Franklin Resources, Inc. a global investment management organization operating as Franklin Templeton, announced the successful completion on January 1, 2024 of its acquisition of Putnam Investments (“Putnam”) from Great-West Lifeco, Inc. (“Great-West”).
Per the terms of the transaction, Great-West becomes a long-term shareholder in Franklin Resources, Inc., consistent with Great-West’s continuing commitment to asset management.
“With complementary capabilities and a track record of strong investment performance, Putnam expands our ability to offer more choice to more clients,” said Jenny Johnson, President and CEO of Franklin Templeton.
The addition of Putnam accelerates our growth in the retirement sector by increasing our defined contribution AUM and expands our insurance assets, further strengthening our presence in these key market segments to better serve all our clients. Putnam also shares our client-focused culture and emphasis on delivering strong investment results, the CEO said.
Founded in 1937, Putnam is a global asset management firm with $142 billion1in AUM as of November 30, 2023.
The transaction adds a target date fund range and complementary investment capabilities with scale, including in the areas of stable value, ultra short duration and large cap value. Consistent with Franklin Templeton’s previous acquisitions, the execution plan is designed to minimize disruption to Putnam’s investment teams and client relationships.
Franklin Templeton’s global infrastructure will enhance Putnam’s investment, risk management, operations and technology capabilities. The addition of Putnam brings Franklin Templeton’s AUM to $1.55 trillion as of November 30, 2023.
Chicago Atlantic announced the funding of a $16 million senior secured term loan to Margo, a cryptocurrency ATM operator that provides a secure and convenient way to instantly turn cash into digital currency.
Chicago Atlantic’s capital investment will help support Margo’s growing kiosk network.
“Margo is redefining the way consumers interact with digital currency, shaping the future of financial literacy by making cryptocurrency more accessible. We couldn’t think of a company better aligned with our people-first values and our drive to push innovation forward in categories of highest need. It’s an honor to partner with Margo as they expand their reach,” said Tony Cappell, Founding Partner of Chicago Atlantic.
Founded in 2019 as PowerCoin and rebranded in 2023, Margo’s user-friendly Bitcoin ATMs are featured nationwide in retailers including Royal Farms, H-E-B, Yesway, United Natural Foods Inc. (UNFI) and Ace Cash Express, among others. The company also includes a Private Client Desk, where individuals and institutions can trade $3,000 to $1 million in cryptocurrency per day across Bitcoin (BTC), Ethereum (ETH), USD Coin (USDC), NFTs or other tokens. Margo also helps business entities set up digital currency as a form of payment, the company said.
“Chicago Atlantic brought detailed solutions to the table designed to scale our business with the utmost care and confidence,” said Austin Haller, CEO of Margo. “Their experience in our cutting-edge industry will help propel our long-term objectives, and we look forward to empowering secure digital currency investments for years to come.”
Now is a good time for investors to balance, manage liquidity and build a strategy to achieve their financial goals, says the investor letter signed by Mark Haefele, Chief Investment Officer of Global Wealth Management who provides 10 resolutions to boost portfolios.
A remarkable year is drawing to a close. A record-breaking pace of interest rate hikes helped push bond yields to 16-year highs. The US economy confounded expectations for a recession and grew at a 5% annualized pace in the third quarter. Transformative innovations in generative AI powered a stock market rally. Wars impacting two energy-producing regions also captured market attention.
The dawn of a new year is a time to reflect and to make plans for the year ahead. In this letter, we present 10 New Year’s resolutions aimed at helping your portfolio navigate what we are calling “a new world”:
Spend more time with family and friends – best wishes for the year ahead
Take up yoga – get in balance, and stay disciplined yet agile
Go for quality over quantity – buy quality in both bonds and stocks
Embrace change – pick leaders from disruption
Prepare for a rainy day – hedge market risks
Don’t put all your eggs in one basket – diversify with alternative credit
Try to see things from both sides – trade the range in currencies and commodities
Think about the long term – capture growth with private markets
Build a plan – a strategy for achieving your goals is key
Seize the moment – manage liquidity
We enter the new year with a preference for quality bonds, which we think still offer attractive yields and the potential for capital appreciation as growth decelerates. Lower bond yields in 2024 should also provide a supportive backdrop for equities.
In equities, we see particular opportunity in quality stocks across all sectors, including the US technology sector, which should be well placed to grow earnings despite a weaker economic environment.
Longer term, we expect disruptive trends in technology and other industries to create compelling investment opportunities in both public and private markets.
