Private Equity’s Resilience

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According toTom Franco, Partner at CD&R, Private Equity (PE) has always thrived in challenging environments. Amid market turmoil and economic downturns, the robustness and long-term investment approach of PE firms shine through. This competitive advantage is attributed to their ability to make calculated moves, unfazed by the short-term influences that often sway other asset classes.

He believes that market turmoil tends to be favorable for generating strong returns. “The reason for this is relatively straightforward” he tells Funds Society. “For PE firms, I believe that economic downturns spell opportunity. I believe the best PE managers invest over the long-term and in disrupted periods, deploy capital at more attractive terms, and make bold, calculated moves without being inhibited by the short-termism that frequently influences so many public and family companies. I believe this ability to take a long view creates important competitive advantages”.

In his opinion, while the near-term macroeconomic environment cannot be ignored, it does not necessarily change the PE investment approach. 

“The long-term view usually assumes the need to hold an investment through both good times and tougher times.” He adds. 

Franco reminds us that, across portfolio companies, macros often offset in ways that are hard to predict.

As he notes, “there are portfolio businesses where inflation has been a significant headwind in 2022 because PE firms have not been able to pass on inflationary costs due to long-term contracts that typically represent an investment positive when they are making an investment decision. But there are also businesses where inflation has been a significant benefit, due to positive net price realization with largely fixed cost structures. And interestingly, these businesses with opposite reactions to the macro also exist within the same industry.” 

Even within those businesses that are economically sensitive, he believes a depressed economy can create opportunities for consolidation or to take share, reset dynamics with suppliers and customers, recruit exceptional talent or reinvest at attractive levels.

“PE is focused on being a strategic partner to sellers, and I believe this fundamental approach is even more demand in tough times. In a tougher environment, there are more problems, and therefore more problems available for managers to solve.”

The PE specialist believes that the era when PE was associated with mere financial engineering is a distant memory. “After several cycles and events ranging from extraordinarily cheap capital to the credit crunch, many today argue that private equity creates value through underlying business and operational improvements.” 

In his opinion, the challenge going forward is the appropriate form of operational value creation and how PE firms should evolve their skillsets. 

“In the future, I believe PE will require increased industry and capability specialization to drive fundamental value creation, such as digital, supply chain and talent management. I believe it will also require much earlier operational interventions in the PE ownership life cycle. Today, PE operations teams are often brought in well after the transaction closes. I believe the rule in the future will be early engagement to ask questions, assess management talent, and ensure the capital structure will support the transformation envisioned for the business being acquired.”

Looking at the future

Environmental, Social, and Governance (ESG) factors are becoming a significant part of the PE playbook. Companies that efficiently use resources tend to be more valuable at exit. “Looking ahead, I believe we’ll see GPs transition from narratives about their ESG ambition to clear reporting frameworks with dedicated teams. I also believe that more GPs will make environmental, social and governance matters more prominent in their processes, from diligence through the holding period.”

As the PE industry continues to grow, with over 20,000 firms globally, Franco considers that the industry has to be vigilant to prevent being defined by a single bad actor, at a time when it becomes increasingly important for participants to engage on public policy issues. “Firms must proactively defend their license to operate as media, regulators, and lawmakers focus on PE’s role in stakeholder capitalism, ESG, employment, and the healthcare system.”

In conclusion, 2023 promises to be a year of opportunity for PE firms, with a focus on operational value creation, ESG excellence, and active engagement in public policy issues. Amidst the market turmoil, PE firms have the potential to thrive, leveraging their long-term investment approach, strategic partnerships, and operational improvements to generate strong returns.

Insigneo Incorporates Alfredo Maldonado to Lead Its Expansion in New York City

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Photo courtesyAlfredo Maldonado, Managing Director & Market Head in New York

Insigneo is delighted to announce the appointment of Alfredo Maldonado as Managing Director and Market Head for New York and US Northeast Region.

Maldonado will be based at Insigneo’s expanding office located on Madison Avenue and 41st Street reporting to Rodolfo Castilla, Insigneo’s Head of Sales. 

