From the Olympics to the Taylor Swift Tour: A Summer Full of Growth Opportunities for Major European Brands

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Alan Edington, part of the BNY Mellon Long-Term European Equity Fund team, believes that summer will bring numerous opportunities for European companies. The celebration of the Olympic Games in Paris, various festivals and concerts, and other sporting events beyond the Champions League can drive company growth. “A summer of sports, music, and celebrations—hooray for summer and for Europe’s leading brands,” says Edington.

Starting with the Olympics, Edington notes that, aside from the negative news it will generate (noise, dirt, traffic, etc.), Paris’s preparation to host the Games has been an impressive feat, particularly in terms of infrastructure. “Although it remains to be seen if the Seine’s water will meet the strict safety standards for competition, the fact that swimming in the river is even being considered is, in itself, an achievement, following an unprecedented €1.4 million investment in a project that has set several engineering milestones. Despite the typical European reluctance to celebrate successes, in this case, it seems we can openly talk about a success,” he states.

He explains that, just as Parisians complain, investors often lament that Europe lacks leading companies in key global growth areas. However, Edington believes that “during the Paris Olympics and other events this summer, numerous European brands with global reach and positioning will not only gain great visibility but will also greatly benefit.” While he acknowledges that Europe is unlikely to top the Olympic medal table, the continent can boast of being home to many of the world’s best brands, which will be prominently featured at the Games.

“An example is Adidas, which is not an official sponsor but is well-positioned to maximize the promotional potential of the Olympics. In April, the company launched new sports footwear models for 41 Olympic disciplines. When Bjørn Gulden took over as CEO last year, his plans for Adidas included returning to its roots as a sports brand, so the launch of the Olympic series is closely aligned with this strategy to expand the number of sports it represents and increase its presence in some of the fastest-growing sports worldwide,” says Edington.

The Experience Economy

In his view, events like the Olympic Games are not only an opportunity for consumer brands but also for the leisure sector. It is estimated that sports tourism already accounts for 10% of global tourism spending, and projections identify it as one of the fastest-growing areas in this market. Alongside this leisure segment, Edington sees great potential in another area: music tourism. “Although estimates of the market size vary, the growth forecasts and spending propensity of these tourists leave no doubt. In early May, the musical and media phenomenon Taylor Swift kicked off the European leg of The Eras Tour in Paris. This tour, like many others and countless festivals, attracts thousands of fans who are not only willing to travel but also to spend,” he notes.

He acknowledges that capturing these “superfans” was one of the topics BNY Mellon discussed with Universal Music Group—whose record labels represent Taylor Swift and six of the ten most acclaimed artists on Spotify in 2023—during a meeting in March. “This audience is a strategic priority for the company, which plans to monetize the demand from these superfans through personalized streaming services with priority access to new albums, exclusive content, and limited edition vinyl records, promotional material, and other collectibles,” he states.

When discussing standout companies, Edington points to CTS Eventim, considering it well-positioned to take advantage of the increased demand for concerts and shows. “With over 300 million tickets sold annually through its systems, the company, which holds the top position in Europe in the ticketing and live events segment, and the second globally, reported a 32% EBITDA growth in the last fiscal year, with results published in March. The results also confirm a year-on-year growth of 32% in ticket sales revenue and 19% in live events,” he comments.

In conclusion, Edington highlights that in the letter accompanying Adidas’s annual results, published in March, Bjørn Gulden wrote that 2024 will also be a great year to showcase our brand at the Olympic Games, Paralympics, EURO 24, Champions League, and many other sporting events. “I believe that many people around the world are looking forward to sports celebrations… and this will also support our business,” he concludes.

The Global Population With Significant Wealth Reached Record Levels in 2023

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The number of high net worth individuals (HNWIs) and their wealth reached unprecedented levels in 2023, driven by a recovery in global economic outlooks, according to the latest edition of the Capgemini Research Institute’s World Wealth Report 2024.

The document reveals that the global wealth of HNWIs grew by 4.7% in 2023, reaching $86.8 trillion, and the HNWI population grew by 5.1% to 22.8 million worldwide, despite market instability. “This upward trend offsets the previous year’s decline and puts HNWI trends back on a growth trajectory,” the report explains.

By region, North America recorded the largest recovery in HNWIs worldwide, with a year-on-year growth of 7.2% in wealth and 7.1% in population. According to the report, strong economic resilience, cooling inflationary pressures, and the formidable recovery of the U.S. equity market drove the growth.