Vanguard has been predicting a shift to a higher interest rate environment, signaling a return to sound money. This transition, challenging for investors, is seen as a structural shift that will outlast the current business cycle, the asset manager says in its annual report titled A Return to Sound Money.
The persistence of positive real interest rates is expected to provide a stable foundation for long-term risk-adjusted returns. Unlike the past decade, the future promises more balanced returns for diversified investors. In light of this, a defensive risk posture might be prudent for those with suitable risk tolerance, given the higher expected fixed income returns and an equity market still adjusting to this shift, the experts added.
Policy Shift Towards Restriction
Monetary policy is anticipated to become more restrictive in real terms, as inflation approaches the targets set by central banks. As economic resilience dwindles, central banks might reduce policy interest rates. However, after peaking, policy rates are expected to stabilize at a higher level than pre-COVID-19 levels, marking the end of zero interest rates and ushering in a long-term higher-rate environment.
The Re-emergence of Bonds
With higher interest rates, long-term bond investors, particularly in U.S. aggregate bonds and intermediate Treasuries, are likely to see improved returns. U.S. equities, especially growth stocks, however, seem more overvalued compared to a year ago.
Long-term Implications
The next decade is set to experience an enduring shift in interest rates to higher levels than those seen since the 2008 global financial crisis. This change indicates a return to sound money, characterized by positive real interest rates. The implications for global economy and financial markets are substantial. A reset in borrowing and savings behavior, more judicious capital allocation, and recalibrated asset class return expectations are on the horizon. Vanguard believes this environment will benefit long-term investors, despite potential short-term turbulence.
Global Economic Resilience and Policy Changes
The global economy, particularly in the U.S., has shown more resilience than expected in 2023. However, this resilience may wane in 2024, with monetary policy becoming increasingly restrictive. The U.S., while currently counteracting the impact of higher policy rates, might face economic downturns as inflation returns to target. In contrast, Europe risks anemic growth due to restrictive policies, and China faces challenges despite policy stimulus.
Future Outlook
A potential recession may be necessary to reduce inflation, through decreased labor demand and slower wage growth. Central banks are likely to cut policy rates in late 2024, but these rates are expected to remain higher than in previous years. This shift reflects demographic changes, long-term productivity growth, and higher structural fiscal deficits. This higher interest rate environment, a significant financial development since the global financial crisis, will likely persist for years.
Implications for Stakeholders
This era of higher interest rates will influence borrowing, capital costs, and saving behaviors across households, businesses, and governments. It will compel governments to reassess fiscal outlooks amid rising deficits and interest rates. For diversified investors, the permanence of higher real interest rates offers a stable base for long-term risk-adjusted returns. However, financial markets may continue to experience volatility in the near term as the transition to higher rates continues.
Wilmington Trust released its 2024 Capital Markets Forecast (CMF) “US Economic Exceptionalism: Can the reign continue?” which highlights the current state of the U.S. economy and the factors contributing to its ability to adapt, but warns that a number of potential risks exist, which could impact the country’s economic growth.
The CMF tells a story about the U.S. economic qualities, driven by:
Economic Exceptionalism – A prosperous U.S. economy due to factors such as diminishing economic scarring, labor flexibility, and the role of AI in driving productivity and innovation.
Equity Market Superiority – The nation’s dominant ability to create technological advancements, adaptability in its overall labor market, and history of achieving greater profitability could continue to serve investors in large U.S. companies.
Risks and Opportunities – Historic levels of stimulus and significant repricing of U.S. equity valuations will be critical to assess and monitor.
“The U.S. economy’s continued ability to deliver growth and withstand disinflation has demonstrated to be a compelling force for attracting capital toward U.S. large-cap equities,” said Tony Roth, Wilmington Trust’s Chief Investment Officer. “However, the overall narrative remains incomplete without acknowledging challenges to the long-term sustainability of this equity outperformance, including chronic deficit spending, total debt surpassing annual GDP, and the current interest-rate environment.”
“The power of technological investment, notably with artificial intelligence (AI), forward looking policy frameworks, and a flexible labor market, will propel significant productivity gains and pave the way for a renewed era of U.S. equity leadership,” noted Roth.
Drivers of Exceptionalism
For decades, the United States has been an economic leader — displaying more consistent growth than other developed countries. There are three broad components to consider as forces that have shaped this:
Growth Pillars: Infrastructure, capital markets, demographics, education, and labor flexibility are critical pillars to shaping economic excellence. Robust higher education, a flexible labor market and pioneering AI development have contributed to the US’s dominance here. In the coming year these structural advantages are projected to drive economic performance.