With this important incorporation, Insigneo reaffirms its commitment to delivering exceptional financial services to clients across the globe. The company’s decision to hire Maldonado underscores its focus on hiring the best talent and reinforces its position as a leading player in the global wealth management sector. New York is an important hub for the firm to continue its expansion plans while providing an integrated platform for Investment Professionals and their clients globally. 

In his new role, Maldonado will oversee Insigneo’s existing business in New York, driving the company’s growth by focusing on top line revenue and assets for its existing business, while expanding its footprint in the Northeast.

“Alfredo’s appointment reflects Insigneo’s aspiration to be recognized as the best value proposition for all independent advisors focused on international clients. We are thrilled to welcome such a distinguished professional, and particularly somebody that shares our values, which is critical to all of us,” said Rodolfo Castilla, Head of Sales for Insigneo.

Maldonado brings 25 years of international wealth management experience, having worked in New York, California, and Florida, expanding his network and knowledge across these regions. The senior hire brings a deep understanding of the New York market, which will be crucial in growing Insigneo’s presence in the city.

“Insigneo’s commitment to providing a pro-business approach for financial advisors, enabling them to provide exemplary service to their clients is unmatched in the industry,” said Maldonado. 

“I am happy to welcome a leader of Alfredo’s caliber and culture to our growing Insigneo family. New York and the Northeast are very important markets for us to grow and we are excited he will lead those efforts to make us a powerhouse,” said Javier Rivero, Insigneo’s President & COO.

Advisors’ Front-Office Technology Is Here to Stay

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Driven by the need to facilitate a digital work environment, advisor use of front-office technology has evolved significantly over the past three years. New research from Cerulli, State of U.S. Wealth Management Technology 2023, finds front-office technology has made a lasting impact on both client satisfaction and advisor productivity.

Between 2019 and 2022, the greatest rates of growth in advisor adoption occurred with technologies that facilitate a digital work environment, such as e-signature, client portals, and video conferencing, driven largely by the needs imposed by the pandemic.

Advisors tell Cerulli that these technologies were critical to their ability to operate effectively during the pandemic, but that the benefits experienced go well beyond that. Thus, many patterns of technology use that emerged during the pandemic are likely to continue into the post-pandemic world.

The technologies that are most frequently cited as positively impacting the client experience include e-signature (77%), video conferencing (75%), and client portal (64%). Likewise, the technologies that are most frequently cited as positively impacting advisor productivity include video conferencing (75%), e-signature (73%), and CRM (70%).

“This data aligns with the many conversations Cerulli has had with financial advisors who share how e-signature technology has drastically reduced the time and effort required for clients to open accounts, and create linkages between accounts, for example, obviating the need for papering and re-papering of accounts,” says Michael Rose, associate director.

The same applies to virtual meetings, which were rare prior to the pandemic, and are now often a preferred meeting option for clients and advisors. “The precipitous rise in advisors’ use of these applications over the last three years underscores the importance of creative, outside-the-box thinking when it comes to the ways in which they do business altogether,” he says.

Overall, the ways in which advisors source technology varies between affiliation models. For instance, 88% of advisor practices affiliated with captive broker/dealers (B/Ds) source their suite of technology from their home offices with relatively little control over product selection. Independent registered investment advisors (RIAs) represent the other end of the spectrum, with 50% building custom technology stacks sourced entirely from third parties.

“The diverse ways in which advisor practices source their technology are testament to the varying approaches for operating a wealth management practice in the modern day,” concludes Rose.

Ostrum Asset Management Announces the Appointment of Axel Botte as Head of Markets Strategy

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Photo courtesy

Ostrum Asset Management (Ostrum AM), an affiliate of Natixis Investment Managers, announces the appointment of Axel Botte as Head of Markets Strategy. He was previously the global strategist in the same team.

Axel Botte will head the markets strategy team, which is composed of: Zouhoure Bousbih, Emerging countries Strategist and Aline Goupil-Raguénès, Developed Countries Strategist, both members of the team since 2018. The recruitment of a new global strategist is underway. Axel Botte reports directly to Ibrahima Kobar, CIO Fixed Income, Structuring and Research, and member of Ostrum AM’s Executive Committee.

