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Santander AM Integrates Its Alternatives Business Into a Single Platform Led by Carlos Manzano

Integración del negocio de alternativas de Santander AM

The changes and restructuring at Santander Asset Management (SAM) continue. The asset manager has decided to merge its operations with the alternative investment platform and appoint Carlos Manzano as the head, who will report directly to Samantha Ricciardi, head of the firm, according to Bloomberg and confirmed by Funds Society.

In May 2023, the bank launched its alternative asset manager, Santander Alternative Investments (SIA), appointing Luis García Izquierdo as CEO and Borja Díaz-Llanos as CIO. The asset manager communicated this integration of businesses and the appointment of Carlos Manzano, who replaces Luis García Izquierdo, to its employees via an internal memo. These changes come after the appointment of Javier García Carranza as head of Asset Management, Private Banking, and Insurance at Santander in May of this year.

Manzano’s new responsibilities are not the only recent developments at the company. The asset manager has made additional changes. Marcos Fernández has been appointed Chief Operating Officer of the division, and Antonio Faz has been named head of Legal, while Alfonso Castillo, Global Head of Private Banking, has relocated to Madrid from Miami.

Additionally, the bank has selected Jaime Rodríguez Andrade to launch its new Santander Retirement Services business.

Other recent changes include Adela Martin, currently Head of Private Banking in Spain, who was appointed last month as Head of Business Globalization for the wealth management and insurance division, and the hiring of Víctor Allende, formerly of CaixaBank, to lead client advisory services in the private banking division.

Public Debt Investors Adjust Outlook on Rate Cuts

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The disparity in views seen in the updated September dot plot regarding the official rates’ positioning at the end of 2024 has become more turbulent this week.

While the median projection suggests up to three additional rate cuts (with nine bankers projecting 4.375%), there are seven others who only see two cuts. On the extremes, one banker anticipates cuts of up to 1%, which balances the two more conservative members who believe only a 0.25% reduction may be necessary from now until December.

This lack of clarity within the U.S. central bank has become more evident this week. Mary Daly of the San Francisco Fed, who supported the unexpected decision to review the Fed Funds by 0.5%, sees no immediate reason to suspend plans for monetary policy easing.

Nevertheless, calls for a more cautious approach are growing. Among them, Lorie Logan (Dallas) and Jeff Schmid (Kansas) have shared their thoughts this week. Schmid explained: “Although I support reducing the restrictive stance of monetary policy, I would prefer to avoid exaggerated moves, especially given the uncertainty about the final direction of monetary policy and my desire not to contribute to financial market volatility.”

Similarly, Neel Kashkari (Minneapolis) favors a slow approach toward the neutral rate (R*, estimated around 3% according to the projections). Productivity improvements in the U.S., a significant increase in the workforce (largely due to immigration since 2021), and structural recovery in consumption following the deleveraging after the subprime crisis could justify an R* higher than suggested by the Fed’s model (Laubach-Williams-Holston). If this is the case, a 0.5% cut, along with six other cuts expected by economists through 2025, could risk overheating the economy.

Even the private sector calls for restraint. In an interview with Bloomberg, Brian Moynihan, CEO of Bank of America—after pointing out that the Fed has been behind the curve since 2022—called for prudence in adjusting the cost of money. He noted that the risk of “moving too fast or too slow (in adjusting official rates) is now greater than six months ago.”

And the market has not stayed indifferent. As we noted last week, bets—whether naturally or strategically—show increasing positive inertia for the Republican candidate, impacting public debt investors’ confidence, who continue refining their expectations regarding rate cuts. As seen in the chart, the correlation between Trump’s winning odds and U.S. Treasury bond yields has risen significantly.

Kamala Harris leads by 1.8 points in the polls, while in 2020, Joe Biden held a ~7-point lead over Trump. Harris also trails Biden’s 2020 performance against Trump and Hillary Clinton’s (2016) performance in swing states (Michigan, Wisconsin, or Georgia).

Additionally, Trump clearly leads in voting intention among white, lower-education voters in these swing states, a relevant factor. Interestingly, despite declining unemployment, multiple surveys reveal that 60%-70% of respondents from different social groups (women, African Americans, independent voters, non-graduates…) believe the economy could be doing better, likely because real wage growth remains negative in many swing states.

To be fair, the macroeconomic outlook (with the Atlanta Fed’s GDPNow forecast pointing to 3.4% growth this quarter and unusual September employment data) also plays a role. According to Polymarket, the probability of a “red wave” scenario consolidating Republican power in the White House and both houses of Congress is now at 45% and continues to rise. Realistically, Trump only needs to secure 12 of the 27 House seats in play for Republicans to take control.

The recent adjustments in stock, public debt, and gold prices, among other assets, mirror the patterns observed in 2016, indicating that investors are attempting to anticipate the November election outcome, already factoring in a potential Trump victory.

The fall in Treasury bond prices is logical. Under Harris’s plan, despite higher corporate tax rates, other initiatives—such as expanded social programs and tax credits—would significantly raise the deficit. Estimates suggest her policies could increase public debt by $3.5 trillion to $8.1 trillion by 2035, pushing the debt-to-GDP ratio from the current 102% to 133%.