Policy Framework: Fiscal responsiveness of economies is also a key driver of relative performance, and the U.S. has showcased strengths targeted toward income and consumption. However, increased government debt poses challenges to long-term growth.
Innovative Capacity: Innovation is a crucial component of economic productivity as economies with robust digital infrastructure and significant investments in research and development are well-positioned. The growing significance of AI will shape the economic landscape, and the U.S. has demonstrated to be early adopters for these tools, which could continue to drive growth and productivity in 2024.
Equity Market Superiority
U.S. equities have continued to demonstrate remarkable performance by attracting investor capital and expanding global market capitalization. The drivers of this growth can be attributed to three economic characteristics, which all relate directly to U.S. resilience:
Valuation Expansion: The largest source of U.S. equity outperformance is justified by factors including its dominant position in innovation and swift policy response in the aftermath of the last two recessions. A potential “Goldilocks” scenario – characterized by slower but sustained growth and continued disinflation that allows the Fed to ease policy – could lead to a valuation rebound for sectors left behind in 2023, potentially benefiting large-cap investors.
Profitability: At the core of U.S. equity outperformance also lies a steady commitment to profitability, shaped by favorable fiscal and monetary policies, flexible labor markets, and strategic tax advantages for corporations. The U.S. maintains a commanding global position in innovation and is strategically positioned to maintain its advantage in technology development and adoption, which may continue to create positive economic tailwinds.
Currency and Liquidity: The interplay of currency strength and liquidity dynamics plays a pivotal role in U.S. equity outperformance. The dollar has continued to appreciate against a trade-weighted basket of currencies, which has provided a notable advantage to U.S. equities for dollar-based investors. Liquidity has not only supported U.S. equity returns but has also contributed to a climate of moderate inflation.
However, the extent of dominance might see some moderation or fluctuation over a longer timeframe than one year.
Risks and Opportunities
While key growth pillars largely remain sound and are likely to continue powering the U.S. economy in the coming years, there are also varying economic risks — particularly around growing debt and impaired ability to respond to future shocks. Concurrently, demographic shifts pose challenges to debt sustainability and labor force growth.
Market risks also provide some vulnerabilities for the U.S. market. Valuations and interest rates – while currently viewed as manageable — have the ability to dislodge the U.S. from the top ranks of global economies. Despite this, U.S. equities have a structural advantage and diversification may be looked upon as a tested strategy.
The potential for a U.S. economic recession has been reduced, but not eliminated. In the case of a recession, Wilmington Trust notes that the U.S. economy has the foundational elements to bounce back more quickly than other countries facing their own sets of economic challenges.
To read the full report, please click on the following link.
New research from Ocorianreveals that fines for professional investors and corporates for breaking regulations could be set to rise.
Ocorian’s international study among senior executives at major companies and investment managers with family offices, private equity, venture capital and real estate funds as well as senior capital markets executives, reveals 78% expect the number and overall value of fines issued in their sectors for breaking regulations will increase, with 16% expecting a dramatic rise.
Furthermore, 81% said their organisations are preparing or budgeting for a potential increase in fines they could face.
Nearly three out of four (74%) interviewed believe their market is over-regulated, but despite this 86% believe the level of regulation will increase over the next five years.
When it comes to their organisation adhering to regulations in the different jurisdictions they operate in, only 29% of those surveyed say it is not an issue – 27% say they find this very difficult to do this, and 41% say it is quite difficult. Some 59% believe their organisation will find it more difficult to do this over the next five years, and just 23% believe it will become easier.
Overall, just 32% of the professional investors and corporate executives interviewed believe their organisations are excellent at meeting their regulatory requirements, with 63% saying they are good at it and 4% describing their ability to do so as poor.
Just 57% of those professionals surveyed say their organisation’s executive board takes regulation and compliance issues very seriously, and 38% say they take it quite seriously but could focus on it more. Just 4% said they don’t take it seriously enough.
Aron Brown, Head of Regulatory & Compliance at Ocorian commented “It’s surprising to see that 37% of the firms surveyed believe their organisations are too focused on compliance and regulation and not on commercial aspirations. Whereas what we’ve seen with our clients is if you get it right in the first place you become more efficient and are more attractive to investors. Good governance and robust compliance preparedness enhances commercial prospects and wins business. We see investors are increasingly cautious about where they invest so if they can find a good governance and compliance framework, they are more likely to invest.”
Indeed, 88% of those professionals we interviewed expect the organisations they work for to increase their budgets for regulation and compliance over the next five years, Brown added.
