term Treasury bonds and notes totaled $290 billion.

Updated statistics show that the trend continued over the following months. In the 12 months through August, net purchases of U.S. stocks reached approximately $1.01 trillion, combining $844.2 billion from private foreign investors and $165.4 billion from official institutions.

Corporate debt also maintained a favorable trajectory, with net purchases of $464.1 billion. In contrast, net purchases of long-term Treasury bonds and notes stood at $306.4 billion.

The figures come from international capital flow statistics published on October 16, 2026.

The message is clear: U.S. equities capture an extraordinary share of international flows. Yet the interpretation requires nuance. Foreign investors have not stopped buying bonds; what the data shows is a considerable gap between the amounts allocated to each asset class.

The question for the investment industry is whether this distribution reflects a structural transformation of global portfolios, a response to growth expectations for U.S. corporations, or a combination of both factors.

Equities dominate, but corporate debt retains appeal

The magnitude of flows into equities contrasts with demand for other U.S. instruments. In the 12 months through August, net equity purchases by private foreign investors reached $844.2 billion, compared with $403.2 billion in corporate bonds and $296.5 billion in long-term Treasury bonds and notes.

Foreign official institutions—a category that includes public sector entities—added another $165.4 billion in stocks. They also made net purchases of $60.9 billion in corporate debt and $9.9 billion in long-term Treasury bonds and notes.

The distinction between private investors and official institutions matters because their objectives are not necessarily identical. While the former may seek growth, return, or diversification, the latter may also manage reserves and other financial positions tied to institutional mandates.

Taken together, the data shows that equity dominance does not depend exclusively on one class of investor. Both the private sector and official institutions recorded positive net stock purchases over the annual period analyzed.

However, corporate debt warrants special attention. Net purchases of $464.1 billion across private investors and official institutions confirm that interest in U.S. assets extends well beyond public equities.

For fixed income managers, the appeal of corporate bonds hinges on a combination of factors: interest rate levels, credit spreads, issuer quality, growth prospects, and default risk compensation.

Consequently, higher flows into equities do not imply that investors view fixed income as irrelevant. Rather, they suggest international demand is distributing across instruments serving different functions, albeit with equities clearly dominating by volume.

Furthermore, aggregate figures do not reveal whether the same investors purchasing equities are trimming bond holdings. A pension fund might expand equity exposure while another investor buys corporate debt. The collective outcome is a positive net inflow into both asset classes, without requiring a direct substitution between them.

Treasury bills offer one of the clearest clues

When examining which assets might be losing ground to equities, U.S. Treasury bills provide a relevant signal. Unlike long-term bonds, bills are short-dated sovereign debt instruments typically utilized to manage liquidity, hold cash equivalents, and dampen portfolio volatility.

Over the 12 months through August 2026, foreign holdings of Treasury bills declined by a net $23.9 billion. This contrasts sharply with the net increase of $145.6 billion registered during 2025.

The shift is even more pronounced within foreign official institutions. Their activity translated into a net reduction of $99.4 billion in Treasury bills during the 12 months through August, compared to net purchases of $104.4 billion in the comparable period ending in August 2025.

Private investors, conversely, increased their net holdings of these instruments by $75.5 billion. This divergence supports a more targeted hypothesis than a broad retreat from U.S. debt: part of the foreign official sector is reducing exposure to short-term instruments, while private investors remain net buyers of Treasury bills, equities, and corporate debt alike.

Market participant behavior is far from uniform. Motivations behind official movements may include liquidity requirements, shifts in reserve management, maturing paper that is not rolled over, or strategic asset allocation decisions. The underlying data does not assign specific intent to individual transactions.

Nor does it prove that capital withdrawn from Treasury bills was redirected into U.S. equities. Making that link would require granular portfolio-level data that is unavailable in aggregate series. Even with that limitation, the trajectory of Treasury bills adds an important dimension to understanding how international demand for U.S. assets is evolving.

Long-term Treasury bonds are not being abandoned

The other side of the dynamic lies in longer-dated sovereign debt. Although net purchases of long-term Treasury bonds and notes trailed equities, foreign investors still acquired a net $306.4 billion of these instruments during the 12 months through August 2026.

However, the headline figure masks significant disparities among market participants. Private investors accounted for $296.5 billion in net purchases, while official institutions purchased just $9.9 billion.

Consequently, softer relative demand for long-term sovereign debt should not be interpreted as a wholesale retreat from the market. The private sector maintained substantial purchasing volume. U.S. sovereign debt fulfills functions that cannot be substituted directly by equities: it serves as a global benchmark, underpins interest rate formation, and facilitates liquidity management, hedging, and diversification.

Nonetheless, long-term bonds carry substantial valuation sensitivity to interest rate shifts. Rising yields erode the price of existing debt, especially for securities with higher duration.

For a portfolio manager, allocating between stocks and sovereign bonds involves more than return expectations; it requires evaluating portfolio duration, cross-asset correlations, and the role each position plays across diverse economic regimes.

In this context, equity demand may reflect a pursuit of capital appreciation, while bond purchases address capital preservation, income generation, or risk mitigation. Both strategies often coexist within the same allocation framework.

