JPMorgan Chase and UnidosUS strengthened their partnership to support the expansion of affordable homeownership opportunities in Latino communities across the country, according to a statement.
At the UnidosUS Annual Conference in Las Vegas, held on July 17, the company announced a philanthropic commitment of six million dollars and joint policy recommendations to support homebuyer preparation, expand access to credit, increase housing supply, and preserve Latino homeownership.
The announcement follows a recent expansion of the Chase Homebuyer Grant, which increased from $5,000 to $7,500 in communities across the country identified by the U.S. Census as predominantly African American, Hispanic, or Latino.
“This includes more than 200 tracts in the greater Las Vegas metropolitan area and will help all eligible individuals reduce their interest rate and/or lower their down payment and closing costs when purchasing a home,” the statement says.
“At JPMorgan Chase, we are deeply committed to addressing housing access and affordability, particularly within the Latino community,” said Abi Suárez, Head of Neighborhood Development at JPMorgan Chase.
Although Latino homeownership has increased over the years, approaching 50% in 2023, significant barriers still exist, the organizations warn.
“In 2023, the Latino homeownership rate was nearly 25% lower than the homeownership rates for white households. This creates barriers to homeownership as a key source of financial stability and intergenerational wealth transfer,” the statement explains.
The philanthropic funding will support UnidosUS’s capacity-building and its HOME (Home Ownership Means Equity) initiative, a national effort to create four million new Latino homeowners by 2030.
JPMorgan Chase’s support for the HOME initiative will help expand solutions for high-cost households and ensure equitable access to homeownership by:
– Supporting a Latino-focused research network, the first of its kind, to inform and promote strategies and policies that advance Latino access to homeownership.
– Facilitating the exchange of best practices and knowledge among a network of UnidosUS affiliates and professionals working to address housing supply, equitable mortgages, and estate planning through convenings and collaborative assessments, the statement concludes.
In the opinion of Sefian Kasem, Global Head of ETF & Indexing Investment Specialists at HSBC AM, and paraphrasing William Shakespeare, the key to the outlook for the second half of the year lies in “cuts or no cuts (interest rates), that is the question.”
He explains, “Interest rate outlooks have changed significantly, especially concerning the U.S., and there is a greater consensus that they will be higher over the next 10 years; which creates a very different context from the last decade.” Additionally, he believes that the next six months should be approached with a clear change in mindset: “In 2023, we talked about a hard landing, but in 2024 we are already talking about a soft landing.”
This leads to his first reflection: we are facing a more fragmented environment in terms of monetary policy and geopolitics. For Kasem, although these two ideas—higher rates and greater fragmentation—will be present over the next ten years, they carry significant weight in the short term.
The HSBC AM head points out that the expectation has shifted from seven rate cuts to just two in the U.S. for this year. “Estimates of a more aggressive policy by banks continue. Their main driver will be inflation expectations, which is the primary element that monetary institutions are weighing to make monetary policy decisions,” he states.
According to his analysis, central banks in developed markets have been very focused on supporting the economic growth of their countries, but he believes it is better to use fiscal policy for that purpose. “Many of these countries will have to make decisions about their fiscal policy objectives and not rely as much on the measures we saw during the pandemic crisis to support the economies. Of course, they will have to do this in a context where inflation has moderated but is still high,” he adds.
Regarding the second fragmentation, geopolitics, Kasem warns that certain issues have gained relevance, such as infrastructure security and the resilience of supply chains. “Again, everything is connected. Greater attention will be paid to what is done with the economy and how fiscal policies are used because we are moving toward a more fragmented geopolitical environment,” he reiterates.
Implications for the Portfolio
For the HSBC AM specialist, this latter idea is relevant when positioning portfolios. “This demonstrates that investors need to have real diversification in their portfolios, as well as thematic bets, maintaining a multi-asset approach. It could be said that the time has come for a new diversification because generating alpha will be complex,” he argues.
His first proposal for investors is to be more tactical and selective in fixed income positions. He particularly finds the yields provided by global high yield, US ABS, and the 60/40 portfolio very attractive. On the latter, he notes: “The 60/40 portfolios had a tough time in 2022, but they still work. It just needs to be reviewed because, with the changing context, we cannot expect it to perform the same way it did over the last ten years.”