Trump’s tax cuts, though unlikely to bring the rate down to 15%, would further widen the deficit, with estimates ranging from $1.5 trillion to over $15 trillion by 2035. His plan, especially with corporate tax reductions and potential tariff-based policies, would significantly cut federal revenue, making it harder to contain public debt growth. At best, tariffs could generate around $1 trillion in revenue, and efficient government administrative cost management another $2 trillion.

However, the most likely scenario remains a divided Congress, which would make it very challenging for either candidate to implement the more aggressive version of their fiscal agenda. While Trump could independently raise tariffs (60% for imports from China and 10% for others) without Congressional approval, this would effectively act as a tax increase, impacting household consumption and ultimately having a deflationary effect (similar to the Smoot-Hawley Act in 1930).

On the other hand, employment data continue to show a gradual decline in labor market activity. Caution is necessary, as too much emphasis should not be placed on September figures; a recent example of investor sentiment shifts occurred in early August. October data may be difficult to interpret due to hurricanes (Helena and Milton) and seasonal hiring for the holiday season. Seasonal adjustments may not suffice, and the data could undergo significant revisions. Additionally, real-time indicators show trends in job openings that don’t align with official figures.

In contrast to the equities market, net speculative positions in U.S. 10-year bond derivatives have been aggressively reduced. This pessimistic sentiment is also evident in JP Morgan’s survey on duration positions and BofA Merrill Lynch’s survey among investment fund managers, who have rapidly scaled back their exposure to interest rate risk, as shown in the chart.

The T-Bond yield has over-discounted the macro surprise index’s upswing, which is nearing a turning point.

With official rates at 5%, and likely 4.75% in two weeks, the upward path for the T-Bond’s IRR should not exceed 4.8%. If a slowdown scenario—like in August—returns, we could quickly revisit the ≤3.5% zone. In a soft landing scenario, and if the terminal rate ends up above the dot plot estimate (~3.5%–3.75% vs. 2.875%), with a term premium of 0.2-0.4, yields would remain near current levels (~3.7%–4.2%), making the 12-month return distribution attractive, approaching 4.4%–4.5%.

More Risk-Averse, Higher Returns, and More ESG-Oriented: How Women Invest

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Cómo invierten las mujeres: más retorno y enfoque ESG

As women’s participation in economic activities grows and their income potential rises, female investors are becoming an increasingly significant force in wealth management. Supporting this trend, about one-third of global wealth is now in the hands of women, with nearly half of it in the U.S., where women control over $10 trillion in assets.

By 2030, the U.S. baby boomer generation will invest over $30 trillion in financial assets, an amount approaching the annual U.S. GDP. Meanwhile, in Western Europe, women own around one-third of managed assets. This wealth growth is also reflected in the percentage of female millionaires and billionaires worldwide, which continues to reach record levels. In 2000, there were only four women on the list of the world’s 100 wealthiest people, but by 2024, this number had reached 15.

“As women become wealthier, their investment opportunities expand, amplifying their importance as investors and equipping them with the right tools and resources. A 2019 report estimated that by 2025, 60% of the UK’s wealth would be in the hands of women, who often take control of family wealth when their husbands pass away,” notes DWS in its latest report.

In Asia, the total wealth of women, excluding Japan, was estimated at $13 trillion in 2019 and is expected to reach $19 trillion this year, making the region the fastest-growing in women’s wealth. “This also means that by the end of 2023, women in Asia are expected to own more wealth assets than women in any other region outside North America,” the asset manager states.

In Asia, women’s investments gain greater importance in cases of divorce or separation, as women are more financially dependent on men than in other parts of the world. In China, over 80% of urban women aspire to become more financially independent, showing a stronger motivation than men for financial empowerment, according to a recent survey. Other surveys show that women expect to become financially independent at 37, four years earlier than men. Additionally, 82% of women surveyed in another study expressed a desire to better control their financial situation.

Investor Profile

Given these facts, there’s no doubt about the potential of women as investors. However, what obstacles do they face? According to academic literature, one of the main factors is risk attitude, as women are more risk-averse than men.

“A 2018 study by Falk et al. showed that, when conditioned on other factors, women are significantly less risk-tolerant than men worldwide. This aligns with similar research by Dohmen et al. in 2011, which found that among the adult German population, not only are women generally more risk-averse than men, but this attitude toward risk is consistent across all aspects of life—sports, driving, financial matters, career, and health—even after controlling for various demographic and economic factors,” DWS explains.

The second notable characteristic is that women not only have the potential to invest more, but their investments also tend to yield higher returns over a 10-year period. The report suggests that several factors may explain these differences, including lower transaction volumes, holding onto investments during market downturns, using stop-loss orders, and more closely following financial advisors’ recommendations compared to men.

Third, the report notes that women aim to align their investments with their goals and are more inclined toward social and environmental objectives. In fact, UBS’s Investor Sentiment Survey highlighted that 71% of women consider sustainability in investment decisions, compared to 58% of men.

“This trend is also evident among investment funds; private equity firms that are at least 50% women-owned are 6.8% more likely to pursue impact investments focused on specific environmental or social factors, according to a study by academics from the UK, Ireland, Belgium, and the U.S. Regarding environmental and social goals, a study found that poverty, healthcare, and climate change were among the top priorities for women,” the report concludes.