The scale of foreign buying suggests that global investors are leaning heavily into the earnings outlook of U.S. corporations. Yet there is a critical distinction between capital inflows into a market and the returns that market ultimately delivers.

The $1.01 trillion in net equity purchases over the 12 months through August represents an investment flow rather than realized investor gains. Portfolio performance depends on price trajectories, dividends, transaction costs, fees, and, for non-U.S. investors, currency fluctuations.

Moreover, flow data alone cannot isolate the catalyst for each transaction. Capital movements may be driven by growth expectations, index rebalancings, strategic asset allocations, or tactical maneuvers.

This distinction is particularly relevant when assessing whether anticipated corporate earnings growth justifies current valuations. Strong inflows can bolster equity demand, but they do not guarantee attractive entry points or the continuation of past returns.

Evaluating these flows requires contextualizing them alongside valuation multiples, earnings forecasts, sector concentration, and core risk exposures.

Concentration on Wall Street introduces another challenge

International capital flows cannot be analyzed in isolation from the structural composition of the U.S. equity market.

Benchmark indices feature heavy weightings in mega-cap corporations, particularly within technology and digital services. For foreign investors, acquiring U.S. equities often increases exposure to companies dominating global end-markets with long-term secular growth profiles.

However, that concentration increases reliance on a narrow cohort of firms and shared drivers, such as artificial intelligence adoption, infrastructure capital expenditures, discount rates, and corporate margins.

The data does not disaggregate foreign purchases by sector, index, market capitalization, or investment style. It cannot be assumed that the $1.01 trillion flowed exclusively into mega-cap tech.

What it does raise is a core portfolio question: to what degree does rising U.S. exposure enhance diversification versus amplifying pre-existing vulnerabilities?

A portfolio holding numerous positions can remain highly concentrated if a significant share of its holdings depends on identical macroeconomic drivers. Similarly, exposure to U.S.-listed multinationals with global revenue bases does not necessarily provide full geographic, currency, or economic cycle diversification.

For institutional allocators, including pension funds, insurers, and family offices, this distinction is paramount. The objective extends beyond capturing equity upside to constructing resilient structures capable of weathering adverse market environments without jeopardizing liabilities.

The dollar remains central to the equation

For non-dollar-denominated investors, total returns from U.S. equities are intrinsically tied to currency fluctuations.

A portfolio can generate positive dollar-denominated returns while underperforming in base-currency terms if the greenback depreciates. Conversely, dollar appreciation enhances domestic-currency returns.

This dynamic is especially acute for Latin American investors whose portfolios often blend dollar-denominated assets with local-currency liabilities, living costs, and wealth preservation targets.

Currency exposure can be maintained intentionally as a diversifier or mitigated via hedging instruments. The choice hinges on investment horizons, hedging costs, liquidity considerations, and foreign exchange expectations.

Current net purchase data does not indicate whether recent inflows reflect an explicit structural bet on the U.S. dollar. Verifying that premise would require cross-referencing FX market positioning and investor-level holdings.

Similar care applies to geographic capital origins. Custody-based recordkeeping means the jurisdiction where an investment is booked does not always correspond to the beneficial owner’s primary country of residence, complicating precise geographic attribution.

For cross-border wealth managers, this reinforces the importance of distinguishing between booking center location, investment vehicle domicile, and beneficial owner residency.

The scale of international buying highlights a central challenge: capturing U.S. equity upside without letting a favorable trend become an unhedged source of concentration risk.

The solution does not lie in mechanically trimming equity allocations or blindly ramping up bond exposure. It depends on client objectives, investment horizons, liquidity demands, and drawdown tolerance.

For an institution with long-dated liabilities, higher equity exposure can align with real capital preservation objectives. For a mandate facing near-term distributions, reducing cash buffers or taking on excessive equity beta can prove counterproductive.

Stress-testing adverse scenarios is equally vital: decelerating earnings growth, shifts in rate expectations, valuation drawdowns among mega-cap leaders, or dollar depreciation against base currencies.

Within this framework, equities, corporate credit, sovereign debt, and Treasury bills do not operate purely as competing allocations. They serve complementary functions across growth, income, liquidity, and risk mitigation.

For asset allocators, the imperative is assessing whether current portfolio weights reflect long-term strategic targets or whether they have tilted, deliberately or inadvertently, toward the market segments capturing the highest capital momentum.

The data leaves little doubt regarding aggregate direction: U.S. equities have absorbed an extraordinary volume of global capital. In the 12 months through August 2026, net purchases totaled approximately $1.01 trillion, compared to $464.1 billion in corporate debt and $306.4 billion in long-term Treasury bonds and notes.

Over the same timeframe, foreign holdings of Treasury bills fell by a net $23.9 billion. Within that category, official institutions reduced holdings by $99.4 billion, while private investors expanded positions by $75.5 billion.

This divergence demonstrates that global capital does not behave as a monolithic bloc. Private investors and official institutions operate with distinct mandates, and asset-class shifts stem from underlying drivers that aggregate flows alone cannot fully describe.