Additionally, he shows a preference for reducing exposure to U.S. equities, as he believes that in the risk/reward relationship, there are fixed income assets that perform similarly and offer fewer risks.
He also maintains a positive view of emerging markets. He explains that they are now much more robust than they used to be thanks to the dynamics of their monetary policy. “We prefer to introduce emerging market risk into the portfolio because their valuations are more attractive. In particular, we prefer emerging countries that are less related to the U.S.,” Kasem adds.
Finally, the HSBC AM specialist focuses on alternative assets, particularly real assets. He warns that at first glance, they may seem less attractive than before, but they can play an interesting diversifying role in terms of asset type and source of return. “It is important to have flexibility to capitalize on opportunities in the private equity segment and also in private credit, always with a medium-to-long-term view. Having exposure to commodities, real estate, and infrastructure, both listed and unlisted, will generate very good diversification for the current fragmentation scenario,” Kasem concludes.
According to a survey conducted by CFA Institute on sustainable finance among investors, the EU’s ESG regulatory framework contributes to an increase in Sustainable Investment but needs greater clarity and improvements. One of the main conclusions of this study is the variety of challenges faced by investors in the EU regarding the disclosure of sustainable finance, the reliability of data, and the complexity of ESG ratings.
“This study represents the views of financial professionals across the ecosystem, from large asset owners to boutique asset managers. One of the reasons we conducted this study is to understand how our members perceive the current EU regulatory regime, which aims to support and promote sustainable investment. We observe mixed opinions on the topic: while there is broad consensus that the EU’s sustainable finance regime is advancing the international agenda, a similar proportion feels that the EU’s efforts are confusing, and the lack of reliable ESG data does not justify the integration of ESG considerations into investment decisions. This is a concerning finding, and regulators need to pay attention to the sentiments of investment professionals,” highlights Josina Kamerling, Head of Regulatory Affairs EMEA at CFA Institute.
In this regard, investors are urging regulators to continue driving the international sustainability agenda but with legislation better adapted to ESG disclosure requirements to ensure alignment with their needs. Regarding the lack of reliable and verifiable data, the report concludes that the rapid implementation timeline of the applicable EU legislation has forced companies and asset managers to provide required disclosures despite the lack of reliable and verifiable data.
A testament to this is that 65% stated that the lack of reliable ESG data was one of the biggest challenges for asset managers in implementing the EU’s SFDR, while 45% consider that the high costs of obtaining ESG data and the lack of skilled personnel with experience to collect and analyze it were other major challenges in implementing the SFDR.
ESG Information
The report reveals that retail investors can be confused by the volume and complexities of sustainability information, making it difficult for them to use it to make appropriate investment decisions. 45% of respondents indicated that the amount and complexity of ESG information often lead to confusion among retail investors when making an investment decision. Specifically, 36% said that the disclosure requirements under Articles 8 and 9 of the SFDR are too complex and make it difficult for retail investors to fully understand the sustainability impact of the funds they are considering investing in.
“The lack of clear definitions in the SFDR has resulted in asset managers and companies interpreting existing rules and standards in various ways, leading to diverse implementation of the EU’s ESG legislation,” the report concludes, noting that 32% expressed that it was difficult to compare ESG products because the required disclosures are not standardized and are not comparable across jurisdictions for retail investors. Furthermore, 37% believe that the regulation of the EU Taxonomy has reached an excessive level of development, resulting in information complexity and confusion among investors and stakeholders.
Recommendations for Regulators
Following the survey’s conclusions, CFA Institute has developed several recommendations for EU regulators to “address the concerns expressed by investors.” These recommendations include:
Continuing to drive the international sustainability agenda. Focus on developing more step-by-step adapted legislation regarding ESG disclosure requirements and taxonomies to ensure alignment with the needs of financial market participants.
Providing clear and consistent ESG terminology throughout the sustainable finance legislative framework. Clearer definitions would promote consistency in the implementation of ESG-related legislation and minimize diverse interpretations of rules and standards.