Looking at the Industry

What about the industry? According to the report, in the global asset management sector, about 1 in 8 fund managers is a woman. “That proportion has not changed significantly in more than a decade, even as teams have grown and more professionals have joined the sector. In 2022, only about 12.5% of U.S.-based portfolio fund managers were women, nearly unchanged over the past 10 years, while only about 26% of over 10,000 U.S. funds were managed by a team that included at least one woman,” the report states.

In the U.S. Elections, the Devil Is in the Details: Deficit, Result Disputes, and Volatility Through 2025

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The U.S. presidential election campaign is intensifying. Early voting has already begun, including in some of the key swing states that could be decisive. International asset managers recognize that investors worldwide are analyzing how this close race might impact markets.

“As expected, Vice President Harris’s policies are quite similar to those of President Biden. This suggests that if Harris wins, investors could anticipate a certain level of continuity in the current political and economic environment. Conversely, former President Trump has hardened his stance, reinforcing his ‘America First’ approach. If he wins, we could see a sharp shift towards higher tariffs, deregulation of key sectors, stricter border control, and a more independent foreign policy,” summarizes Greg Meier, Senior Economist at Allianz Global Investors.

The Deficit Issue

So far, we’ve examined what sets the candidates apart and how different election scenarios might affect investors, but we must also consider what unites Harris and Trump. According to a report by Natixis CIB, both Harris and Trump are expected to be big spenders, proposing policies that will further worsen the long-term fiscal outlook. “Harris’s policies provide some revenue offsets but will result in slower growth and less investment. Trump’s fiscal policies will encourage growth but will increase inflationary pressures and worsen the debt outlook,” the study notes.

Joseph V. Amato, President and Chief Investment Officer—Equities at Neuberger Berman, agrees that neither candidate appears willing to tackle the U.S. debt sustainability issue, which he considers crucial. “There seems to be little appetite to cut spending on defense or social security benefits—two of the three largest federal budget items, the third being interest expenses,” he says.

According to Amato, the Penn Wharton Budget Model garnered attention with its estimate that Harris’s tax and spending proposals would add $2 trillion to the primary deficit over the next decade, while Trump’s proposals would add slightly over $4 trillion.

“Economic projections show only a modest difference in each candidate’s deficit over the next five years. Generally, Harris’s proposals reflect a deficit-neutral redistribution from corporate and high-income taxpayers to lower-income taxpayers. Trump’s proposals show a slight reduction in the deficit, assuming that tariff revenues offset lower taxes. Again, a divided government is expected to moderate the impact of either president’s proposals and slightly improve debt prospects,” he explains.

According to Alvise Lennkh-Yunus, Director of Sovereign and Public Sector Ratings at Scope Ratings, unless the winning presidential candidate’s party secures a majority in both the House and Senate, the U.S. will face another debt ceiling crisis in early 2025.

“Both Democrats and Republicans show little appetite for containing or even reversing the government’s expansionary fiscal policy. Harris’s proposed policies would raise the deficit by $1.2 to $2 trillion over the next 10 years, while Trump’s could increase it by $4.1 to $5.8 trillion. Although these estimates are uncertain, it’s clear neither candidate has a concrete plan to consolidate U.S. public finances,” says the Scope Ratings expert.

Contestation and Limbo

Lombard Odier agrees with most analyses that this election represents the biggest political risk factor for markets. “The close contest between the Democratic and Republican candidates has raised the chances of a contested result after the November 5 election. We believe the race is too close, though our baseline assumption is that the Senate will be Republican and the House of Representatives will be controlled by the winning party. While the vote should yield a clear result, a contested outcome remains a possibility,” they explain.

Few analyses have explored the implications of a contested election. Lombard Odier points out that there have been five contested presidential elections since 1800, the last in 2000. “There are three potential resolutions for a contested vote: Supreme Court intervention, the Electoral Count Reform Act of 2022, or a ‘contingent election.’ All three are open to legal debate. In 2000, the Supreme Court halted a Florida recount, handing the presidency to George W. Bush. Today, the Court would likely avoid deciding who sits in the White House,” they say.

In fact, the S&P 500 fell nearly 12% from Election Day to mid-December after the Bush/Gore election in 2000, though many factors were in play. “But history suggests that once the result is known, a ‘welcome rally’ for the new president is likely,” notes Neuberger Berman’s representative.

In a “contingent election” scenario, the House would elect the next president, while the Senate would select the vice president. “Any electoral dispute in Congress would have to be resolved before January 20, 2025, when the current president’s term ends. This would be problematic, especially if Kamala Harris, as Senate President, were to cast a deciding vote. If Congress cannot decide on a candidate, the Presidential Succession Act stipulates that the Speaker of the House, Republican Mike Johnson, would serve as acting president,” adds Lombard Odier.

Consequently, the firm expects that any political limbo following the November 5 vote and through 2025 would provoke market volatility and negatively impact U.S. assets. “After the 2000 election, U.S. Treasury yields rose 75 basis points between the election and year-end, while gold gained 3%, despite declines in U.S. equities and the dollar index. In a clearer victory for either party, our views on the expected effects on asset classes are outlined in the following table,” they conclude.