This trend continues in most markets for both wealth and population, but to a lesser extent. The report shows that the HNWI segment in Asia-Pacific (4.2% and 4.8%) and Europe (3.9% and 4.0%) experienced more modest growth in wealth and population. Additionally, Latin America and the Middle East recorded moderate HNWI growth, with wealth increases of 2.3% and 2.9%, and population increases of 2.7% and 2.1%, respectively. Finally, Africa was the only region where HNWI wealth (1.0%) and population (0.1%) declined due to falling commodity prices and foreign investment.

The Case of Spain

The report details that in Spain, the number of high net worth individuals (HNWIs) rose from 237,400 in 2022 to 250,600 in 2023, an increase of 5.6%, above the global average of 5.1%, positioning the country at 15th in the ranking of the top 25 countries by HNWI population. Spain also aligns with the global trend of increasing wealth value, with wealth rising by 5.7%, corresponding to $39.2 billion (from $687.2 billion in 2022 to $726.4 billion in 2023).

Finally, the report notes that the main factors driving this widespread increase have been the rise in stock market capitalization, the decline in general inflation, and the surge in housing prices. Thus, all Western European countries have seen their wealth increase, with Italy and France leading (growth of 8.5% and 6.5%, respectively), partly benefiting from a record year for tourism, strong luxury sector data, and a rebound in exports. Countries such as Switzerland (5.6%), Denmark (4.5%), the United Kingdom (2.9%), and Germany (2.2%) are below Spain.

Regarding Spain’s macroeconomic context, the report details that real GDP grew by 2.5% in 2023 after experiencing 5.7% growth in 2022. The positive GDP is mainly explained by the faster-than-expected fading of the energy crisis, as well as the good performance of the Spanish external sector, closely linked to both tourism and non-tourism services. Additionally, in terms of savings, the report explains that national savings as a percentage of GDP slightly increased to 22.4% in 2023, up from 21% in 2022. Nominal private consumption reached $879.4 billion, representing a 9% increase in 2023; and nominal public consumption reached $315.9 billion, constituting a 9% increase in 2023.

Asset Allocation

As HNWI growth prospers, asset allocations are beginning to shift from wealth preservation to growth. Early data from 2024 suggests a normalization of trends regarding cash and equivalents (deposits, money market funds, etc.) to 25% of the total portfolio, a marked contrast to the 34% observed in January 2023. The report indicates that two out of three HNWIs plan to invest more in private equity during 2024 to take advantage of potential future growth opportunities.

Within the entire HNWI segment, ultra-high-net-worth individuals (UHNWIs), who represent about 1% of the total segment but concentrate 34% of the segment’s wealth, prove to be the most lucrative for wealth management entities. It is estimated that over the next two decades, older generations will transfer more than $80 trillion, driving interest in both financial (investment management and tax planning) and non-financial (philanthropy, concierge services, passion investments, and networking opportunities) value-added services, which represent a lucrative opportunity for wealth management companies.

Additionally, the report reveals that 78% of UHNWIs consider value-added services (both financial and non-financial) essential when choosing a wealth management or private banking firm, and more than 77% rely on their wealth management firm to help with their generational wealth transfer needs. As HNWIs seek guidance for wealth management, 65% express concern about the lack of personalized advice tailored to their changing financial situation.

“Clients are demanding more from their wealth managers as challenges have never been greater. There are active measures firms can take to attract and retain clients and offer a personalized and omnichannel experience as wealth transfer occurs and HNWI growth continues. While the traditional way of profiling clients is ubiquitous, the application of behavior-driven finance tools powered by AI, using psychographic data, should be considered. They can offer a competitive edge by understanding individuals’ decision-making to offer greater client intimacy. Creating real-time communication channels will be crucial in managing biases that may trigger sudden and volatile market movements,” explains Nilesh Vaidya, global head of the retail banking and wealth management sector at Capgemini.

Investment Decisions

More than 65% of HNWIs confess that biases influence their investment decisions, especially during significant life events such as marriage, divorce, and retirement. As a result, 79% of HNWIs want guidance from relationship managers (RMs) to help manage these unknown biases. By integrating behavior-driven client finance with artificial intelligence, wealth management firms can assess how clients react to market fluctuations and make data-driven decisions less susceptible to emotional or cognitive biases. The report highlights that AI-based systems can analyze data and detect patterns that may be difficult for humans to recognize, enabling managers to take proactive measures to advise clients.

According to the report, UHNWIs have increased the number of relationships they maintain with a wealth management firm from three in 2020 to seven in 2023. This trend indicates that the sector is struggling to provide the range and quality of services demanded by this segment. Conversely, single-family offices, which serve only one family, have grown by 200% over the past decade. To better serve HNWI and UHNWI segments, wealth management firms must find a balance between competition and collaboration with family offices. One in two UHNWIs (52%) wants to create a family office and seeks advice from their primary wealth management entity to do so.