Considering the challenge posed by unreliable ESG data and the associated costs of collecting ESG data and training personnel for further analysis. Such issues currently limit compliance with the disclosure requirements in the EU’s sustainable finance legislative framework.
Better clarifying the fund categorization system described in the SFDR for the disclosure requirements under Articles 8 and 9 of the regulation. A clearer approach could reduce the complexity of ESG disclosures for investors and mitigate greenwashing risks.
Addressing the complexity of ESG ratings and the divergent methodologies used by providers. The introduction of disclosure requirements, as envisaged in the proposed regulation on ESG rating activities, is likely to increase confidence in ESG rating providers and improve the comparability of their assessments.
Optimism remains among investors, according to the global manager survey conducted monthly by Bank of America. According to the entity, they remain bullish driven by the expected Fed rate cuts and strong expectations that a soft landing will eventually be achieved in the U.S. economy.
However, it is noteworthy that growth expectations in July are lower and that FMS cash levels have risen to 4.1%. “Monetary policy is too restrictive according to 39% of investors, the most restrictive since November 2008, but this, in turn, reinforces the belief that global interest rates will drop in the next 12 months,” noted BofA.
56% of managers expect the Fed to cut rates for the first time at the FOMC meeting on September 18, while 87% estimate that the first Fed cut will occur in the second half of 2024. “84% expect at least two Fed rate cuts in the next 12 months: 22% predict two cuts, 40% predict three cuts, and 22% predict more than three cuts,” the survey specifies.
A soft landing is the most plausible option for 68% of respondents compared to 11% who expect a hard landing and 18% who expect neither. The bank’s conclusion is key: “We believe that hard landing risks are undervalued, given the slowdown in U.S. consumption, the labor market, and public spending. This makes us more bullish on bonds and gold in the second half of 2024.” They add that the shift in conviction from “long stocks and short bonds” expects an impact on the soft landing narrative and policy consolidating the existing conviction.
Investors’ globalgrowth expectations decreased to a net 27% as they anticipate a weaker economy. In this regard, the entity explains that the increased pessimism about global growth this month is partly due to more negative U.S. growth prospects.
In fact, 53% of investors expect the U.S. economy to weaken, the highest percentage since December 2013. For now, two out of three investors still do not expect a global recession in the next 12 months. Specifically, 67% say a recession is unlikely, slightly down from 73% in June.
Complementing this view, “higher inflation” is no longer the main risk identified by managers, replaced by geopolitics. “87% expect lower rates, 81% a steeper yield curve, and 62% predict at least three Fed cuts in the next 12 months, starting on September 18,” noted BofA.
Asset Allocation
In this context, investors generally increased their allocation to utilities, U.S., emerging markets, and the UK, and reduced their exposure to the eurozone, commodities, and discretionary spending. Specifically, in July, investors remain overweight in equities and underweight in bonds. Notably, eurozone equity allocation fell to 10%, with a 20 percentage point month-over-month decline; the largest monthly drop since July 2012. Conversely, equity investors are more overweight in healthcare, technology, and telecommunications.
“71% of investors believe that being long in the Seven Magnificent is the most crowded trade. July marks the 16th consecutive month in which it has been the most crowded trade. 45% of respondents do not believe AI is a bubble, but a growing 43% of investors do,” added BofA.
Despite FedChairman Jerome Powell hinting on Tuesday that a more flexible monetary policy might be resumed at some point this year, suggesting a potential interest rate reduction, some market participants consider it unlikely. The Fed has maintained its benchmark rate between 5.25% and 5.50% for just over a year, starting in June 2023. At least four rate cuts were expected this year.
Vanguard released its report, “The Rise of Rates Will Persist, but Not Political Divergence,” for investors, which includes its mid-year economic and market outlook. In the report, their experts believe it is unlikely that the Federal Reserve will start lowering rates this year.
Although macroeconomic conditions suggest that emerging markets should cut rates, it is almost certain that they cannot do so before the Fed; usually, the opposite happens, and when markets move ahead, it is because there is near-absolute certainty.