A Paradoxical Backdrop

Experts agree that the U.S. has enjoyed the strongest post-pandemic recovery among developed economies. However, in the view of Raphaël Gallardo, Chief Economist at Carmignac, this long expansion has entered a slowing phase as the “adrenaline” from massive COVID-related stimulus fades, a strong dollar weighs on manufacturing, and high real interest rates needed to curb inflation have suppressed demand in interest-sensitive sectors like construction and real estate.

“Consumers continue to drive growth, but despite low unemployment, most dynamism increasingly comes from the wealthiest quintiles, which benefit from continued wealth effects in an already expensive stock market. An aging population, rising social transfers, and subsidies for the energy transition have also widened the fiscal deficit to levels unheard of outside recessions, wars, or pandemics (7% of GDP),” Gallardo explains.

According to Gallardo, this is the paradox of this election: “After eight years of outperformance by the U.S. economy and a stellar stock market, voter frustration with the state of the economy has shaped the platforms of the two main candidates. The next administration will inherit an economy more vulnerable than recent trends suggest, and thus the populist measures both candidates advocate could have outsized repercussions on financial markets.”

For Gallardo, the real “elephant in the room” is that, regardless of the outcome, “these elections could alter the engine of an economy that has been the envy of the world for decades.”

North America Dominates the Global Fund Industry: The Region Accounts for 61% of Assets Under Management

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Dominio de Norteamérica en la industria de fondos

According to the latest study by the Thinking Ahead Institute (TAI), associated with WTW, assets under management (AUM) by the world’s 500 largest asset managers reached $128 trillion at the end of 2023. Although levels from 2021 were not reached, the annual growth of 12.5% already marks a significant recovery following the previous year’s correction, when AUM dropped by $18 trillion in 2022.

The study highlights the evolution in active and passive management, showing that, for the first time, passive management strategies account for more than a third (33.7%) of assets under management among the top 500 asset managers, though nearly two-thirds continue to be actively managed.

In terms of asset class allocation, there is notable growth in private markets. Equity and fixed income, however, remain the predominant asset classes, totaling 77.3% of assets under management—48.3% in equities and 29% in fixed income. This represents a slight 0.2% decrease from the previous year as investors continue seeking alternatives such as private equity and other illiquid assets to achieve higher returns.

“Due in part to the performance of American equities as a driver of returns, North America experienced the highest growth in assets under management, with a 15% increase, followed closely by Europe (including the UK), which recorded a 12.4% rise. Japan, however, saw a slight decrease, with a 0.7% drop in AUM. As a result, North America now accounts for 60.8% of the total AUM among the top 500 managers, reaching $77.8 trillion at the end of 2023,” the report explains.

Consequently, U.S. asset managers dominate the top of the ranking, holding 14 of the top 20 positions and representing 80.3% of assets in this group. Among individual asset managers, BlackRock remains the world’s largest, with total assets exceeding $10 trillion. Vanguard Group holds the second spot with nearly $8.6 trillion, both far ahead of Fidelity Investments and State Street Global, ranked third and fourth, respectively. Among the managers with the most notable rises in the past five years are Charles Schwab Investment, which climbed 34 spots to reach 25th place, and Geode Capital Management, which rose 31 spots to 23rd. Canada’s Brookfield Asset Management also advanced 29 positions, reaching 31st place.

“Asset managers have experienced a year of consolidation and change. While we’ve seen a return to positive market performance, there have also been significant transformative factors,” says Jessica Gao, director of the Thinking Ahead Institute.

The report’s findings indicate that macroeconomic factors have played a key role, with high interest rates in 2023 exerting various pressures across asset classes, geographies, and investment styles. The study explains that as rates begin shifting toward a reduction phase, equity markets are again delivering positive returns, driven by growth expectations. Future uncertainties are centered on geopolitical events and several major national elections.

Raúl Mateos, APG Leader for Continental Europe, notes that asset managers face significant pressure to evolve their investment models: “Technology is essential, not only for maintaining a competitive edge but also for meeting client needs and expectations, as well as responding to the growing demand for more customized investment solutions. These demands are challenging traditional industry structures. In this context, we have seen notable successes among independent asset managers compared to many of those tied to insurers and banks.”

Regarding specific geographies, Mateos points out that in the past decade, we’ve seen a rise in AUM globally; however, Spain’s market share has declined over this period, from managing 1.5% in 2013 to 0.6% in 2023. “We need to go down to 99th place to find a Spanish representative, Banco Santander, with a total of $239.49 billion, leading the list of ten Spanish managers that include entities like CaixaBank, BBVA, and Mapfre. Moreover, assets managed under ESG criteria grew by 15.5% in 2023, reaching 29.6% of ESG investments within portfolios, marking the highest level in the past three years. This trend shows that ESG criteria are increasingly being integrated into asset selection, demonstrating a growing focus on the impact of our investments on the world,” he concludes.