The research also identified other actions professional investors and corporates have taken as a result of difficulties regarding regulatory issues. Over the past five years, 62% of those surveyed said their organisations had invested in new technology to help with their compliance, but 52% said they had decided against making a major acquisition or investment because of regulatory concerns, and 43% had closed a division or part of their business because of regulatory concerns. Around one in five (21%) said their organisation had sold a business because of this.
Florida home prices remain close to peak levels following rapid gains during the pandemic of approximately 60% that exceeded most other states, Fitch Ratings says in a new report.
If recent trends hold through year-end 2023, home prices will likely increase year-over-year by about 6% in Florida and the rest of the U.S. Fitch is forecasting an increase in U.S. home prices of 0%-3% in 2024.
Residential property Taxable Assessed Value (TAV) in Florida, which was 78% of aggregate TAV in 2022, has been more volatile compared with commercial property values, which are 15% of total TAV. Residential property value YoY growth of around 15% in 2022 powered TAV increases, while commercial values rose much more modestly at just under 5%.
Recent weakness in commercial real estate, particularly office properties, may weigh on assessed values, but Florida counties’ limited exposure to office property values will moderate the impact of declines on overall TAV.
Since 2001, home prices in Florida have been more cyclical relative to the U.S., characterized by higher price increases during upcycles and steeper declines during downturns. Florida has the strongest relationship of any state between property tax collections and home prices, largely due to the annual assessment of taxable values, which are not subject to multi-year smoothing.
This means localities are well positioned to capture market value increases in tax revenues but also quickly see the negative impact of home price declines on TAVs, which can lead to increases in property tax rates to offset declines. Florida’s levying practices and millage rate mechanism help stabilize tax revenues from year to year.
In the longer term, rising premiums and reduced availability of homeowners’ property insurance could affect market activity and home prices in certain areas. Insurance plays a key role in securing mortgages and enabling rebuilding following natural disasters.
Santander Bank announced that it has closed a transaction with the Federal Deposit Insurance Corporation (FDIC) to participate in a joint venture that consists of a $9 billion portfolio of New York based multifamily real estate assets retained by the FDIC following the failure of Signature Bank.
The Bank acquired a 20 percent equity stake of the joint venture for $1.1 billion at an attractive basis and will service 100 percent of the assets in the portfolio.
“This transaction underscores our strength and scale, leveraging our considerable expertise in the sector,” said Ana Botín, Banco Santander executive chair. “We are a major participant in the U.S. multifamily space and this transaction plays to our strengths.”
The Bank has a $13.5 billion multifamily real estate portfolio, is a leading multifamily bank real estate lender in the United States and holds an Outstanding Community Reinvestment Act (“CRA”) rating.
“Santander US is a top-ten multifamily bank real estate servicer and lender and this transaction will leverage that industry expertise while also deepening our franchise in the New York metro market,” said Tim Wennes, Santander US country head and Santander Bank president and CEO.
The U.S. remains a strategic market for Banco Santander, as demonstrated by this transaction. The portfolio of loans in the joint venture consists of three pools of rent-controlled and rent-stabilized multifamily loans. The transaction will be accretive starting in 2024 and consume approximately two basis points of Santander Group CET, to be paid back within three years.
Santander was advised in this transaction by Wachtell, Lipton, Rosen & Katz, Davis Polk, and Chain Bridge Partners.
In the latest issue of The Cerulli Edge—U.S. Monthly Product Trends, a detailed analysis of product trends up to October 2023 is presented, focusing on mutual funds and exchange-traded funds (ETFs).
The report delves into the shifting advisor allocation to alternatives in the context of a rising rate environment, providing a comprehensive overview of current market dynamics.
As of the end of October, mutual fund assets were valued at $16.6 trillion, marking a significant decrease from the July 2023 peak of $18.2 trillion.
The month saw a 2.9% decline in mutual fund assets, primarily due to net negative flows amounting to $79.1 billion, translating into an organic growth rate of -0.5% for October. In a similar vein, ETF assets experienced a downturn amidst the fluctuating equity and fixed-income markets during October.
The total value of ETF assets fell by 2.4% to just under $7.0 trillion. However, this decrease was somewhat offset by positive net inflows totaling $30.4 billion throughout the month. The current rising rate environment poses challenges for advisor engagement with alternative investments, as it renders a variety of other exposures more appealing.
Nevertheless, the industry is set to maintain its momentum, propelled by significant advancements in product structures and a deepening understanding of alternatives among advisors. Over recent years, these aspects have seen considerable improvement, and many managers are actively promoting these exposures.