Adapting Portfolios for Uncertain Times: Natixis Investment Forum

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More than a hundred financial professionals from the Latin America and U.S. Offshore community gathered in Houston, Texas May 15-17, to take part in Natixis Investment Managers’ 2024 Investment Forum. With a central theme of taking on smart risk for a world in flux, attendees learned firsthand from economists, portfolio managers, global macro strategists, research specialists, and a former NASA astronaut guest speaker, strategies for adapting to succeed. Philippe Setbon, CEO Natixis Investment Managers, kicked off the event by highlighting the growing complexity in the asset management industry. This environment he believes will increase demand for a diversified solutions-oriented active manager.

Knowing financial professionals have a lot of factors to contend with, from lingering high inflation and interest rates, to escalating geopolitical tensions, and the Magnificent 7’s market runup, Sophie del Campo, Executive Managing Director, Southern Europe, Latam & U.S. Offshore, Natixis Investment Managers, said providing them with direct access to unique insights, ideas, and solutions is imperative. “We believe it is more critical than ever to take on smart risk – and to rely on in-depth research and portfolio analysis to rationalize every investment decision,” said del Campo.

To support this, investment experts from DNCA, Loomis Sayles, Harris Associates, Mirova, Ossiam, Vaughan Nelson, Thematics, WCM, and Natixis IM Solutions – all part of Natixis’ global asset management network – engaged with attendees on ways to build more resilient, risk-efficient portfolios. Active participation was further promoted via a panel hosted by Natixis Investment Managers Global Head of Client Sustainable Investing Laura Kaliszewski, who interviewed two industry-leading clients on methods for implementing sustainability in their investment process.

How might inflation, rates and growth impact portfolios?

Jack Janasiewicz, Lead Portfolio Strategist and Portfolio Manager with Natixis Investment Managers Solutions – U.S., and Mabrouk Chetouane, Head of Global Market Strategy for Natixis Investment Managers Solutions – International, expect inflation to drift lower, major central banks to commence interest rate cuts, and slower growth. But depending on the region there will be measurable differences.

“As inflation continues to come down in 2024 this will allow the U.S. Federal Reserve to cut rates. Maybe in September or December. And hikes are done,” said Janasiewicz. In Europe, inflation remains sticky, with wage increases, especially in Germany, continuing to feed inflation, according to Chetouane. Energy prices are also inflationary for this region which imports most of its energy. Having already signaled a 25-basis point rate cut in June, Chetouane expects another one in the fall from the ECB. “At the beginning of the year, the market was expecting six rate cuts from the ECB, that is now down to two cuts,” said Chetouane.

They believe Latin America should benefit from U.S. growth. Also, central banks in the region have demonstrated their ability to manage the inflation cycle coming out of the pandemic. The U.S. economy is fairly robust and that should flow over into Mexico and Latin America markets,” said Janasiewicz. Also, U.S. corporate earnings remained healthy for the Q1 earnings season, with the final tally approaching nearly 6% growth for the quarter.

With this backdrop, Janasiewicz favors equities with a tilt to U.S. stocks and market weight International Developed. Large caps and SMID within U.S. equities, especially in quality cyclical value, are attractive to him. Also, he thinks lower rates may lead to down-in-cap participation with SMID playing catch-up later in the year. Chetouane also sees areas of value in Europe and small cap opportunities.

Asset allocation trends: Anything but cash
Cash redeployment is a big theme with investors in 2024, says James Beaumont, Head of Natixis Investment Managers Solutions. His Portfolio Clarity team, which analyzes advisors’ portfolios for asset allocation trends, has tracked a sizeable flow from money markets back into stocks and bonds. “Many investors missed the rally and are looking for opportunities. Fixed income and small caps are two favored areas,” said Beaumont. He added that higher rates and increasing dispersion within asset classes is once again driving opportunities for active managers and alpha generation.

A few actively managed strategies highlighted for adapting portfolios in uncertain markets include:
Flexible fixed income: DNCA Alpha Bonds strategy can take short and long positions on the markets and tends to have low to negative correlation with major fixed income asset classes.
Flexible growth: Loomis Sayles Sakorum Long Short Growth Equity focuses on alpha generation from long-term exposure to high quality businesses with sustainable growth prospects – as well as shorts exposure to generate alpha and provide downside protection.
Global diversification: Loomis Sayles Global Allocation takes an opportunistic, best ideas approach, leveraging  the firms’ renowned global research platform across equity and fixed income markets. Fixed income is used as an alpha driver and not just to provide ballast.