In this regard, how central banks set their policy will depend on their assessment of the origin of inflation in their respective countries and whether it is driven by demand or supply shocks.
Vanguard unequivocally states that rates will not return to zero. Currently, the neutral rate is higher than before the COVID-19 pandemic.
Another relevant factor is the current conditions and context. “The current economic cycle is not normal, given unprecedented economic shocks including a pandemic, a war in Ukraine, and rising geopolitical tensions,” explains Vanguard.
Another significant factor is the uncertainty surrounding elections worldwide, including the upcoming U.S. presidential election on November 4, which is perhaps the most relevant for the world.
Vanguard advises that due to the critical global context, it is important to maintain global diversification and a similarly diversified and balanced approach to personal investments.
“Despite the unexpected strength of the U.S. economy, the events of the first half of 2024 have only reinforced our view that the environment of higher interest rates is here to stay,” states Vanguard.
Vanguard’s regional chief economists, Roger Aliaga-Díaz for the Americas, Jumana Saleheen for Europe, and Qian Wang for Asia-Pacific, discussed the implications of global divergence in rate policies and the role of a higher neutral rate in this environment.
The team led by Edmund Buckley, Head of Direct Private Equity Investments at Pictet AA, the alternative investments division of the Swiss Pictet Group, has acquired Technology Services Group (TSG), a provider of IT services for rapidly growing small and medium-sized enterprises based in the UK. “We invest in high-quality businesses led by top entrepreneurs and are delighted to partner with Rory McKeand and the TSG management team to achieve their growth objectives,” Buckley explained.
This is the second investment by Pictet AA’s direct private equity team, following the acquisition of a majority stake in Pareto FM, a leading provider of technical services for facilities management with ESG criteria in the construction sector, in November 2023. According to the management firm, TSG covers the full range of technology within the Microsoft ecosystem, facilitating companies’ transition to cloud-based infrastructure. It holds seven Microsoft designations: Business Applications, Modern Work, Security, Digital & App Innovation, Infrastructure, Data & Artificial Intelligence, and Cloud, making it one of the few UK Microsoft Solutions Partners accredited with technical and execution capability across all Microsoft, Azure & Cloud solutions, business applications, and cybersecurity. Based in Newcastle, with over 250 full-time employees and offices in London and Glasgow, TSG serves 1,300 clients across various industries in a market driven by strong outsourcing and digitalization trends.
Andrzej Sokolowski, Head of Private Equity in the UK at Pictet AA, noted that TSG has an attractive and defensible business model, with a high proportion of recurring revenue and clients who value service quality and expertise across the entire Microsoft suite. “It offers solutions in Azure, Dynamics, and cybersecurity, as well as accelerated deployment of artificial intelligence tools. We see significant growth potential in TSG, both organically and through mergers and acquisitions.”
Rory McKeand, CEO of TSG, stated: “The demand for cloud services among SMEs is starting from a low base and is boosted by the new and powerful generation of Microsoft productivity tools. Pictet’s investment and collaboration will accelerate the next stage of our growth.”
Pictet AA acquired TSG from founding owners Sir Graham Wylie and David Stonehouse, as well as the management team, which has reinvested part of the proceeds. “We are proud of the growth and success that TSG has achieved as a leading provider of exceptional quality IT services focused on Microsoft and the Cloud. We wish Rory, his team, the staff, and Pictet all the best for the future,” Stonehouse remarked.
The European Central Bank (ECB) will hold its July monetary policy meeting tomorrow. According to asset managers, it is likely to proceed without major surprises and, most notably, without new interest rate cuts as market expectations suggest.
“The ECB’s July monetary policy meeting is likely to pass without incident. Similar to market expectations, we do not anticipate any interest rate cuts. Data dependency remains high, decisions are made meeting by meeting, and there is no prior commitment to a possible rate cut in September,” acknowledges Ulrike Kastens, economist for Europe at DWS.
This probable pause in July, according to Kevin Thozet, member of the investment committee at Carmignac, “will allow the institution to better assess the region’s inflation and growth trajectory and confirm that the path forward is as desired. However, the prospects of a new rate cut in September, along with the Fed, are high.”