The conclusion is not that international investors are abandoning fixed income to chase equities. The figures point to something far more specific: a pronounced preference for equities alongside substantial allocations to corporate and sovereign debt, coupled with a net contraction in select short-term instruments.

For allocators and wealth managers, the key takeaway is not simply tracking capital into Wall Street, but evaluating the underlying risks embedded in that momentum, the ongoing role of underweight assets, and whether portfolio allocations remain aligned with core investment mandates.

Janus Henderson and Centrifuge Launch Blockchain-Native Fund Tracking the Nasdaq 100

| By Amaya Uriarte | 0 Comentarios

JQQQ has launched as the first blockchain-native fund providing exposure to the Nasdaq-100 Index through an issuer-sponsored investment strategy. The fund is designed for issuance and operation on public blockchain infrastructure, combining institutional investment standards with new distribution channels and onchain composability, while offering competitive fees.

The fund is powered by end-to-end infrastructure for onchain funds. Seeking to replicate the Nasdaq-100 Index, it marks an important evolution in tokenization: rather than merely mirroring existing securities on blockchain networks, investment products are being built natively onchain. This approach preserves established investment management standards while unlocking novel capabilities, including programmable portfolios, integration with digital financial applications, and the ability to utilize fund shares as collateral across onchain markets.

As one of the world’s top five providers of tokenized funds, the onchain platform now includes over 1,000,000,000 dollars in institutional strategies across U.S. Treasuries, structured credit, and public equities, expanding to encompass one of the most recognized equity benchmarks globally.

As investors explore new ways to access markets through digital infrastructure, demand continues to grow for exposure to established and transparent benchmarks. The Nasdaq-100 Index has long served as the foundation for a wide range of investment products, supporting the continuous evolution of index-based investing as it expands across an ever-widening array of investment structures.

Native onchain issuance transforms what an investment fund can become. Beyond providing digital access to an established investment strategy, an onchain fund can interface directly with new distribution channels and financial applications, unlocking the potential for programmable vaults, onchain portfolios, collateralization, lending, and structured products.

Tokenization becomes vastly more powerful when the assets investors want to hold can also serve as the building blocks of an onchain financial system, bringing the Nasdaq-100 Index to the onchain ecosystem as a licensed, issuer-sponsored institutional investment product.

The fund is launching exclusively on the Stellar network, where real-world assets surpassed 4,000,000,000 dollars in 2026. The network has cultivated an increasingly diverse institutional asset marketplace spanning tokenized U.S. Treasuries, sovereign debt, money market funds, credit, and other financial instruments.

Bringing the Nasdaq-100 to the blockchain demonstrates how far tokenization has evolved—from cash-equivalent assets to the benchmarks that define global equity markets. The underlying infrastructure was purpose-built for regulated finance, setting the stage for additional products of this type.

Christine Lagarde to Step Down as ECB President on February 7

| By Amaya Uriarte | 0 Comentarios

Christine Lagarde, President of the European Central Bank (ECB), tendered her resignation today, putting an end to months of speculation regarding her future and coinciding with a period of growing economic volatility and polarized electoral politics in Europe. Lagarde will step down from her post on February 7, nine months before her term officially concludes, granting current European Union leaders time to select her successor.

This decision comes at a moment when the ECB confronts inflation risks stemming from an oil shock triggered by the war in Iran, while a sharp surge in bond yields, particularly in France, threatens to dampen growth. “I leave this institution with the sense of having accomplished good work and that the ECB is prepared for the future,” stated Lagarde, 70, in a brief video shared on social media.

According to Reuters, sources close to the matter stated that Lagarde, a former French finance minister and former managing director of the International Monetary Fund, resigned to engage in political affairs both in France and globally. As ECB President, she was expected to maintain neutrality to protect the institution’s independence. Lagarde herself has not commented directly on these matters. The news agency notes that she has previously stated she would not run as a candidate for the French presidency, but would defend pro-European values in her home country “from whatever position” she deemed most effective.

European Council President António Costa stated that the process to select Lagarde’s successor will commence immediately. This appointment is likely to form part of a broader package of senior leadership roles at the ECB, including the Executive Board seat held by Isabel Schnabel, who will step down in early January, and that of Chief Economist Philip Lane, whose departure is scheduled for May. Former central bank governors of the Netherlands and Spain, Klaas Knot and Pablo Hernández de Cos, are widely regarded as the leading candidates to succeed Lagarde.

Expert commentary

Lale Akoner, Global Market Strategist at eToro, noted that Lagarde’s departure “adds uncertainty at an inopportune time,” with inflation running high and French sovereign bonds under pressure. However, she acknowledged that the muted initial market reaction suggests investors anticipate policy continuity rather than an abrupt shift in direction. She also considers the succession meaningful both for interest rates and for the ECB’s response to bond market strains. “Knot could be perceived as favoring a more restrictive policy and a higher intervention threshold; meanwhile, De Cos could be viewed as more willing to act. These perceptions could influence the euro and French bond spreads, although neither candidate decides monetary policy alone,” Akoner concluded.

For his part, Matthew Ryan, Head of Market Strategy at Ebury, agreed that the timing is far from ideal for the ECB, as “it comes against a backdrop where the war in Iran keeps inflation well above the central bank’s target, a situation likely to persist for some time.” Furthermore, he emphasized that European debt markets are also experiencing acute strains, with the yield spread between French and German bonds reaching its highest level since 2011.