Within Ostrum AM, the main missions of the Markets Strategy team are to establish a macroeconomic, economic and financial scenario to support the active fundamental management teams in their strategy and asset allocation recommendations, as well as to provide top-down internal research to support the managers’ convictions.

Ibrahima Kobar, CIO Fixed Income, Structuring and Research at Ostrum AM, said: “We are delighted that Axel has taken on this new role at Ostrum AM. His experience in asset management and his expertise in international markets strategy are major assets to meet the requirements of our institutional clients”.

Axel Botte started his career in 2000 at Axa IM as an economist, then became an equity strategist between 2002 and 2006. In 2007, he was appointed head of fixed income strategy in the Investment Strategy department of the management company. In 2010, Axel Botte joined Ostrum AM, as an Global Strategist, where he works closely with the fixed income teams on specific themes, such as interest rates, developed market government bonds, inflation-linked bonds and credit. 

Axel Botte holds a DEA in Industrial and Financial Strategies and Econometrics from the University of Cergy-Pontoise.

 

Fund Managers Increase Liquidity in the Most Pessimistic Investment Environment of the Year

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Investor optimism is declining as the year progresses. It is not surprising, given that the idea that economic growth will weaken as a result of the decisive actions of central banks is increasingly widespread.

This sentiment has become evident in the latest monthly survey of fund managers conducted by Bank of America (BofA). Investor sentiment deteriorated in May, reaching its lowest point of the year. The reason is precisely that there are more investors expecting an economic downturn: 65% believe this scenario is the most likely, compared to 63% the previous month.

The most immediate consequence has been an increase in the position of liquidity, which now stands at 5.6%, up from 5.5% the previous month. Liquidity has been above the 5% threshold since November 2021.

The weakening expectations for China also do not contribute to optimism. Now, 55% anticipate a strong rebound in China, down from 83% in April. This sentiment extends beyond portfolios, as the percentage of investors overweighting the Chinese stock market decreases from 30% to 24%. In fact, this represents the lowest overweight position in this asset since December 2022.

Fund managers continue to closely monitor the actions of the Federal Reserve, 61% believe that the Fed has completed the cycle of interest rate hikes, and a large majority, 43%, expects a cut in the interest rate at the January meeting next year. However, a third of the respondents still believe that there will be further interest rate hikes in the US.

As for the main negative events, the spending ceiling emerges in May as one of the biggest “tail risks”: 8% point to this event as a possible negative scenario for the markets.

A credit crunch combined with a global recession once again tops the list of investor concerns, although with slightly less intensity this month, as 33% mention this event. It is closely followed by high inflation coupled with further interest rate hikes, with 29% expressing this view.

The fear of a credit crunch and a global recession prompted an increase in portfolio exposure to fixed income: 14% overweight this asset, the highest level since March 2009. Sector rotation is also accelerating.

The positioning in growth sectors (technology and discretionary consumption) compared to financials (banking and insurance) increased by 12 percentage points in May, reaching the highest level since August of last year. The last time the survey showed such a rapid shift from financials to growth was in November 2007.

Man Group appoints Robyn Grew as next CEO as Luke Ellis announces retirement

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Photo courtesy

Man Group announces that Luke Ellis has informed the Board of his decision to retire and that Robyn Grew will be appointed as the next CEO of Man Group.

She will take over from Luke as CEO as of 1 September 2023, at which time she will also join the Man Group Board as an executive director. While she will relocate to the UK following her appointment, she will continue to spend a substantial proportion of her time in the US, given the firm’s presence there. Ellis will continue as CEO and remain an executive director of the Company until 1 September 2023 to ensure an orderly transition and oversight of the Company’s 2023 interim results.