Managers Believe That Small and Micro Caps Will Benefit From the Fed’s Rate Cuts

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Small y micro caps beneficiarán de recortes de la Fed

The latest survey by New Horizon Aircraft reveals that 75% of fund managers specializing in the small and micro-cap segment believe the interest rate cut cycle initiated by the U.S. Federal Reserve (Fed) will considerably benefit the valuation of these companies. This survey included fund managers from the U.S., Canada, Europe, the Middle East, and Asia, who collectively manage assets worth $82.4 billion.

Another conclusion from this survey is that 59% of managers believe the Fed will cut rates at least once more in 2024, while 16% think there will be only one more rate cut before the year ends. Additionally, fund managers expect the Fed to continue with cuts: 19% anticipate three cuts in 2025, 59% expect two cuts, and 20% predict only one cut.

According to the survey’s authors, this expectation of multiple rate cuts aligns with 82% of the surveyed managers who believe U.S. interest rates will have fallen from the current 4.9% to 4.3% or lower by the end of 2025. Approximately 14% even think the rate could drop below 4.1%.

Since 40% of the debt of companies in the Russell 2000 Index is short-term or variable rate, compared to around 9% for companies in the S&P, 89% of fund managers expect that the anticipated drop in interest rates will have a more positive impact on the valuations of micro and small-cap companies than on large-cap companies. Seven percent of fund managers were unsure, and only 4% disagreed.

Experts caution that although U.S. inflation decelerated to 2.5% year-over-year as of August 2024, it still remains above the Federal Reserve’s 2% target. Nevertheless, 89% of respondents believe the 2% target will be achieved within the next 12 months, specifically in the second quarter of 2025.

The survey authors emphasize that these perspectives bode well for the valuations of micro and small-cap companies, as evidenced by the 99% of respondents who expect the economy in 2024 and 2025 to provide a more favorable basis for the valuations of these smaller firms. In the current context, with global small-cap companies trading at the steepest discount to large caps in over 20 years, the same proportion (99%) of fund managers expect micro and small companies to generate solid returns over the next 12 months.

“Expected Fed rate cuts could significantly benefit small and micro-cap companies. This view is shared by the fund managers who participated in our research, all of whom specialize in managing funds that invest in emerging small and micro-cap companies with high growth potential. Small-cap companies with unique and transformative technologies are once again in a position to offer investors an opportunity for significant gains,” concludes Brandon Robinson, CEO of Horizon Aircraft.

Managers Are Exploring More Liquidity Solutions, Investment Vehicles, and Value Creation to Strengthen the Momentum of Alternatives

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According to the latest survey from Goldman Sachs Asset Management titled *2024 Private Markets Diagnostic Survey, Charting New Routes,* conducted with 235 institutions and fund managers worldwide, demand for private market assets is expected to continue rising. Investor optimism and expectations of uncovering new opportunities across strategy classes are driving this growth. The survey also indicates a reduction in concerns around potential economic recession or inflation resurgence, with investor attention now focused more on geopolitical risks from global conflicts.

One key finding from the report is that sentiment is generally positive across all asset classes, with fund managers displaying more optimism than wealth managers. Even in the real estate sector, often considered the most challenging asset class, 38% of asset managers see improved investment opportunities, compared to 31% who perceive worsening prospects.

Investors remain confident in venture capital funds and optimistic about infrastructure, believing these assets can continue delivering stable returns through market cycles. Meanwhile, private credit has seen a slight decline in favorability among nearly a quarter of Limited Partners, though net sentiment remains positive.

“Investor sentiment is improving overall, even in asset classes like real estate that faced headwinds over the last two years. Limited Partner focus on macroeconomic risks has diminished as inflation moderates and interest rates drop. However, concerns persist over inflated valuations and their impact on trading volumes,” explained Jeff Fine, co-head of Goldman Sachs Alternatives’ Capital Formation.

According to Dan Murphy, Head of Alternative Portfolio Solutions at Goldman Sachs Asset Management, “Investors are creating asset allocations in new areas of private markets, including private credit and infrastructure, through various entry points such as secondaries and co-investments.”

Key Trends and Concerns

The survey highlights liquidity as a top priority for investors. Fund managers are increasingly exploring liquidity solutions to return capital to investors, as exits are still hindered by ongoing macroeconomic uncertainty and valuation disconnects between buyers and sellers. “While some Limited Partners face over-allocation issues, private markets generally remain underweighted, with strong demand for new entry points like co-investments, secondary investments, and semi-liquid vehicles,” noted Stephanie Rader, global co-head of Alternative Capital Formation at Goldman Sachs Alternatives.

Geopolitical conflict now tops investor concerns at 61%, followed by inflated valuations at 40%, and recession risk at 35%. Limited Partners are relatively more focused on valuation-related risks, recession, and inflation, while General Partners place greater emphasis on interest rates and regulatory challenges.

Due to widespread underweighting, 39% of Limited Partners are increasing their capital deployment, while only 21% are reducing it, a significant change from last year’s 39% reduction. Capital deployment is now concentrated on credit strategies (34%)—where underweighting is most pronounced—followed by private equity (18%), real estate, and infrastructure (10% each).

Challenges in the Industry

To address valuation gaps, General Partners focus on value creation through revenue growth: 63% aim to boost organic revenue via existing channels, and 52% through new channels. Other significant value creation avenues include mergers and acquisitions (45%), margin improvement via technology and efficiency (35%), and introducing new products or services (27%).