For more insights and ideas, visit Latin America or US Offshore.

Towards a New Gold Rush?

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The price of gold has risen more than 17% since the beginning of the year, making it one of the best-performing assets this year. After fluctuating between $1,800 and $2,000 in 2023, the price of gold surged in March and April of 2024, quickly reaching $2,400.

This behavior has been widely discussed. Historic in its scale and speed of movement, it is especially notable because it contravenes the historically observed relationship between gold and other asset classes. The rise in gold occurred at a time when real interest rates were rising, the US dollar was strengthening, and risk assets continued their ascent early in the year.

The link between real interest rates and gold has been broken since early 2022. Historically, the price of gold has been inversely correlated with changes in US real interest rates, and this relationship has worked well at least since 2006. From a fundamental point of view, this is due to the fact that, being a real asset that does not generate yield, holding gold becomes more costly as positive real rates rise.

Similarly, a stronger dollar usually penalizes dollar-denominated commodities (including gold) because it makes them more expensive for non-US investors (most of whom are gold investors). The rise in the dollar index by more than 4% this year has also not been an obstacle for gold’s advance. Finally, gold is often perceived as a safe haven and tends to perform well in times of stress, which has not been the case this year: US equity volatility has returned to its lows (VIX index close to 12) and credit spreads have tightened significantly. So, how can the exceptional performance of gold be explained? And, more importantly, is it sustainable?

The Demand from Central Banks

Global demand for gold by central banks has doubled since 2022, from 11% of total gold demand in 2021 to 23% in 2023. This trend continued in the first quarter of this year. Investments in bars and coins, as well as ETFs, which had increased significantly in 2020 (the year of Covid-19), have since decreased significantly. China, being the world’s largest gold producer (10% of mining production), is also the largest importer (20% of demand). The People’s Bank of China (PBOC) increased its gold reserves in 2022-2023, although the total amount remains uncertain, as it is not required to transparently publish all its gold purchases. Similarly, Chinese consumers appear to have channeled part of their savings into gold purchases, although the exact amount is unknown.

Overall, if all central banks in emerging countries reached a minimum of 10% of their reserves in gold, global gold demand would grow by more than 75%. This structural factor seems likely to continue. When surveyed in 2023, 23% of central banks intended to increase their gold reserves in the next 12 months. This impetus to diversify central bank reserves accelerated after Covid-19 and the start of the war in Ukraine. It is probably due to the perception of increased financial risk, linked, on the one hand, to the rise in the US deficit and, on the other, to the sanctions unilaterally decided by the United States against Russia (including the freezing of $300 billion in reserves).

Outlook for Gold

On the supply side, the trend is relatively stable, with annual production hovering around 3,000 tons each year, but demand prospects seem quite good. We anticipate a slightly more favorable macroeconomic context. Real interest rates are likely to remain stable at best, or even decline slightly due to the economic slowdown and the Fed’s initial rate cuts, which should support the price of gold. Additionally, the risk of a return of inflation in the opposite scenario is also favorable for gold, as a real asset, it protects against excessive inflation.

The more structural factors that have driven the increase in central bank purchases, especially in emerging countries, will persist. Geopolitical risks remain present, and the US deficit shows no signs of reducing.

However, as illustrated by the previous chart, central bank demand for gold has historically been quite volatile, as has investment (including ETFs). These two types of demand could accelerate (increasing central bank gold reserves and attracting financial investors to gold), which is our preferred scenario, but visibility on their short-term evolution remains limited. In the medium and long term, the upward trends in gold demand seem more clearly positive.

In a multi-asset portfolio, our simulations show that gold is interesting in terms of diversification, as it has little correlation with the performance of equity or fixed income. Gold also reacts positively to market tensions. A structural portfolio exposure of 3 to 5% to gold, along with other alternative assets, improves the risk/return profile of diversified funds.

Good Management of Advisor Teams Is Crucial for Growth

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In the wealth management industry, the concept of teamwork has become a central component for achieving scale and generating business value for advisory practices, according to new research from Cerulli Associates and Osaic.

The study, titled “Top-Performing Teams: Exploring the Benefits and Approaches of Building a Team-Based Advisory,” found that team-based practices achieve better results in key measures, including assets under management (AUM), services offered, and productivity.

According to Cerulli, nearly half of advisors currently work in a team structure. The trend towards teamwork is even more pronounced among larger advisory practices: 94.5% of practices with over $500 million in managed assets operate in a team-based structure, compared to only 5.5% that operate solo.

Teams benefit from optimized resources, processes, and services, and typically operate with higher levels of productivity compared to individual practices.