Grew is currently President of Man Group and a member of the Senior Executive Committee, based in the US. She has significant operational and financial services experience as well as a strong track record of demonstrating strategic vision and leadership. During her 14 years at Man Group, Robyn has managed the solutions business, overseen trading and execution as well as acted as Group COO, Head of ESG and General Counsel. Her wide-ranging responsibilities, spanning from investment divisions, risk and technology to legal, infrastructure and operations, have provided her with broad experience and a deep understanding of the business. She has been integral to the firm’s global strategic expansion and oversaw the reorganisation of Man Group’s corporate structure in 2019 to better align it with the global footprint of the business. She has also spearheaded the firm’s diversity programme, Drive.

Before joining the firm in 2009, Grew held senior positions at investment banks Barclays Capital and Lehman Brothers as well as at LIFFE, the largest futures and options exchange in London – since renamed the ICE Futures Europe. These roles saw her based for periods of time in New York, London and Tokyo giving her broad, global experience.

In line with best practice and its roles and responsibilities, the Nomination Committee of the Board has continually reviewed and discussed Board and executive succession plans. This has included identifying potential internal successors for the CEO role and, with the assistance of an external executive search firm, undertaking a thorough preparatory external benchmarking exercise. Following Luke’s decision to retire, the Board was pleased to be able to implement its succession plans and immediately approve the appointment of Robyn as the Company’s next CEO.

“It is an absolute honour to be taking on the role of CEO at Man Group. During more than a decade working at the firm, it has developed into a world leading, technologically brilliant, active investment firm with a fantastically collegiate culture. I look forward to building on that to ensure the firm remains positioned at the forefront of active investing, attracting top talent and delivering for our clients and shareholders alike. Luke has been an incredible ally and mentor to me and I am excited to be able to follow in his footsteps into this new role,” Robyn Grew said.

Luke Ellis commented: “It has been a privilege to be CEO of Man Group and it is easy to want to stay on forever when you are leading such a great team of people. However, I feel that now is the right time to pass the reins to the next custodian of this firm and having worked with Robyn for well over a decade I could not be more thrilled at her appointment. Robyn is truly exceptional and I know that the firm will continue to go from strength to strength under her leadership and that of the highly talented team around her.”

“Luke has had a long and distinguished career in the City, leading several organisations before he landed at Man Group. He has been a fantastic, visionary leader, inspiring the firm to reposition itself for the future and working closely with his leadership team to oversee a period of tremendous growth. He has also played a significant part in developing a great culture that makes Man Group such a wonderful place to work. The fact that we have been able to make an appointment internally for his successor is a reflection of the highly talented team that he has developed around him. We thank him for his leadership of the firm over the past seven years and wish him the very best for his retirement,” John Cryan, Chair, Man Group, commented.

In addition, Cryan added: “I know I speak for the entire Board when I say what a pleasure it is to be able to announce Robyn Grew as the next CEO of Man Group. Robyn is a dynamic, strategic leader with deep operational and commercial expertise, who knows the firm inside-out and is the perfect fit to take the firm on the next phase of its journey”

Emerging Managers Plan to Invest in Headcount and FinTech for Faster Growth in 2023

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Alternative investments FinTech Dynamo Software  released the results of a new survey, Trends, Challenges, & Insights from Leading Emerging Managers. The findings come on the heels of two additional pieces of Dynamo-led primary research, an October 2022 survey of Limited Partners (LPs) and asset allocators and a February 2023 survey of General Partners (GPs).

Throughout March 2023, Dynamo surveyed leaders across the global Emerging Manager marketplace. Participants represented a diverse set of funds, including private equity, venture capital, hedge funds, corporate development, real estate, fixed income, small-cap public equity, and private credit.

“The Emerging Managers we surveyed have a clear vision for moving quickly from scrappy upstarts to industry titans,” said Dynamo Software CEO Hank Boughner. “Despite the market’s ebbs and flows, they are aggressively pursuing healthy returns and hunting for both unicorns and camels.”

The research, contextualized in the Dynamo Frontline Insight Report, uncovered several noteworthy investment, talent and technology strategies being deployed by leading Emerging Managers today.