He likewise considers Klaas Knot and Pablo Hernández de Cos to be the front-runners to succeed her. He views Knot as favoring tighter monetary policy that would likely bolster expectations of further interest rate hikes, potentially supporting euro appreciation. Meanwhile, he regards Hernández de Cos as possessing a more dovish monetary profile, likely placing greater weight on economic growth and debt market stability, “a consideration particularly relevant amid severe pressures on French sovereign debt.” Even so, he does not foresee the transition in the ECB presidency altering the near-term interest rate path, noting that while the president sets the institutional agenda, “ultimately their vote is just one within the Governing Council and rarely overrides consensus,” though he also acknowledged that a protracted succession process could introduce additional market volatility during a fragile juncture. “Therefore, the sooner the successor is announced, the better,” he concluded.

Meanwhile, Konstantin Veit, portfolio manager at PIMCO, does not rule out that, among the potential replacements, “preference may be given to a centrist candidate who mirrors the inclusive, consensus-driven leadership style demonstrated by Lagarde,” highlighting “the ECB’s steadfast commitment to a framework-based approach, reaffirmed in the 2025 monetary policy assessment, which tends to reduce individual influence.” Given that the reaction function is transparent and unlikely to change, he anticipates no significant investment implications resulting from Lagarde’s departure.

Similarly, Conor Parle, Eurozone Economist at Fidelity International, stated that both Hernández de Cos and Klaas Knot “would bring continuity to the helm of the ECB and are regarded as highly respected voices in economics and central banking.” However, should De Cos or Knot be appointed, he considers it probable that German and French officials would fill the remaining Executive Board seats.

U.S. Elections: What Markets Are Pricing In and Questions Surrounding Debt and the Budget

| By Amaya Uriarte | 0 Comentarios

Markets are already pricing in that Democrats could gain control of the House of Representatives, while the Senate remains more complicated terrain. This is highlighted by AllianzGI in its analysis of the upcoming November 3 legislative elections, citing data from Polymarket and Bloomberg: a 64% probability of a complete Democratic victory, 28% for a divided government, and 8% for a Republican sweep. UBS Global Wealth Management is more cautious: 50% for a Democratic Congress, 40% for a divided government, and 10% for a Republican win.

Beyond the outcome, both firms agree on where the key questions raised by the election are concentrated: debt and the budget, with potential impact on interest rates and the dollar, rather than a shift in fiscal direction. “We are not making any changes to our portfolio allocations around the midterm elections,” stated Kurt Reiman, Head of Fixed Income Americas and leader of Election Watch at UBS Global Wealth Management, during a panel discussion attended by Funds Society.

What markets are pricing in

According to AllianzGI, Republicans currently hold a three-seat majority in the Senate and a one-seat edge in the House, and Democrats would need to gain four seats in the upper chamber. The asset manager stresses that the president’s party has lost these elections in 18 of the last 20 cycles, and Donald Trump’s net approval rating sits around -25 points. Reiman maintained that there is no major difference between a divided government—with Democrats controlling only the House—and one with Democrats holding both chambers. Where it does matter, he noted, is in presidential appointments, judicial nominations, and budget reconciliation. Because the likelihood of a veto-proof Democratic majority is very low, UBS expects a period of legislative gridlock. According to its analysis, equities perform reasonably well during such periods, though Reiman dismissed this as an absolute rule: “We push back against the notion that gridlock is necessarily good.”

If Democrats were to win the Senate by more than one or two seats and the House by a margin of a dozen or couple dozen seats, Reiman acknowledged there could be short-lived equity weakness driven by the prospect of increased regulation. Nevertheless, he considered that volatility would dissipate quickly and markets would refocus on fundamentals: the economy, monetary policy, fiscal policy, inflation, and, above all, corporate earnings.

Debt and the budget: the concerning calendar

AllianzGI identifies the December 11 funding deadline and the debt ceiling “cliff” in the spring of 2027 as immediate risks. In a divided Congress, it explains, the ability to pass measures beyond baseline funding would be constrained, and volatility would tend to increase as those dates approach.

Jonathan Pingle, Chief U.S. Economist at UBS Investment Bank, pointed in the same direction: “Democrats will hold certain bargaining power, whether around raising the debt ceiling, passing budgets, or simply around broader spending measures, such as trying to keep the lights on in the federal government.” His expectation is that concessions will be negotiated around cuts that are already taking effect: shifting a portion of Medicaid costs to the states, work requirements for SNAP, and the ACA subsidies that expired last year.

Asked about the likelihood of Democrats utilizing this lever—a tactic historically associated with Republicans—Pingle answered that he expects them to “use it or try to use it.” He added that Republicans have discussed raising the limit during the lame-duck session via reconciliation, though they have yet to reach consensus on a plan. Reiman described a potential compromise: increased defense spending for Republicans in exchange for deferring part of the cuts to Medicaid and social programs.