The research found that team-based practices have an average of $100 million in AUM per advisor, compared to $72 million among individual practices.

“One of the key benefits of multi-advisor teams is the diversity of skills, experience, and complementary knowledge. Combining the expertise of each team member allows practices to leverage their individual strengths and provide specialized services, including lending, estate planning, and tax services,” says Asher Cheses, director at Cerulli Associates.

Teams serve a broader core market, with an average client size of $1.6 million, compared to $1 million for individual practices.

Advisors seeking to move upmarket or enter a new client segment have succeeded by forming teams to expand their service offerings to include more financial planning and high-net-worth (HNW) services.

“Teams can accelerate their growth by better leveraging platform resources, such as financial planning, advisory, and high-net-worth solutions, as well as business development resources and capital solutions,” says Kristen Kimmell, executive vice president of business development at Osaic.

Fixed Income and Technology: Alternatives to a Strong Economy That Delays Interest Rate Cuts

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From left to right: Tiago Forte Vaz, María Camacho and David Hayon | photo: Funds Society

The Rise of Artificial Intelligence and Central Bank Rates in the U.S. and Europe open opportunities for investments in both technology and Fixed Income, said experts from Pictet and Edmond de Rothschild at an event in Montevideo.

The experts, Tiago Forte Vaz, CFA, Head of Intermediaries at Pictet for Uruguay, Brazil, Portugal, and Argentina, and David Hayon, Head of Sales Latam at Edmond de Rothschild Asset Management, commented on the macroeconomic scenario, agreeing that the U.S. economy is strong, which is delaying interest rate cuts.

“The resilience of the U.S. economy is noteworthy. Even Fed members weren’t this optimistic. There was talk of a recession. Rate cuts were expected, and everyone was wrong,” commented Hayon.

Forte also emphasized that inflation is the most important issue to address and noted, “The year started optimistically, but central banks didn’t adjust until September.” The expert added that this is a significant risk as the Fed “lost credibility and is willing to tolerate a greater slowdown to avoid inflation.”

Hayon, for his part, supplemented the comment by explaining that Europe has more control over inflation but will try to align rate cuts with the U.S. to avoid generating inflation.

Geopolitical Risks

Both experts said that “it is impossible not to talk about geopolitical risks.” It is a latent conflict that could escalate, commented Forte.

However, Hayon tempered this by stating that they do not believe Europe will intervene militarily in the conflict. “We don’t imagine French troops in Ukraine,” said Hayon, adding that it is believed “the conflict will be played out in negotiations to achieve an end to the conflict and avoid escalation.”

Another geopolitical risk is that 70% of the population will have elections this year. Among the most notable countries are the U.S., India, Mexico, and Russia. “This environment creates tension and uncertainty that is difficult to diversify at the portfolio level,” added Forte.

The event, moderated by María Camacho, founding partner and director of strategy at LATAM ConsultUS, also included time for strategy presentations.

Pictet: Artificial Intelligence, Bubble or Opportunity?

Forte began by asking the audience, consisting of financial advisors from the Montevideo industry, whether it is still a good time to invest in Artificial Intelligence (AI).

The regional representative emphasized the concept that technology is overvalued in the present and undervalued in the future. Forte added that it is expected that spending on technology as a percentage of GDP will double.

He also noted that although the world has already been revolutionized by AI technologies, they are still in an early stage. However, “it is growing at an exponential rate.”

Regarding investment challenges, he mentioned the tension over semiconductors between China and Taiwan and “sufficient opportunities” in public markets for these strategies.

Edmond de Rothschild: Fixed Income Still Attractive

From Edmond de Rothschild, Hayon highlighted the importance of fixed income, especially in developed markets.

The expert pointed out that although spreads have narrowed significantly, total returns are good due to high rates and warned, based on the rate context explained, that there is still time to invest in these assets and achieve very good returns.

He also commented on the benefits of subordinated fixed income. Hayon emphasized the possibility of buying hybrid bonds, where the investor buys bonds with the security of investment grade but with the yield of high yield. “Buying subordinated debt from banks and insurers will pay well,” he elaborated.

During the presentation of the EDR SICAV Millesima select 2028 investment strategy, the expert highlighted the high risk of losing reinvestment when in cash.

Today, rates can provide good returns over a year, but fixed income exceeds that return over four years.

When and How: The Great Debate on Interest Rate Cuts in the U.S.

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The latest macroeconomic data confirm the robustness of the U.S. economy, presenting a significant debate for the U.S. Federal Reserve (Fed). From today until Wednesday, the Fed will hold its meeting, according to asset managers, with all the necessary ingredients: updated labor market and inflation data; economic projections; various perspectives within the FOMC; and Jerome Powell’s press conference. What should we pay the most attention to?