Top Talent Priority for Growth

To be successful in a tough economic climate, Emerging Managers are prioritizing the acquisition of top talent. Survey participants named “increased internal headcount” as the top area of investment to drive fundraising efforts over the next 12 months.

Like their larger GP counterparts, Emerging Managers do not seem likely to source fee revenue for additional dollars to pay top talent. The same percentage (88%) of GPs Dynamo polled in February and Emerging Managers polled in March indicated their fee structure would remain the same over the next 12 months.

Rather, cost reduction appears to be the go-to-strategy. “Creating efficiencies and optimizing workflows,” “overall cost” and “empowering the whole team to leverage tech” topped the list of reasons Emerging Managers are implementing technology. Operationally, “removing manual data tasks and introducing automated workflows” ranked as the top priority.

FinTech Strategy

Following “increased internal headcount,” two other key areas for investment were “third-party data providers” and “technology platforms.”

“It was validating to learn that Emerging Managers see value in FinTech and data partners,” said Boughner. “It’s what drives our team to iterate continuously and rapidly, as there are new types and sources of data available each day. In close consultation with our clients, we identify and integrate that data rapidly. Perhaps as importantly, we invest in development that facilitates the smoother flow of data throughout the Emerging Manager’s tech stack, which is getting higher by the minute.”

Given the prioritization of data and FinTech, it’s no surprise that Emerging Managers indicated they will not pull back on their tech budgets. In fact, more than half (51%) expect tech budgets to increase over the next 12 months. Another 48 percent said their budgets would stay the same.

The three solutions that received the most votes for future inclusion in the Emerging Manager tech stack were “fundraising and marketing” solutions (No. 1 most popular), “deal management and CRM” (No. 2) and “investor relations” solutions.

Weighing Investors’ ESG Focus

With Deutsche Bank, Bloomberg, and PWC all similarly projecting ESG assets to exceed $100 trillion in five years, more than four out of 10 (43%) Emerging Managers surveyed by Dynamo expect investors will increase ESG and DEI reporting expectations over the next 12 months.

This may be due to the type of investor Emerging Managers are finding success with, beyond the go-to institutional investors. Over the last 12 months, a significant number of Emerging Managers raised the most capital from the private wealth segment, with 32 percent raising the most from high-net-worth individuals and 21 percent raising the most from family offices.

“Institutional investors will continue to be a core category of investment in Emerging Managers, but as more disclosure requirements come about and the barriers to obtaining data gets lower, private investors will receive more benchmarks and be empowered to ask more questions,” explained Danielle Pepin, Dynamo’s Head of Product, Portfolio Monitoring and Valuation. “Although the layers of fiduciary duty and external accountability are fewer for private wealth, progress against targets still needs to be reported, and these targets increasingly include non-financial metrics. Family offices, especially, are eager for data to demonstrate the success of their ESG- and DEI-focused investments.”

Still, investors trusting Emerging Managers with their money are exercising caution when it comes to early opportunities. Just 13 percent of those investors are willing to allocate more than 75 percent of their capital to new investment vehicles. About six in 10 investors (58%) will allocate no more than 25% of their capital to new vehicles.

AIS Financial Group Appoints Erik Schachter as Chief Investment Officer

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Photo courtesyAIS Financial Group new Chief Investment Officer, Erik Schachter

Swiss brokerage firm and third-party fund distributor AIS Financial Group has recruited a new Chief Investment Officer (CIO), Erik Schachter, to bolster its coverage of global markets.

He will report to Samir Lakkis, founding partner of the company.

Schachter brings a wealth of expertise with 10 years of experience working in Finance: Research, Equity, Trading, Derivatives and Consulting. He focused on the analysis of the international financial market to generate efficient investment portfolios. He has a profile oriented to seek opportunities through traditional and alternative financial products. He was a Portfolio Manager at a MultiFamily Office in Argentina, analyzing the international market through research and calls with fund houses to find the best investment strategy.

Geneva, Switzerland-based AIS has offices in Panama, the Bahamas and Madrid and provides brokerage, asset management and fund distribution services. AIS currently distributes more than USD 2.5 billion a year in structured products and is diversifying its business line.