Currently, data indicate that eurozone inflation fell to 2.5% year-on-year, while core inflation remained unchanged at 2.9%. In the opinion of Jean-Paul van Oudheusden, market analyst at eToro, as long as interest rates stay above 3%, it is likely that the ECB’s monetary policy will remain restrictive. “The current base interest rate is 4.25%, which provides room for further rate cuts despite the latest adjustment to interest rate expectations made by the central bank in June. Recently, the central bank has been cryptic about its interest rate path, but its goal is not to surprise the markets. Christine Lagarde could prepare the market for a rate cut in September or October in her press conference on Thursday,” comments van Oudheusden.
Regarding what to expect from tomorrow’s meeting, Germán García Mellado, fixed income manager at A&G, adds: “Regarding the reduction in bond purchase programs, no significant new developments are expected, since in July, reinvestments of the special program launched during the pandemic (PEPP) began to be reduced by 7.5 billion per month, with the aim of fully reducing reinvestments by 2025.”
Already stated by the ECB
In line with what the ECB has explained so far, given that there are no new growth and inflation projections, it is unlikely that the communication will change. According to Philipp E. Bärtschi, Chief Investment Officer of J. Safra Sarasin Sustainable AM, the ECB’s rate cut in June was accompanied by comments suggesting that the ECB will also cut its rates gradually rather than quickly. “However, due to the weaker growth momentum and the projected inflation path, we expect three more rate cuts in the eurozone this year,” notes E. Bärtschi.
“The messages issued in Sintra are consistent with previous communications, and barring surprises in the data, September is the preferred date for the next action by members. What is reaffirmed is the trend of rate cuts. This meeting will take place after the French elections, and although there is still some uncertainty around the composition of the next French government and the prospects for fiscal policy, we do not rule out seeing Lagarde addressing questions about what the ECB could do to protect French sovereign bonds and under what circumstances,” adds Guillermo Uriol, Investment Manager and Head of Investment Grade at Ibercaja Gestión.
Additionally, according to President Lagarde, the strength of the labor market allows the ECB to take time to gather new information. Consequently, in the opinion of Konstantin Veit, portfolio manager at PIMCO, the ECB is in no rush to cut rates further, decisions will continue to be made meeting by meeting, and the data flow in the coming months will determine the speed at which the ECB removes additional restrictions.
“Given the ECB’s reaction function, whose decisions are based on inflation outlooks, core inflation dynamics, and monetary policy transmission, we foresee that the ECB will continue cutting rates in expert projection meetings, and we expect the next rate cut to occur in September,” emphasizes Veit.
Forecast of new cuts
The market currently expects a 25 basis point rate cut in September and another in December/January. However, they identify that the ECB remains open to a slower rate cut process based on the data being published, with a meeting-by-meeting approach.
For their part, investment firms agree that the market is pricing in another 45 basis points of rate cuts for this year and consider that the current terminal rate, around 2.5%, above most estimates of a neutral interest rate for the eurozone, indicates a high concern about last-mile inflation. “Overall, the market valuation seems reasonable and broadly aligns with our baseline of three cuts for this year,” points out Veit.
On the possibility of rate cuts resuming in September, Peter Goves, Head of Developed Markets Sovereign Debt Analysis at MFS Investment Management, argues that it is not yet fully priced in, which leaves some room for an uptick in the event of a 25 basis point cut at that meeting. “This keeps us optimistic about eurozone duration in the short and medium term. European government bond spreads remain relatively tight given the risk of events in France (which turned out to be relatively brief and more idiosyncratic than systemic). We see this as a possible topic to address in the press conference, but we doubt Lagarde will comment on France’s domestic political situation. Additionally, Lagarde is likely to affirm that monetary policy transmission has worked well,” explains Goves.
The ECB’s challenge
For Thomas Hempell, Head of Macro Analysis at Generali AM, part of the Generali Investments ecosystem, the ECB sticks to its data-dependent approach and stressed that wage data plays a crucial role. “On the other hand, official interest rates remain well above the neutral rate. We believe that with the slow downward trend in inflation, the ECB will initiate quarterly interest rate cuts until the deposit rate reaches 2.5%. This broadly aligns with market expectations,” comments Hempell.