According to Erik Weisman, Chief Economist and Portfolio Manager at MFS Investment Management, perhaps the most important thing will be whether the Fed considers the April consumer inflation figures to be low enough to mark the start of a weakening trend. “The Fed has indicated that it needs to see several consecutive months of significantly more controlled inflation before beginning to cut interest rates. It is unclear whether the April data on the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) meet these criteria. This may be clarified during the press conference,” he notes.

Secondly, Weisman adds, “Another interesting point is the long-term dots, which indicate what the Fed considers its nominal neutral policy rate. Last quarter, the long-term median dot increased for the first time in a long time. Most market participants believe that the nominal neutral long-term Federal Reserve funds rate should be considerably higher.”

Cristina Gavín, Head of Fixed Income and Fund Manager at Ibercaja Gestión, believes that over the past few months, the Fed has been moderating its discourse regarding the path of rate cuts. “The most interesting thing, as with the ECB, will not be the announcement of maintaining the intervention rate, but Powell’s subsequent speech, where he will assess the country’s economy and what we can expect for the second half of the year. It is most likely that he will emphasize the need to be patient and wait for more convincing data to begin the rate-cutting process,” Gavín argues.

Main Forecasts

According to DWS, the big debate is about how much and how the Fed will cut rates. “Monetary policy is clearly restrictive from the labor market perspective. However, current inflation metrics do not yet justify a cut. It is no surprise that the Fed sees balanced risks and maintains close vigilance, as well as an open mind about incoming data,” argues Christian Scherrmann, U.S. Economist at DWS. The asset manager believes that in the real world, full of complexity and measurement errors, chaining the Fed to a single policy rule has always seemed like a bad idea. “But arguably the other extreme is even worse: letting elected politicians directly interfere in rate-setting, instead of having an independent central bank publicly committed to a stable framework and accountable for achieving its monetary policy goals,” they state.

“After strong employment data on Friday, expectations regarding rate cuts have cooled, and the market now only prices in one and a half cuts by the end of the year. Since the Fed is not expected to cut rates this week, the summary of economic projections should also reflect that the Committee has reduced its forecast for cuts this year. That is where the focus will be. We believe the dot plot will place the median reference rate closer to 5% by the end of the year, compared to the previous 4.6%. We will also be attentive to the language the FOMC may use to describe its growth and inflation outlooks,” says John Velis, Macro Strategist for the Americas at BNY Mellon IM.

According to Enguerrand Artaz, Fund Manager at La Financière de l’Echiquier (LFDE), market actors’ forecasts for the Fed’s trajectory have rarely been so disparate: some still predict a first cut in July and several more in the coming months, while others do not expect any cuts in 2024. “However, the U.S. is perhaps the country that could offer more visibility soon. Indeed, April inflation data were reassuring after negative surprises in the first quarter; price increases are now only driven by a few components that have little correlation with demand; growth was slightly below forecasts in the first quarter, and the labor market is slowly deteriorating, so the economic outlook, if confirmed, could outline a well-marked path for the Fed,” Artaz notes.

For the Head of Fixed Income and Fund Manager at Ibercaja Gestión, there have been voices that even ruled out cuts for this year. However, her forecast is that “in 2024 we will see a shift in the Fed’s monetary policy bias, with the first cut occurring after the summer. From there, and as long as price developments show a downward trajectory, we would bet on another intervention rate cut by the end of the year, once electoral uncertainty is behind us,” she argues.

Meanwhile, Deborah A. Cunningham, Chief Investment Officer of Global Liquidity at Federated Hermes, notes that despite the warnings at the May meeting, they do not anticipate a rate hike and expect one or two cuts for the remainder of the year. “One thing to note is that the idea of the Fed avoiding rate cuts in September to avoid appearing to interfere with the general elections, foregoing rate action when the data justifies it, could also seem politically motivated,” she explains.

“Canada and the Eurozone have started the cycle of rate cuts in developed markets, following the trend of emerging markets. But it is likely that this week Jerome Powell will confirm that the U.S. will arrive late to the party, as the Fed is not expected to cut rates before September, at the earliest. Global fixed-income investors are already benefiting from rate cuts, while those only exposed to the U.S. will have to keep waiting,” concludes Brendan Murphy, Head of Fixed Income, North America, at Insight (part of BNY Mellon IM).