The company seeks to consolidate its position and to partner with those asset managers who want to outsource their sales force and benefit from the knowledge and expertise the company has in the region.

US Banking Sector to Enter Consolidation Phase with Recent Collapses

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The US is currently grappling with the dual challenges of elevated inflation and regional banking crises, causing concerns among investors. These could potentially trigger a period of consolidation in the banking sector, said Murthy Grandhi, an analyst at GlobalData in a report.

“The US is currently grappling with the dual challenges of elevated inflation and regional banking crises, causing concerns among investors. These could potentially trigger a period of consolidation in the banking sector. In March 2023, Silicon Valley Bank was acquired by First Citizens and Signature Bank by Flagstar Bank. Now, First Republic Bank is acquired by JPMorgan Chase,” the expert said.

On May 1, 2023, First Republic Bank, which had more than $200 billion in total assets, collapsed, following the earlier collapses of Silicon Valley Bank and Signature Bank, which serve as a stark reminder of how quickly the effects of risky decisions taken at one bank may impact the whole financial system.

First Republic Bank’s failure was attributed to its business model, which focused on catering to high-net-worth individuals and corporations and offering large loans, including jumbo mortgages, using the deposits it received. With historically low interest rates, the bank hoped to entice customers to expand into more profitable products like wealth management. As a result of this, many of the bank’s accounts had deposits exceeding the federally insured $250,000 limit, the report said.

As of December 31, 2022, the bank had uninsured deposits of $119.5 billion accounting for 67.7% of its total deposits. As of March 9, 2023, the bank’s total deposits were $173.5 billion. Following the collapse of Silicon Valley Bank on March 10, 2023, the bank experienced unprecedented deposit outflows, reaching $102.7 billion by April 21, 2023, representing a 41% outflow.

“In this scenario, other midsize banks such as Comerica, KeyCorp, PacWest, Western Alliance Bank, and Zions Bank came under pressure with their share prices falling by 26.6%, 21.5%, 67.5%, 30.3%, and 33.5%, respectively, between March 13 and May 4, 2023, and by 53%, 49%, 86%, 68.9%, and 58.9%, respectively, year-to-date. Recently, Moody’s also downgraded ratings for Zions Bank, Western Alliance Bank, and Comerica.

“For the fiscal year ended December 31, 2022, Comerica, KeyCorp, PacWest, Western Alliance Bank, and Zions Bank reported uninsured deposits of $45.5 billion, $67.1 billion, $17.8 billion, $29.5 billion, and $38 billion, respectively, accounting for 63.7%, 47.1%, 52.5%, 55%, and 53%, respectively, of their total deposits”, the text added.

“Other banks with notable high uninsured deposits include East West Bank, Synovus, Bank of Hawaii, and First Horizon Bank, with 66.7%, 51.3%, 51.9%, and 47.7%, respectively, of their total deposits.

“This high percentage of uninsured deposits points to the fragility of these banking companies and may result in a similar situation that was created by Silicon Valley Bank and Signature Bank.”

Thornburg Plans Leadership Transition

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Photo courtesyJason Brady, president & CEO de Thornburg Investment Management

Thornburg Investment Management, a global investment firm that oversees $42 billion in assets, announced that Jason Brady intends to step down later this year from his role as president & CEO and portfolio manager, as well as from the Board of Directors of Thornburg, and depart the firm.

Mr. Brady will continue in his role to allow for a smooth transition while Thornburg’s Board of Directors undertakes a search for his successor.

“Since joining Thornburg in 2006, I am proud of what we have achieved, particularly the strength of the team we have developed, and I’m grateful for the opportunity to serve as the firm’s president and CEO for nearly eight years,” said Mr. Brady.

“This is the appropriate time for a new leader to step in and I remain fully involved and engaged while the Board searches for a successor,” he added.

“I thank Jason for delivering strong results across our business and notably assembling an experienced group of world-class leaders at the organization,” said Chairman Garrett Thornburg. “Our 41-year foundation leaves us well positioned to make the next phase of our growth the most exciting in our company’s history.”