Bonds and interest rates

According to AllianzGI, the risks of a divided Congress would tend to concentrate in short-dated Treasuries and the short end of the curve. Each flare-up in tension could temporarily lift both the U.S. dollar and gold, though it is unlikely to cause lasting changes.

Reiman assessed that the bond market “is pretty well positioned right now.” He attributed the summer uptick in yields more to stronger economic growth and higher-than-expected inflation than to fiscal concerns, noting that the market is already pricing in “three or four additional rate hikes” from the Fed. He explained that building an intermediate-duration portfolio with modest credit risk yielding around 6% is achievable “fairly easily.” UBS favors credit (investment grade and high-yield corporate bonds) and securitized products, while modestly extending duration via preferred securities.

Pingle described the fiscal outlook as “bleak” and estimated that the yield shift since the beginning of the year, relative to the latest CBO projections, implies more than 2,500,000,000,000 dollars in additional net interest spending over ten years. He voiced skepticism that this Congress will address the issue legislatively.

The dollar and the Federal Reserve

AllianzGI outlines three scenarios for the dollar. In a divided outcome, episodes of tension could provide a temporary lift. In a Republican sweep across both chambers—which it considers the most deficit-expansive outcome—it anticipates higher Treasury issuance, rising term premia, a steeper curve, and a stronger dollar in the near term. In a full Democratic sweep, a risk-off reaction would cause a modest steepening of the curve.

On the institutional front, Pingle recalled that since the Reagan administration, at least one cabinet-level resignation typically occurs shortly after the midterms. With a Democratic Senate, the opposition would control the confirmation of replacements. For the Federal Reserve, he stated, that “will ease concerns regarding Fed independence.” He further projected that up to four members of the Board of Governors and the FOMC could depart before early 2028.

For AllianzGI, the equity market reaction to a Democratic Congress would depend on the prominence of the progressive wing. Markets could react negatively if momentum builds around regulating artificial intelligence and data centers, wealth taxes, or Medicare for All. More moderate priorities, such as reversing SNAP or Medicaid cuts, could benefit the healthcare and consumer staples sectors. Under the Republican scenario, defense, financial services, and energy would stand as the primary beneficiaries.

Reiman noted that an unexpected increase in defense spending could support industrials—a sector favored by UBS—and cited hospitals and medical device companies if spending cuts are delayed. He clarified that they do not advise buying these sectors purely on the election outcome.

What does not change

AllianzGI maintains that under any of the three outcomes, fiscal consolidation is practically off the table, and over the longer term, the greatest threat remains mandatory spending. It adds that the Executive branch will continue to rely heavily on direct action, a point echoed by Reiman: the White House’s use of foreign and trade policy “is unlikely to change much.” He noted that tariff revenues that had been taken for granted are being refunded following a February ruling on the IEEPA, and that legal challenges to replacement measures could worsen the fiscal picture.

Regarding artificial intelligence, Reiman noted that data centers represent “the physical, tangible manifestation” of voter concerns and does not view a blanket moratorium as likely, though tax incentives may disappear. UBS expects CapEx to expand next year. AllianzGI agrees that the election outcome is unlikely to significantly slow the expansion of computational capacity.

Build, Acquire, or Outsource: Decisions Firms Must Make to Grow in the HNW Segment

| By Amaya Uriarte | 0 Comentarios

Moving upmarket requires wealth management firms to adopt a broader suite of services, yet the most critical capabilities—such as tax, trust, and estate planning—are also the most costly to scale and the most prone to being outsourced. According to the latest edition of The Cerulli Edge—U.S. Advisor Edition, the firm anticipates that practices capable of properly evaluating the trade-offs between building in-house, buying, or outsourcing will increasingly stand apart as margin pressure intensifies.

The rapid concentration of wealth in the United States over the past decade has heightened demand for more sophisticated wealth management and investment services. High-net-worth (HNW) households—those with more than 5,000,000 dollars in financial assets—are estimated to account for 57% of total U.S. household financial wealth by the end of 2025, up from 43% recorded in 2019.

To capture this expanding opportunity, firms seeking to outperform peers have pivoted their business models toward wealthier clients, a shift that requires overhauling their traditional service delivery frameworks.

“The services that make the biggest difference are also the most operationally burdensome to deliver and, consequently, the most expensive to bring to market,” noted Chayce Horton, associate director. “As a result, nearly all the critical services considered indispensable for moving upmarket are also the most likely to be outsourced by high-net-worth practices.”

On average, high-net-worth advisors report outsourcing between three and four services. Tax planning tops the ranking (55%), followed by trust services (40%), risk management and insurance (39%), and estate and legacy planning (37%).

Cerulli advises firms targeting the upper tier to avoid assuming that an expanded service catalog must be built and managed internally.

“Scale largely dictates where that line falls: large entities can support a deeper bench of internal resources, mid-sized firms tend to formalize integrations or acquire capabilities outright, and those below that tier are best served maintaining their core specialization and partnering or sourcing value from the market,” stated Horton. “As the wealth management industry continues its push upmarket and the ecosystem of independent specialists broadens, firms will need to rigorously assess which capabilities make sense to build internally, acquire, or contract through strategic partnerships,” he concluded.