In the opinion of Gilles Moëc, Chief Economist at AXA IM, it is paradoxical that central banks are being harshly criticized just as they are about to declare victory over inflation at a manageable cost to the real economy. In fact, he considers that the ECB started cutting rates in June, before clear signs of recession began to accumulate. “We believe it will be tight, but there is a possibility that the ECB will remove monetary restraint quickly enough to avoid a recession phase. We do not expect an emergency cut at this week’s meeting; we believe there would have been clear signals to this effect at the annual conference in Sintra,” he states.
According to his forecasts, the ECB Governing Council meeting should be the occasion to make it clearer that the June cut was only the beginning of a process. “We expect the next 25 basis point cut to occur in September. The market is now pricing an 87% probability of a cut then, and we would put it even higher. It is true that disinflation has stalled, but surveys converge to paint a sufficiently moderate picture of underlying price pressure for the ECB not to wait too long. In June, Christine Lagarde energetically avoided engaging in a discussion about what would be a path to removing restrictions. We expect greater openness this week, largely validating current market prices,” he concludes.
Photo courtesyFrancisco Tochetti, Director of International Wealth Planning at BFC Asesores
Wealth management is a professional service offering exclusive financial advice to clients known as High Net Worth Individuals (HNWI). This discipline involves asset management with the aim of reducing expenses, diversifying investments, maximizing profitability, and increasing wealth.
Given the current context and the challenges that the asset and wealth management industry is facing, FlexFunds and Funds Society have launched an initiative to highlight the perspectives of influential leaders in the industry from various geographies.
Francisco Tochetti is a lawyer specializing in wealth and succession planning. With over 13 years of experience in the industry, he currently serves as the Director of International Wealth Planning at BFC Asesores (CDMX). Francisco is a TEP (Society of Trust Estate Practitioners) and holds various master’s degrees and postgraduate qualifications in International Taxation and Corporate Compliance (Centro de Estudios Garrigues Madrid, University of Montevideo Uruguay, among others). He is the author of various study works and a professor in the field.
As the Director of International Wealth Planning at BFC Asesores (a firm based in CDMX), Francisco faces challenges such as the need to be extremely diligent in a market like Mexico, where there are large and diversified sophisticated families. He mentions that another major challenge is building trust and maintaining close relationships with clients to provide effective and tailored advice, aspects he considers fundamental in his role. Finally, he considers technical knowledge in his field to be essential, as it requires understanding both local and international regulations on legal, tax, succession and compliance, etc.
How is the flow of investment funds in wealth planning in Mexico, given the political situation? where is Mexican money headed?
The Mexican market is very attractive for investment banking and for attracting capital to develop private projects. In cities like CDMX, Monterrey, Guadalajara, and Mérida (among others), there are large, well-qualified, and well-advised investors.
Like in other LATAM countries, when a family decides to invest outside of Mexico, liquid investments tend to go to Switzerland and the United States primarily, while there is also growing interest in private investment projects in Spain and other European countries.
After the 2024 Federal Elections, the whole world is paying attention to the direction the new government might take (continuation of the previous one but now with a majority in parliament). However, no significant capital movements have been seen in this regard.
Mexico is a very strong market, a country of great relevance to the world economy with very important commercial relationships. It will be essential to maintain legal security and thus continue to strengthen the confidence the country has globally. The upcoming elections in the USA are also very relevant for the country.
What are the main trends you see in the wealth planning sector?
The main trend in wealth planning is the increasing international transparency and the plurality of applicable regulations, which requires highly specialized advisors who are constantly training. Years ago, everything was simpler and more straightforward; wealth was not as diversified, and families lived in the same country. Today, there is a lot of local and international regulation to consider when planning wealth if we want to do it correctly.
How do you think the wealth management industry will grow?
The wealth management industry will grow significantly for three reasons: the endless investment opportunities available today, the increase in available capital worldwide, and technological advances that facilitate international investment.