As exits remain sluggish and valuations appear inflated, private equity managers are prioritizing profit growth as the primary source of value creation. Strategic sales are expected to remain the primary exit route (81%), followed by sponsor sales (70%), though optimism toward IPO markets has declined. Demand for interim liquidity solutions, such as dividend recapitalizations (54%), continuation vehicles (52%), and preferred shares (44%), is on the rise. In recent years, most General Partners have expanded their capabilities, either organically (46%), through spin-offs (24%), or via acquisitions (5%).

“General Partners are broadening their product offerings in both strategies and structures, often seeking external capital to support these expansion plans,” stated Ali Raissi, global co-head of Goldman Sachs’ Petershill Group.

Sustainability is also a central consideration in private markets, especially for large Limited Partners outside the Americas. Adoption varies based on the asset base, with larger cohorts more likely to integrate sustainable factors and wider stakeholder concerns (84%). “We continue to observe significant attention to sustainable investing from major investors, particularly in EMEA and APAC, although LPs generally have more progress to make toward their goals,” said John Goldstein, global head of Sustainability and Impact Solutions, Asset & Wealth Management at Goldman Sachs.

With the macroeconomic environment relatively stable, Limited Partners and General Partners express growing optimism across all asset classes. They see the post-COVID-19 normalization process ongoing and the long-term growth trajectory of private markets as strong. “New frontiers in AI, investment vehicles, and value creation are increasingly explored, driven by both opportunity and necessity. Looking ahead, we expect both LPs and GPs to continue adapting to an evolving private markets landscape that plays an increasingly vital role across sectors and regions,” Murphy concluded.

DWS Launches the Global Xtrackers Infrastructure ETF With ESG Criteria

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DWS lanza ETF de infraestructura con criterios ESG

DWS expands its Xtrackers ETF range with the launch of the Global Xtrackers Infrastructure ETF, a product that reflects the performance of infrastructure securities meeting environmental, social, and governance (ESG) criteria. According to the asset manager, this is the first ETF to follow the ESG variant of a broad traditional infrastructure index.

With the Xtrackers Global Infrastructure ESG UCITS ETF, DWS aims to provide access to companies that deliver energy, transportation, and communication infrastructure, among others. The firm expects companies in these segments to experience comparatively minor fluctuations in fundamentals throughout the economic cycle. The ETF began trading last week on the London and German stock exchanges, with a fixed annual fee of 0.35%. The ETF seeks to closely track the Dow Jones Brookfield Global Green Infrastructure Index, calculated since 2016, reflecting the performance of 73 listed infrastructure companies, mostly based in industrialized countries and adhering to ESG criteria.

According to DWS, electric utility companies make up the largest part of the index, around 32%, followed by telecommunications infrastructure, mainly mobile tower REITs (19%), multi-business companies offering a wide range of products (11%), and construction and engineering firms (10%). The oil and gas storage and transportation sector, which is heavily represented in traditional infrastructure indexes, makes up less than 1% of the Dow Jones Brookfield Global Green Infrastructure Index.

DWS explains that, by country, the United States leads with 15 listed companies and a weighting exceeding 46%, followed by Spain, France, and the United Kingdom, each with five companies and a combined weighting of 29.5%. The index also includes 13 Chinese companies, with a total weighting of 2.6%. The largest individual holdings, according to DWS, are the U.S. transmission tower operator American Tower, with an index weighting of approximately 9.5%, and the French infrastructure and construction group Vinci, with 7.9%.

“The need for infrastructure beyond fossil fuels is growing rapidly as governments and companies worldwide work to develop more sustainable infrastructures focused on electrification and information technology. The index offers broad, global exposure to infrastructure but places particular emphasis on projects reliant on greener technologies,” says Michael Mohr, Head of Xtrackers Product at DWS.

Japan Is Regaining Its Direction and Appeal for Equity Investors

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Japón recupera atractivo para inversores

After decades of economic and market stagnation, Japan may be on a path to sustainable recovery, reigniting investor interest in the opportunities Japanese equities offer in this new context. Experts from Vanguard believe that Japan’s paradigm is shifting, shaking off a previously resigned mindset. “The Bank of Japan may go further in its rate hike campaign, which began earlier this year, and the recent change in the country’s Prime Minister is unlikely to halt this momentum,” they note.

Shuntaro Takeuchi and Donghoon Han, managers at Matthews Asia, explain that many investors are understandably questioning the direction of Japan’s stock markets. It’s worth remembering that the market performed well until June but then shifted. The aggressive interest rate increase announced by the Bank of Japan on July 31 preceded weak economic data from the U.S. These factors combined to trigger an unexpected liquidation of yen carry trades, which wreaked havoc on global stock markets, especially in Japan. The Nikkei 225, or Nikkei Stock Average, dropped 12.4% on August 5, its largest decline since the day after the U.S. Black Monday crash in 1987.