To navigate this landscape effectively, managers are advised to concentrate not only on distributing alternatives but also on ensuring transparent communication regarding the risks associated with the rate environment. Prioritizing the development and strategic positioning of product lines, rather than focusing solely on specific high-performing exposures (e.g., consultative sales processes), is likely to yield long-term benefits for asset managers.
What will 2024 bring? To answer this question, Pictet AM recently invited Luca Paolini, its chief strategist, to give his analysis to the firm’s Spanish clients. At the event, Gonzalo Rengifo, head of distribution for Iberia and Latam at Pictet Asset Management, summed up the firm’s main conviction: “We are entering a market cycle of some moderation, in which developed countries will continue to grow and emerging countries will grow more”.
Rengifo explained that in 2024 the disinflation process will continue, “if geopolitical events allow it”, although he warned that, at least in developed countries, that process will not be immaculate: “We believe that, from now on, every release of inflation data will entail volatility”. “Although interest rates may have peaked, the cuts may come later and be slower than expected by the market. Indeed, by 2024, we expect interest rates to be cut in both the eurozone and the US, but not aggressively. The Fed may cut them more than other central banks. In addition, the Bank of England, with its economy in recession, may cut rates earlier than expected,” he adds.
Third, Rengifo highlighted the importance of income as a new player in investments, offering returns of 3% to 5% across asset classes: “The good news is that, for the first time in a long time, we expect bonds, equities and cash to generate positive real returns. The new normal is lower expected returns in bonds and equities, lower correlations, a return to fundamentals and lower growth. Inflation will slow, but not enough.”
Inflation: the last mile will be the hardest one
During his speech, Paolini insisted on the need to put the current market situation into perspective. Thus, although he notes that the market is currently dominated by pessimism and bearishness, he appeals to realism: “We believe that next year’s returns will not be fantastic, but they will be better than those seen in the last decade”.
Pictet AM’s chief strategist gives two pieces of advice for 2024: first, take consensus expectations with caution; second, that the entry point for accessing different asset classes is key. In this regard, he has good news: “Equities, fixed income and cash are for the first time since 2002 where they should be: equity multiples are aligned with fundamentals, cash remunerates in line with inflation and rates are at normal levels, in line with nominal growth.”
The expert gave as an example of the caution to be taken when pricing in expectations how the two big stories that were to mark 2023, the US entering recession and the post covid recovery in China (which has disappointed markets) have played out: “We didn’t think the US was going to be so strong in 2023. By 2024 we expect a rebalancing with a big change, because it is still possible that the US will disappoint, that the consumer will weaken more than expected.” Instead, Paolini believes Europe could surprise positively.
On inflation, Paolini stated that “the last mile will be the hardest”, in the sense that the most painful thing will be to get inflation from 3% to 2%, because it will mean that “central banks will have to take the blame for causing a recession”. Therefore, the strategist says that any surprise in the inflation trajectory will be one of the main risks for next year, as it will condition the Fed’s response in a very sensitive year, as the US will hold elections in the last quarter of the year.
Another possible scenario is that inflation will stagnate at around 2.5%-3%, and US GDP will not grow, posing a new dilemma for the Fed. Should this materialize, Paolini believes that the Fed “will react, albeit not as quickly as we expect, to get growth back to 2%”.
Paolini believes that the situation will be more complicated for the ECB: “Inflation is a bit higher, but it will be more difficult for it to cut rates because inflation is more persistent”.
For these reasons, Pictet AM has a preference for fixed income, particularly U.S. and U.K. debt in the year ahead. “For the first time in 20 years, US IG bonds are offering higher yields than the S&P 500 dividend,” adds the strategist. On the other hand, he is cautious about high yield debt: “It is too early to invest, except for the very short term”. The expert indicated that the firm was also positive on emerging fixed income. He explained that the dollar is currently “overvalued, it should retreat and that would be positive for the global economy”.
Europe could surprise
In equities, the expert says that right now the key lies in determining “where we are in the cycle”. He says that “all the relevant indicators are very high”, so he asserts that the US is “closer to a recession than a recovery” and that if it has not fallen into recession this year it is because the economy is still taking the impact of the stimuli applied to the economy to counteract the pandemic. Instead, he predicts that Chinese assets will remain muted: “Investors want to see real estate stabilize, in our experience it is best to wait”.
Pictet AM has a positive view on Europe. “European equities may be the positive surprise of 2024,” says Paolini. He lists several reasons: sentiment is very pessimistic, European companies are trading at a lower P/E than they were during the Global Financial Crisis, and growth is improving because of rising disposable income, due to the impact of inflation. “There are still savings in Europe and there is still some fiscal expansion to come,” the expert concludes.