The industry values advisors who can have a global business vision, advisors who analyze the issues in detail and collaborate with other experts internationally seeking excellence in results. Although this requires more work time and greater knowledge, I see a significant growth potential in the industry, especially in countries like Mexico.
Have you managed collective investment vehicles during your career?
I have structured various types of collective investment vehicles, often to securitize real economy assets and facilitate their investment. I have worked with notes like those issued by FlexFunds, SICAV Umbrella Funds, and SPVs. I have not directly managed the investments but have developed strategies for an asset manager or another person to handle the investment management.
What role do alternative assets play in wealth management?
Today, alternative assets play a fundamental role in designing investment strategies, not only for their potential profitability but also for the security some of these assets can offer.
However, it is important to note that these types of strategies are for clients with a long-term investment vision and who do not need immediate liquidity. Alternative assets are not ideal for all investment profiles.
What is the biggest challenge a wealth manager faces in capital raising or client acquisition?
From my perspective as a wealth planning advisor, I believe the biggest challenge for a wealth manager is establishing a close and trusting relationship with clients. However, today, it is no longer enough to offer investment advice; other areas closely related to investment, such as taxes, succession, wealth protection, privacy, etc., must be analyzed.
Providing a comprehensive service where wealth management is complemented by wealth planning adds significant value for the client. The key is not only to offer investment strategies but also to protect, optimize, and plan the client’s wealth, thinking about their future and that of their family.
What factors do clients prioritize when investing or selecting financial investments?
The main factor my clients prioritize when investing is security, especially after the post-COVID-19 market volatility, the market downturn in 2022, and the increase in US interest rates in recent years.
In LATAM, where political, social, and economic instability is common, investors seek to protect their capital by opting for safe and stable investments. Therefore, in both regions, investors are currently leaning towards conservative assets with predictable income, such as fixed income and bonds.
On a scale of 1 to 10, how important is the emotional management of the client in wealth management?
Emotional management of the client in wealth management plays a fundamental role: it is a 9 or a 10.
Francisco emphasizes that wealth planning addresses delicate issues such as structuring and protecting wealth, tax optimization, and inheritance planning during one’s lifetime. These topics can be emotionally difficult for clients; therefore, developing soft skills and understanding the emotions involved in wealth planning is crucial for building a solid and lasting relationship.
“Each client is unique, and there are no standard solutions. Solutions and strategies must be tailored to each case. First, it is crucial to understand the client’s situation and their particular goals. I always insist that we must adapt the strategy we design to the client’s needs and not adapt the client to the current strategy. The more information the client provides us about their short, medium, and long-term goals and needs, the better we can design an appropriate strategy”, he says.
Regarding technological advances, Francisco believes that artificial intelligence is beginning to play an important role in the wealth management sector by making work more efficient, obtaining a lot of information, analyzing financial assets, rebalancing portfolios, etc. However, he emphasizes that in the field of wealth planning, many soft skills are still required that artificial intelligence cannot yet match.
In the next 10 years, Francisco anticipates an evolution towards a much more sophisticated industry with regulatory changes and more advanced strategies supported by highly trained professionals. However, he does not foresee a radical change driven by technology but rather an integration that enhances advisors’ ability to better serve their clients.
Interview by Emilio Veiga Gil, Executive VP FlexFunds, in the context of the Key Trends Watch of FlexFunds and Funds Society.
In the context of presenting the second quarter 2024 results, Larry Fink, Chairman and CEO of BlackRock, reiterated the company’s commitment to private markets. This commitment has been bolstered by the acquisition of Preqin earlier this month.
“BlackRock is leveraging the broadest set of opportunities we’ve seen in years, including private markets, Aladdin, and full portfolio solutions across both ETFs and active assets. At the same time, we are opening significant new growth markets for our clients and shareholders with our planned acquisitions of Global Infrastructure Partners and Preqin,” Fink stated.
In this regard, he highlighted that organic growth in this second quarter was driven by private markets, in addition to retail active fixed income and increasing flows into our ETFs, which had their best start to the year in history. “BlackRock generated nearly $140 billion in total net flows in the first half of 2024, including $82 billion in the second quarter, resulting in 3% organic growth in base fees. We are delivering growth at scale, reflected in a 12% increase in operating income and a 160 basis points expansion in margin,” he said regarding the results.