“Japanese stocks recovered much of their losses in August, but volatility persists. Weak U.S. economic data and ongoing concerns about the sustainability of the artificial intelligence (AI) boom continue to cause sharp movements in stock prices, along with a strengthening yen. In our view, investors are likely to remain focused on macroeconomic issues. The Bank of Japan has indicated that more rate hikes can be expected, which could further strengthen the yen, while a U.S. rate cut cycle and a weakening dollar could negatively affect sentiment toward Japanese exporters. Moreover, if economic indicators start suggesting a further weakening of the U.S. economy, greater concerns about a slowdown in global trade—on which Japan heavily relies—could emerge,” they explain.

At Matthews Asia, the managers emphasize that recent exchange rate movements have not significantly impacted the profitability of high-quality Japanese companies. “In many areas, both for domestically oriented and international exporting companies, we continue to expect corporate earnings to grow at a mid- to high-single-digit percentage rate in yen terms, supplemented by healthy dividends and accelerated share buybacks, which could add another 2%-3% to total return potential. Japanese stock valuations are also attractive, trading at around 15 times earnings, roughly their average over the past 10 years,” state Takeuchi and Han.

Attractive Outlook

Beyond equities, experts at Vanguard believe that Japan’s structural changes extend beyond the impact on yield curves and currencies. The asset manager explains that in the past, surprise interest rate moves by the Bank of Japan (BOJ) made the Japanese fixed income market unattractive for foreign investors. Additionally, the BOJ holds the majority of Japanese government bonds (JGBs), creating an environment where prices and yields did not reflect true market forces.

However, they note that the BOJ has moved towards greater transparency, signaling its interest rate moves in advance. Although the BOJ still owns 55% of JGBs, it has reduced its holdings, increasing the likelihood that the yen will converge to its fair value.

For Vanguard, the conclusion for investors is that a market easily ignored in recent decades due to economic stagnation and BOJ dominance now appears to be a potential alpha source. “For better or worse, Japan has become much more interesting for investors, with market forces playing a more prominent role,” says Ian Kresnak, Investment Strategist at Vanguard.

According to Kresnak, in light of these changes, investors may consider their long-term asset allocation strategies. “A stronger yen would enhance the returns of Japanese stocks for a U.S. investor. Fixed income is a bit more complex. Higher interest rates would generate more short- to medium-term volatility, which a stronger yen could help offset. However, in the long run, higher yields indicate better future outcomes, reaffirming the role of Japanese bonds in globally diversified portfolios,” Kresnak concludes.

New Prime Minister

Investment firms agree that Japan’s new Prime Minister, Shigeru Ishiba, is a key factor in the country’s reactivation and the renewed attractiveness of its market. Mario Montagnani, Senior Investment Strategist at Vontobel, explains that Shigeru Ishiba’s unexpected victory in the race for the leadership of Japan’s Liberal Democratic Party signals a potential shift away from “Abenomics” policies.

The asset manager points out that Ishiba’s support for normalizing monetary policy and raising corporate taxes could significantly impact Japan’s financial landscape. Investors are reconsidering the prospects for Japanese equities and yen carry trades, examining how changes in interest rates, currency values, and fiscal policies could reshape investment strategies and market dynamics in the near future.

“We believe his emphasis on structural reforms, particularly the revitalization of rural areas, does not align with the growth-oriented approach of ‘Abenomics,’ which has supported Japanese stock prices in recent years. In fact, Ishiba previously criticized the BOJ’s aggressive monetary easing. Consequently, we believe investors may approach this shift in Japan’s political landscape more cautiously, potentially causing volatility or even a market correction in the short term, especially if expectations of aggressive monetary stimulus decrease. It’s worth noting that Ishiba himself recently downplayed speculation on this matter. Over the weekend, he emphasized that Japan’s monetary policy is expected to remain accommodative, implying a willingness to keep borrowing costs low to support still-fragile economic growth,” Montagnani explains.

Finally, Kelly Chia, an Asia Equity Analyst at Julius Baer, notes that Ishiba has reversed his stance on interest rates, fiscal stimulus, and tax increases, which has weakened the yen and helped to revalue stocks. She explains that after a period during which the stock market was affected by currency appreciation, recent developments under Japan’s new Prime Minister have changed market perspectives.

“Ishiba has reversed his stance in three key areas investors were focused on. He now supports keeping rates low (previously, he was in favor of raising them), has announced plans for a fiscal stimulus package (previously, he advocated for some austerity), and has backed off from tax increase plans. This was nearly the same approach the previous Prime Minister took upon taking office,” Chia explains.

The analyst’s main conclusion is that most investors already have a basic expectation that Japanese companies will improve profitability and increase shareholder returns, but she warns: “Failing to meet corporate reform expectations could lead to significant stock depreciation. Ishiba’s reversal from his previous stance has helped ease investor concerns.”

The Last Three Months of the Year Bring Volatility, Geopolitics, and Central Banks Into Focus

| For Amaya Uriarte | 0 Comentarios

The final quarter of 2024 has started with significant tension. According to international asset managers, the coming months will be dominated by volatility and geopolitical risks. However, theoretically, the predictability of the major central banks, particularly the Fed and the ECB, should provide confidence and security for investors. What are the main outlooks for the end of the year?