Data Flows

According to Gilles Moëc, Chief Economist at AXA IM, the market will focus on the new “dot plot” from the FOMC this week. “We expect a change in the median forecasts to two cuts this year, compared to three in March. There is a risk that it will be reduced to just one, but we believe this would eliminate too much optionality, as it would send the message that the Fed cannot cut before the elections,” he explains.

In his opinion, market prices for the Fed changed drastically again last week in response to higher-than-expected job creation data in the U.S. in May, according to the Establishment survey (+272K, compared to a consensus of +180K), accompanied by faster wage increases (+4.1% on a three-month annualized basis, well above April’s 3.0%). Before the publication, two rate cuts were almost fully priced in for December (48 basis points), with 22 basis points already in September. “After the publication, the market was only pricing in 14 basis points of cuts in September and a total of 34 for December. But more than the directionality, it is the confusion that, in our opinion, is the main ‘message’ of the recent data flow from the U.S.,” he nuances.

In this “data fog,” Moëc sees it likely that the Fed’s forecast of its trajectory will be the focal point of this week’s FOMC meeting. “We believe the median of FOMC voters will forecast two cuts in 2024—which happens to be our base case—compared to three in March. Of course, there is a debate around the possibility of maintaining only one cut in the framework, but we believe this would send too harsh a message, indicating that the Fed has given up on cutting before the elections (a solitary cut for 2024 would be interpreted as no easing before December), which we believe would leave the Fed with very little optionality. While time is running out, we still see the possibility that the data flow will clear up enough over the summer to allow the central bank to begin removing some restrictions in September,” he concludes.

In the opinion of Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin Sustainable AM, slower economic growth and a more balanced labor market should reduce inflationary pressures. In his view, the problem is that inflation will take time to return to its target, requiring a gradual approach to monetary policy easing. Nevertheless, given that the labor market has returned to where the Federal Reserve wants it, some Fed members will point to the risk of waiting too long. He believes that the Fed’s new projections could point to two rate cuts this year, but the distribution seems likely to tilt downward.

“The distribution of market participants’ expectations for the federal funds rate at the end of the year will likely shift to the right (a higher official interest rate). While the median ‘dot’ could point to two cuts this year, we believe a greater number of officials will forecast that the official interest rate will only be cut once or not at all this year. Overall, the slower-than-expected progress of inflation could limit the speed and promptness with which the Fed wants to cut rates,” argues Olszyna-Marzys.

Patria Buys a Real Estate Management Company in Colombia

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Patria Investimentos, one of the leading alternative asset managers in Latin America, announced an agreement to acquire Nexus Capital, an independent real estate asset management company in Colombia. The transaction, which is expected to be completed in the third quarter of 2024, will add approximately 800 million dollars in assets to Patria’s portfolio.

With this acquisition, Patria’s Real Estate vertical in Colombia will reach a total of 2.2 billion dollars in assets under management.

Alfonso Duval, partner and head of the Andean region at Patria, highlighted that Nexus Capital has a robust portfolio and an innovative investment approach. “Nexus will be a great addition to our platform, significantly contributing to our growth objectives and strengthening our relationships with investors in Colombia and the region,” said Duval.

Marcelo Fedak, partner and head of Real Estate at Patria, expressed his enthusiasm for the integration of Nexus Capital into the company’s platform. “We are very pleased to welcome this talented team to Patria. Nexus’s diverse platform represents a valuable addition that will expand our product offerings and strengthen our relationships with key investors in Colombia,” said Fedak.

Founded in 2008, Nexus Capital focuses on the office, retail, industrial, and residential segments. The manager has a diversified portfolio, with around 90% of its assets in permanent or long-term capital structures. Nexus is one of the leading independent real estate managers in the country, led by a team of 28 professionals under the direction of Fuad Velasco.

In recent years, Patria has committed to expanding its presence in the real estate sector in Latin America. In 2022, the manager acquired 50% of VBI, with an option to purchase the remaining 50% in 2024. Additionally, the recent acquisition of the Real Estate unit of CSHG in Brazil consolidated Patria’s position as the largest independent real estate investment fund in the country, with over 4 billion dollars in assets under management.

In November 2023, Patria also celebrated a joint venture with Bancolombia, adding more than 1.3 billion dollars in real estate assets and leveraging the bank’s strong distribution platform in Colombia. With the integration of Nexus Capital, Patria expects to reach 7 billion dollars in assets under management in Latin America, with 90% of these assets in permanent capital vehicles.

Insigneo Strengthens its Position in Chile Through an Alliance With Nevasa

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Three years after establishing its presence in the Chilean market, Insigneo is strengthening its operations in the country through a strategic alliance with the local firm Nevasa Corredores de Bolsa. This agreement aims to enhance the presence and improve the offerings of both companies in the Santiago market.