When Interest Rates Rise, Fund Bets Change

| By Amaya Uriarte | 0 Comentarios

Money once again carries a higher price, and fund managers are adjusting their bets. Following years in which expectations of monetary easing favored specific positions across fixed income and equities, the rise in sovereign bond yields is forcing a reassessment of the opportunity cost of holding equities, the merits of extending portfolio duration, and the appeal of holding cash.

The clearest signal is in the United States. As of October 26, the 10-year Treasury yield hovered around 4.99%, after touching 5.31% earlier in the month, according to market data published by MarketWatch. The Federal Reserve’s benchmark rate sat within a range of 3.75% to 4.00%, while investors awaited the monetary policy decision scheduled for October 28. Futures pointed to a high probability that the central bank would keep its rate unchanged, although the market continued to price in the possibility of another rate hike before year-end.

The significance of these movements extends well beyond expectations surrounding the Fed’s December announcement. When debt yields rise, investors gain a potentially higher-yielding alternative to risk assets, but they also face mark-to-market losses on bonds they already hold. Concurrently, higher rates increase the discount rate applied to future corporate earnings and can elevate corporate borrowing costs. Consequently, a rising-rate environment does not trigger a simple reallocation of capital from equities into bonds. It alters how managers calculate expected returns, weigh risks, and determine which assets merit a place in their portfolios.

Fixed income regains ground, but not all bonds equally

International flows provide initial evidence of this portfolio realignment. According to the Investment Company Institute (ICI), regulated open-end investment funds worldwide recorded net inflows of 550,000,000,000 dollars into fixed-income instruments during the second quarter of 2026, up from 380,000,000,000 in the first quarter. In contrast, equity funds attracted 139,000,000,000, down from 196,000,000,000 in the previous quarter. Money market funds absorbed another 208,000,000,000 dollars, compared to 193,000,000,000 in the first quarter.

The data demonstrate that fixed income and cash maintained a strong capacity to attract capital, though these flows cannot be attributed solely to rising interest rates. Growth expectations, geopolitical risks, liquidity requirements, and asset price fluctuations also drive allocation decisions.

Nor is the trend uniform across regions or asset classes. An analysis by State Street Investment Management published on October 23 found that, during the third quarter, manager allocations toward U.S. Treasuries with maturities of three to seven years reached the top quartile of their five-year historical range. Demand for longer maturities also exceeded its historical average for the first time since September 2024.

This dynamic suggests that some investors are beginning to view prevailing yields as attractive, even amid ongoing volatility and concerns regarding the U.S. fiscal trajectory. The opportunity to lock in elevated yields for multiple years can prove appealing to managers anticipating an eventual stabilization in yields or a moderation in inflation.

However, purchasing long-term bonds is not equivalent to taking on low risk under any circumstances. The longer an instrument’s duration, the more sensitive its price tends to be to interest rate movements. If yields continue to rise, capital losses can be substantial, even when the issuer possesses high credit quality.

Hence, discussions among fund managers extend beyond whether to expand fixed-income exposure. They must also decide where to position along the yield curve, how much duration risk to accept, and what term premium to demand for inflation and fiscal debt risks.

Selectivity is equally evident across different geographical markets. State Street reported that demand for European sovereign debt dropped from the 39th percentile of its five-year historical range at the end of June to the 2nd percentile by the end of September. In contrast, demand for European corporate bonds strengthened during the third quarter, surpassing the 70th percentile of its historical range from levels previously situated in the lowest decile.

This divergence matters: rising yields do not automatically benefit every issuer. Solvency perceptions, macroeconomic outlooks, debt supply, and fiscal conditions within each country can weigh just as heavily as headline interest rates.

The cost of capital tests equities once again

Equities face a different form of pressure. As bond yields climb, investors weigh corporate earnings potential against a fixed-income alternative that offers higher nominal returns. If equity prices do not adjust or earnings forecasts fail to improve, market valuations can lose their appeal. This effect is particularly pronounced among companies whose valuation hinges on cash flows projected far into the future. Growth companies, including several mega-cap technology firms tied to artificial intelligence, are typically more vulnerable to increases in discount rates because future cash flows account for a significant share of their net present value.

J.P. Morgan Asset Management noted in August that the 10-year Treasury yield had risen 53 basis points since the beginning of 2026, even as U.S. stock indices reached new highs during August. The firm emphasized that equity market reactions depend on the scale of the rate increase, the speed of the move, and the underlying catalysts driving it.

Yields rising because the economy is expanding and corporate earnings are strengthening is fundamentally different from yields rising due to an inflation spike, fiscal deterioration, or a higher term premium demanded to hold long-term debt. Under the first scenario, corporate earnings growth can cushion valuation compressions; under the second, elevated interest rates often coincide with rising input costs and dimmer profit outlooks.

Artificial intelligence introduces an additional dynamic. Building data centers, acquiring equipment, and expanding infrastructure require immense amounts of capital. This financing demand coincides with sovereign borrowing needs and heightened corporate debt issuance, intensifying competition for available capital.

Vanguard specifically identified persistent inflation, elevated energy prices, tighter central bank stances, and competition for capital as key forces lifting global yields in 2026. The asset manager cautioned that a 10-year Treasury yield sustained significantly above 5% would drive up the discount rate applied to future cash flows, putting downward pressure on equity valuations.