Edmond de Rothschild AM explains that the most notable market movements are due to the worsening conflict in the Middle East: “Concerns over a potential Israeli response against Iran drove oil prices up by nearly 10%, although Saudi Arabia is threatening to increase production to protect its market share.”

Benoit Anne, Managing Director of the Strategy and Insights Group at MFS Investment Management, believes that geopolitics may be the main challenge to macroeconomic stability. From a macroeconomic standpoint, the “goldilocks” scenario of balance remains the most likely.

“However, the risk pendulum has swung toward the possibility of a no-landing scenario. The main challenge to the goldilocks view comes from the international scene, with a significant risk of escalation in the Middle East crisis. For now, the reassuring signal is that U.S. investment-grade credit spreads, which have fallen to 83 basis points, show no signs of being affected by geopolitical contagion. In any case, fixed income can play a useful role as a defensive asset if the global risk appetite weakens,” says Anne.

Fidelity International also views the current geopolitical risks as very complex. According to Henk-Jan Rikkerink, Global Head of Solutions and Multi-Asset at Fidelity International, the conflicts in the Middle East and Ukraine remain unresolved, with no end in sight, while the U.S. elections loom on November 5. He adds, “The successes of the far-right in Germany and France have caused a seismic shift in European politics, threatening to make decision-making within the EU even more difficult. The policies regarding China and trade that follow will be crucial, as will fiscal policy in a time when the reduction of abundant market liquidity is becoming a reality.”

The Issue of a Soft Landing

Asset managers are keeping an eye on the geopolitical context while also monitoring the actions of the Fed and ECB and their impact on the economy. According to Rikkerink, the economy is returning to normal after five years of substantial public support that kept the global engine running.

“At present, we believe that the recent poor data is more indicative of a phase of weakness rather than a serious slowdown, but investors are reacting, and we are closely watching growth and labor market indicators for signs of further deterioration. We believe the global economy is not heading toward an imminent recession, and we see indications of more of a rotation than a change in direction,” says this expert from Fidelity International.

Asset managers agree that central banks have worked hard throughout the year to control inflation without damaging the environment. MFS IM points out that all central banks are easing their monetary policy, although some faster than others. In the global race to lower official interest rates, the Bank of England seems in no rush. Meanwhile, in the U.S., an interesting debate has recently arisen over whether the Fed’s recent 50-basis-point rate cut was a policy mistake.

Erik Weisman, Chief Economist at MFS IM, believes it was not, as the 5.50% rate was too high to begin with. “It’s more important to think about where the Fed will hit the pause button: above neutral, at neutral, or below. The key risk is that the labor market deteriorates more than desired. After the nonfarm payroll figure, that risk seems less pronounced, but we must not forget that labor data can be volatile, especially given the impact of seasonal adjustments and exogenous disruptions like hurricanes and strikes. Overall, all this central bank easing favors fixed income unless something derails,” argues Weisman.

Quarterly Outlook

As for the implications of this environment for investors, Fidelity International notes that last year’s structural themes still seem relevant. “The commercialization of AI technologies will continue to develop at a strong pace, governments are investing billions in power grid improvements, and healthcare is both a defensive sector and a strong long-term theme. We are in the mid-to-late cycle phase, and there are some significant unknowns. Generally, this situation tends to lead to positive returns, although with greater volatility. We still believe a ‘soft landing’ is the most likely outcome, but from an asset allocation perspective, it’s important to be nimble to seize emerging opportunities,” says Rikkerink.

According to Claudio Wewel, Currency Strategist at J. Safra Sarasin Sustainable AM, the Fed’s rate cut, combined with China’s economic stimulus and falling oil prices, is creating a more favorable backdrop for risk assets. “In September, the rotation between different equity market segments continued. In equities, the changing monetary environment and the increased likelihood of a soft landing will support the shift from growth to value. This perspective also applies to asset classes like commodities, which are undervalued compared to equities in historical terms. For these reasons, we have reallocated funds to companies involved in the extraction, processing, and use of industrial metals,” argues Wewel.

“Given the circumstances, we remain neutral on risk assets and duration. We prefer UK and emerging market equities. Government bonds acted as a safe haven early in the week as geopolitical risks intensified, but yields rose again following some optimistic U.S. data,” adds Edmond de Rothschild AM.

Meanwhile, GVC Gaesco maintains a positive outlook on fixed income and believes that now is the time to focus on specific sectors and geographies in equities. Regarding this asset class, GVC Gaesco analysts still see opportunities but with a more cautious attitude. In this sense, the experts believe it is advisable to focus on specific sectors and geographies with active management rather than a global approach. “Europe and emerging markets seem more attractive to us. By sectors, those that benefit most from lower rates gain importance in our asset allocation,” they add. Specifically, real estate, healthcare, telecommunications, and utilities are the sectors GVC Gaesco is overweighting in their portfolios, although they do not exclude specific companies in other industries such as industrials or insurance, notes Víctor Peiro, General Director of Analysis at GVC Gaesco.

Additionally, in the case of monetary assets, GVC Gaesco estimates that “the most attractive opportunity seems to have passed, and the expectation is that central banks will continue to reduce rates in the coming quarters, so we move from positive to neutral,” says Gema Martínez-Delgado, Director of Advisory and Portfolio Management at GVC Gaesco.