According to a statement, this partnership will leverage the expertise of the Miami-based wealth management firm and the local strength of the Chilean brokerage in the national wealth management business. Thus, Insigneo strengthens its operations in Chile while Nevasa enhances its international offerings.

Specifically, the U.S. firm highlights that this business expands its network not only with financial advisors in the Andean country but also through established companies in the Chilean market. This is a market where the firm has been operating since 2021, focusing on services for independent advisors, multi-family offices, and regulated financial firms.

The alliance aims to diversify both firms’ business through Insigneo’s platform, which will also strengthen the research and information network available to Nevasa’s clients. Nevasa manages assets worth over 866 billion Chilean pesos (around 944 million dollars).

The Chilean firm will focus on adding value in its role as advisors, investment decision-making, and portfolio analysis. The partnership will grant its clients access to offshore custody provided by Pershing, as well as more international investment alternatives, in line with the demands of clients in the country.

Top executives from both companies highlight the potential of the agreement.

“This alliance is a crucial step in strengthening our position in the local market. We are committed to long-term growth and success, and this strategic agreement is proof of that. Currently, we have 12 agreements with independent advisors and local financial services companies, which allows us to consolidate our expansion strategy in Chile,” said José Luis Carreño, Market Head of Insigneo in Chile, in the statement.

“This alliance, along with others that Nevasa maintains, gives us access to a large network of instruments, funds, and financial instruments in international markets, complementing the traditional Chilean product offerings and thus meeting the investment and diversification needs of our current and potential clients,” added Ramiro Fernández, General Manager of Nevasa Corredores de Bolsa.

90th Anniversary of the SEC: Born in the Wake of the 1929 Crash Under the Principle of Disclosure

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June 6 marked the 90th anniversary of the Securities Exchange Act of 1934 (known as the Exchange Act), which established the Securities and Exchange Commission (SEC). This Act, together with the Securities Act of 1933, forms the legal basis governing the capital markets in the USA. Built on the concept of a disclosure-based, merit-neutral regulatory framework, these laws have facilitated tremendous economic growth, job creation and innovation for the U.S. economy over the past 90 years.

“It’s a period that reflects our country’s rise to becoming an economic superpower, and not by mere coincidence,” emphasized Mark T. Uyeda, SEC commissioner at the Boston Regional Office. He explained that like any organization, the SEC is just a legal instrument that only exists on paper. “What gives life to the Commission is its people and its culture. Today we celebrate the dedication of the officials who have made this agency what it is over the last nine decades. We owe a debt of gratitude to all those who have preceded us. It is an honor to have Chairman Breeden, Chair Schapiro, and Chairman White with us this evening to represent those predecessors,” he noted.

To understand its history and creation, it is necessary to go back to 1930, when the U.S. faced immense challenges. Firstly, the 1929 stock market crash had shaken public confidence in our markets, and our economy suffered. “At that point in history, Congress had an alternative. Several states had already adopted securities laws that were often referred to as blue sky laws. In fact, before joining the Commission in 2006, I was a regulator at the California Department of Corporations, created by the California legislature in 1913 to oversee the offering and sale of securities,” Uyeda pointed out.

He continued: “Instead of adopting the merit-based blue sky laws that many states, including California, had implemented, Congress chose to implement a disclosure-based regime. It was a fortuitous choice, made long before the debate on the efficient market hypothesis became widespread, and it laid the groundwork for subsequent economic growth.”

In his opinion, by emphasizing transparency and accountability, the SEC laid the foundation for capital markets that thrive on the free flow of information. “Investors were empowered to make informed decisions on their own, while the SEC facilitated an environment of credible information and market integrity. This approach has been a fundamental reason why our markets have become the envy of the world,” he highlighted.

In September 1970, Chairman Hamer Budge succinctly expressed these points: “Investors, both large and small, can invest in our markets with the assurance that it is market forces, not manipulators, that determine the daily prices they pay and receive for their securities. It is vital to our economic growth and development that our securities markets continue to function fairly and without artificial restraints.”

According to Uyeda, who has been part of the SEC for the past 18 years, first as a staff member and then as a Commissioner, despite the achievements made, “we cannot rest on our laurels.” He indicated: “Just as the drafters of the Securities Act probably could not have imagined a world in which an investor could buy and sell baskets of securities on a tiny mobile communication device from anywhere in the country, we must reflect on how the SEC fulfills its mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation in an ever-evolving technological environment.” Therefore, the Commissioner invites reaffirming the commitment to the principles on which this agency was founded. “I look forward to working with you on this journey,” he concluded.