The challenge for managers is determining whether anticipated earnings growth justifies holding positions at rich valuations, or whether to rotate toward businesses generating immediate cash flow, maintaining strong balance sheets, and carrying less reliance on external financing.

Cash competes directly with risk assets

Money market funds are also integral to this reallocation. In an environment marked by elevated yields and volatility, these vehicles offer an effective tool to preserve dry powder while managers wait for more attractive entry points. U.S. data from ICI reveal a marked divergence between investor decisions in equity funds versus bond funds. Between January and August 2026, long-term mutual funds posted net outflows of 573,280,000,000 dollars. Within that group, equity funds shed 690,590,000,000, whereas bond funds gathered 174,376,000,000. Money market funds drew cumulative net inflows of 42,361,000,000 over the same period.

These figures reflect U.S. mutual funds and exclude ETFs from this statistical series; therefore, they do not encompass the entirety of assets under management nationwide. Nonetheless, they demonstrate how capital allocation can shift substantially across broad categories.

Cash carries an opportunity cost: if interest rates begin to decline, the yields provided by these instruments diminish, prompting investors to seek assets with higher upside potential. Yet preserving cash or short-term instruments also shields portfolios from immediate mark-to-market losses while maintaining liquidity to capitalize on sudden market dislocations.

Holding cash, in other words, is not necessarily an indicator of structural pessimism. It can serve as a tactical decision while assessing whether prevailing debt yields sufficiently compensate for risk, or whether valuations across other asset classes provide an adequate margin of safety.

Emerging markets face stiffer competition

Shifting conditions in the United States also carry repercussions for emerging markets. When Treasuries offer elevated yields, global investors typically demand wider risk premia to assume currency, political, and credit risks in other jurisdictions. This mechanism can exert downward pressure on emerging market currencies, increase external debt servicing costs, and erode the relative appeal of select local assets, though outcomes remain tethered to interest rate differentials, inflation trajectories, fiscal positions, and domestic fundamentals.

Market specialists pointed out in October that institutional demand for local-currency emerging market sovereign debt had returned to its historical median, but warned that the confluence of higher oil prices, a hawkish Federal Reserve, a resilient U.S. dollar, and higher Treasury yields continued to weigh on risk appetite for these instruments.

For global asset managers, the investment decision is not merely a matter of comparing nominal rates. A high yield can quickly unravel if currency depreciation erodes the spread or if sovereign risk perceptions deteriorate. Conversely, an economy characterized by anchored inflation, credible public finances, and a healthy rate buffer can sustain investor interest. In Mexico, this dynamic highlights the importance of tracking U.S. monetary policy, the behavior of the peso, and the policy decisions of Banco de México. Local bond yields must be assessed in tandem with foreign exchange risk and inflation expectations, rather than viewed in isolation.

A stricter selection process over mechanical rotation

Recent market dynamics also demonstrate that fund positioning can pivot swiftly alongside shifting interest rate expectations. According to LSEG Lipper data reported by Reuters, global equity funds attracted 28,160,000,000 dollars in the week ending October 21, while global bond funds absorbed 9,440,000,000. Both asset classes posted inflows for the fifth consecutive week, supported by an easing in Treasury yields and stronger-than-expected corporate earnings.

This development underscores that capital flows do not follow a purely mechanical playbook. Funds can expand exposure to equities and fixed income simultaneously when growth prospects improve, volatility subsides, or bond yields peak. They can likewise reduce risk across both asset classes if inflation, excessive leverage, or tightening financial conditions undermine the macroeconomic outlook.

The central task for managers is parsing what portion of expected return is generated by an asset’s income stream, what portion relies on capital appreciation, and how much incremental risk must be assumed to achieve it. In fixed income, this requires evaluating duration, creditworthiness, and term premia; in equities, assessing earnings resilience, cash flow generation, and interest rate sensitivity; and in cash, balancing current yield against the opportunity cost of waiting.

When capital becomes more expensive, funds do not necessarily abandon risk; they become far more discerning about the specific risks they choose to underwrite. Fixed income can regain attractiveness, cash can assume strategic utility, and equities can continue to advance if corporate profits substantiate their multiples. However, the leeway to overlook the cost of capital has narrowed substantially.

In such an environment, the edge lies not in forecasting the Federal Reserve’s next policy tweak, but in constructing portfolios resilient across divergent inflation, growth, and interest rate paths. When the price of money changes, the hurdle rates investors demand change with it, redefining where every asset stands in the competition for capital.

Apollo Enters Mubadala’s Capital to Accelerate Its Global Expansion

| By Amaya Uriarte | 0 Comentarios

Apollo has announced that it will acquire a minority stake in Mubadala Capital and commit capital to its various investment strategies, working alongside Mubadala Capital as it continues to scale as a premier global alternative asset manager. According to Mubadala Capital, this transaction will support its next phase of growth. Founded in 2011, Mubadala Capital has grown rapidly into a next-generation alternative asset manager, with a core alternatives business managing more than 60,000,000,000 dollars across five investment strategies.