According to Fink, BlackRock’s extensive experience in engaging with companies and governments worldwide sets it apart as a capital partner in private markets, driving a unique deal flow for clients. “We have strong sourcing capabilities and are transforming our private markets platform to bring even more scale and technology benefits to our clients. We are on track to close our planned acquisition of Global Infrastructure Partners in the third quarter of 2024, which is expected to double the base fees of private markets and add approximately $100 billion in infrastructure assets under management. And just a few weeks ago, we announced our agreement to acquire Preqin, a leading provider of private market data,” he emphasized.
Finally, he insisted that “BlackRock is defining a unique and integrated approach to private markets, encompassing investment, technological workflows, and data. We believe this will deepen our client relationships and deliver value to our shareholders through premium and diversified organic revenue growth.”
Polls for the U.S. presidential elections indicated a tie, but recent events have shifted momentum towards the Republican candidate, former President Donald Trump (2017-2021). Various hesitations by the current President and Democratic Party candidate, Joe Biden, along with an incident last Saturday where Trump was injured by a gunshot to the ear, have positioned the former president and magnate as the favorite in the race for the Oval Office.
The fixed income markets are reacting to this shift, as the implied volatility of Treasury bonds (measured by the ICE BofAML MOVE index) spiked following the presidential debate on June 27, according to a Morgan Stanley report.
Conversely, major stock indices have continued to rise to new all-time highs, suggesting that equity markets might be ignoring recent political developments.
Morgan Stanley’s Global Investment Committee warns, “Investors cannot afford to be complacent about potential political changes, especially at a time when U.S. debt sustainability is in question, the economy is slowing down, and the Federal Reserve is still looking for evidence that inflation is under control.”
According to analysis by Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, the current proposals of a Republican triumph, both in the executive and in Congress, could have significant implications in three areas:
Tax Cuts
If Republicans sweep the November elections, the Tax Cuts and Jobs Act of 2017—which reduced tax rates for businesses and individuals and is set to expire at the end of 2025—could be extended and potentially enhanced. The extension of the Act could add around $1.6 trillion to federal deficits over the next decade, according to calculations by Morgan Stanley’s expert team cited by Shalett.
Additional deficits are a critical issue with current interest rates, as the cost of servicing Treasury debt has nearly doubled in the last two years. As federal debt and deficits increase, inflation-adjusted interest rates rise, likely putting pressure on U.S. corporate profits and stock valuations.
Tariffs
Current proposals from the Republican Party include sweeping trade barriers, potentially against historical allies and partners such as Mexico, Canada, and the European Union.
Historically, tariffs have caused a one-time price increase and supply chain disruptions that distort short-term growth. As a result, tariffs could disrupt recent progress toward containing inflation, potentially exacerbating consumer pain and increasing the prospect of “stagflation,” meaning persistent inflation amid stagnant growth, the report adds.
Immigration
Morgan Stanley’s chief U.S. economist, Ellen Zentner, and other researchers have noted that the increase of more than 3 million immigrants to the United States in 2022 and 2023 has had a dual economic benefit: higher population growth and a positive labor supply. This has helped drive higher GDP growth, stabilize housing prices, and reduce wage costs, contributing to lower inflation.
The adoption of radical measures at the border, as suggested in some proposals, could slow the growth of the U.S. working-age population, which could drag down the economy and reignite wage-based inflation.
Investment Implications
Considering all these factors, portfolio adjustments may be necessary, warns Morgan Stanley.
Investors should consider adding what could be leaders in a Republican sweep scenario, such as energy, telecommunications, and utilities.
Additionally, they should consider positioning portfolios defensively, focusing on investments that offer growth at a reasonable price, in areas such as healthcare, industrials, aerospace and defense, certain energy generation and grid infrastructure, the financial sector, and residential real estate investment trusts.
Additional exposure to Japan, gold, hedge funds, and investment-grade credit may also be beneficial, concludes the report.