They explain that Apollo’s investment will help the firm expand its investor base, broaden its strategies, and pursue new opportunities globally. As part of this transaction, other strategic investors will also join as minority shareholders in Mubadala Capital and, together with Apollo, are expected to commit a total of 5,000,000,000 dollars to Mubadala Capital’s investment strategies at the initial close.

“Mubadala Capital was established to connect global capital with differentiated opportunities across private markets, and this partnership accelerates that ambition. Apollo is one of the most respected institutions in our industry, and its confidence in what we are building reflects the strength of the platform we have created and the trajectory we are on. Apollo has been a trusted partner to Mubadala and across Abu Dhabi for many years, and we look forward to working even more closely with them as shareholders,” stated Hani Barhoush, CEO of Mubadala Capital.

For his part, John Zito, Co-President of Apollo Asset Management, added: “Mubadala has been a trusted partner in building and scaling several of our strategies over the years. This investment in the differentiated asset management platform they have built at Mubadala Capital builds on our existing partnership and reflects our conviction in their business. With a talented team, a highly complementary global network, and real momentum across its investment strategies, Mubadala Capital is well positioned for its next phase of growth. This investment will deepen our alignment and strengthen our mutual commitment to each other’s success, while creating significant opportunities to reach a broader global investor base.”

Apollo joins the founders of Silver Rock Financial as a shareholder in Mubadala Capital. Mubadala Investment Company remains the majority shareholder, reflecting its long-term conviction in the platform it has backed since inception. Following the entry of the new shareholders, Mubadala Capital will continue to operate independently and maintain its own governance structure, with its current management team retaining full authority over investment decisions and operations. The transaction is expected to close in the fourth quarter of 2026, subject to legal and regulatory approvals.

What Is a Continuation Fund and How Does It Differ from a Traditional Private Equity Fund?

| By Amaya Uriarte | 0 Comentarios

Traditional private equity funds have a limited lifespan, typically around ten years, with potential extensions. During that time, the manager acquires companies, develops them, and sells them to return capital to investors. However, sometimes a company continues to grow strongly as the fund approaches its maturity. Selling it may mean giving up part of its upside potential; holding onto it requires finding an alternative formula.

A continuation fund is that formula. It is a new vehicle, sponsored by the same manager, to which one or more assets from the original fund are transferred in order to continue managing them for several more years. It belongs to the segment of manager-led secondary transactions, known as GP-led secondaries.

How the transaction works

The manager proposes the transaction and hires a financial advisor to run the process. Specialized investors, such as secondary funds, insurance companies, or pension funds, compete to provide the capital that will purchase the assets. An independent valuation, often accompanied by a fairness opinion, helps establish the price.

Investors in the original fund, known as limited partners or LPs, are then given a choice. They can sell their stake and receive cash at the agreed price, or roll over into the new vehicle on terms similar to the existing ones. For its part, the manager typically reinvests a portion of its own gains into the new fund, aligning interests.

By way of example, consider an investor with a stake in a private equity fund that is expiring soon. That fund owns a company which, according to the transaction’s independent valuation, is worth 1,000,000 dollars for this investor. The manager proposes transferring it to a continuation fund and provides two options: sell or roll over. In the first case, the investor collects 1,000,000 in cash and exits the investment. Immediate liquidity is obtained and the money can be allocated elsewhere, but if the company continues to grow, the investor does not participate in that upside. In the second case, the investor receives a stake equivalent to 1,000,000 in the new vehicle and remains exposed to the company for several more years. If the company appreciates, the investor benefits. However, if it fails to meet expectations, the investor bears that risk, and the capital remains tied up for an additional period.

Key differences from a traditional fund

The first is the starting point. In a traditional fund, the investor commits capital without knowing precisely which companies will be invested in, known as a blind pool. In a continuation fund, the assets already exist, have a track record, and are known to the manager.

The second is the time horizon. While a traditional fund operates for a decade, a continuation fund typically has a shorter term, focused on completing a value-creation plan already underway.

The third is the risk profile. Uncertainty regarding asset selection and capital deployment is reduced, and the J-curve—the initial period in which costs outweigh returns—is usually softened. In exchange, the entry price can be demanding, and returns depend on the asset continuing to create value.

The fourth is diversification. These vehicles are usually concentrated in one or a few assets, meaning performance depends on fewer companies than in a traditional fund.

The primary challenge: conflicts of interest

The structure introduces an evident tension: the manager sits on both sides of the table, selling from one fund and buying from another. For this reason, transparency is essential. Common safeguards include advisory committee approval, independent valuations, a competitive bidding process to determine price, and manager reinvestment.

What investors should assess

Anyone evaluating this type of transaction should consider the quality and potential of the asset, the reasonableness of the price, the value-creation roadmap, the management fees and carried interest (the share of a fund’s profits that the manager receives as compensation for performance, in addition to management fees) of the new vehicle, and the information available to decide between selling or rolling over.

In an environment where traditional exits, such as trade sales or initial public offerings, are not always straightforward, continuation funds have gained prominence as a liquidity and portfolio management tool. Understanding their mechanics is increasingly necessary to evaluate private equity in its full breadth.