UBS Wealth Management International Adds Déa Caldas in New York

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Déa Caldas has joined UBS Wealth Management for the international office in New York.

“I am pleased to announce that Déa Caldas, CFP, has joined UBS International in the New York International Market,” posted Michael Sarlanis on his LinkedIn.

The banker, with more than 23 years in the industry, comes from J.P. Morgan, where she worked for over 10 years between Rio de Janeiro, Miami, and New York.

Originally from Brazil, Caldas worked at Citibank and Banco Santander in Rio de Janeiro.

She holds an MBA from the Pontifical Catholic University of Rio de Janeiro.

While Europe Changes Course, the Markets Focus on the Key Event of the Week: the Fed Meeting

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The European Parliament elections have yielded three clear conclusions: far-right parties with an anti-establishment nuance have gained influence; a centrist majority persists; and the results have significantly impacted local politics in France and Belgium. The market’s immediate concern, however, remains on the upcoming decisions by the U.S. Federal Reserve.

According to the initial official results published by the European Parliament, far-right political groups have increased their presence. Nevertheless, the European People’s Party (EPP) emerged victorious with 191 seats, followed by the Socialists and Democrats (S&D) with 135 seats, and the Liberals (Renew) with 83 seats. These results have prompted a snap election in France, as President Emmanuel Macron dissolved the National Assembly and called for legislative elections later this month, and the resignation of Belgian Prime Minister Alexander de Croo, both due to their parties’ losses and the rise of more extreme right-wing parties.

According to Gilles Moëc, chief economist at AXA Investment Managers, the results of the European elections were not expected to trigger a significant shift in the EU’s stance. “Although the overall political space of the major parties is shrinking, the European Parliament has a long tradition of cooperation among the main groups – center-right, liberals, and social democrats – which, based on the national results seen so far, will likely maintain a comfortable majority of the seats together. It may be more difficult to reach the necessary compromises, and changes in public opinion will need to be considered, but a radical change of course is not to be expected. However, the decision of the French president to dissolve the National Assembly, the lower house of the French Parliament, in response to the European vote, changes the perspective,” he says.

Regarding Macron’s decision, Lizzy Galbraith, a political economist at abrdn, explained that “while these elections won’t affect Macron’s presidency, they might force him to work with opposition parties in Parliament, complicating his legislative agenda”. Axel Botte of Ostrum AM highlighted the uncertainty in France, questioning whether the far-right RN could secure a majority government, potentially leaving Macron’s centrist party as the viable option.”In any case, these elections are extremely important with a view to the upcoming presidential elections in 2027.”

According to Mabrouk Chetouane, head of global strategy at Natixis IM Solutions, “the economic and financial consequences of this political thunder are already palpable” in France, where the main stock index, the CAC 40, opened with sharp declines, reflecting market operators’ concerns about the visibility of the French economy’s trajectory. “Reform plans could be abruptly halted by the likely formation of a coalition, which would result in a coalition government in a context where the state of public finances leaves no room for maneuver for the future government. France, a pillar of the eurozone, could find itself in a possible deadlock. This would reduce investor visibility, increase national stock market volatility, and raise the cost of debt… A deleterious trio that would temporarily deter foreign investors from French markets,” Chetouane points out.

Where is the Market Looking?

Against this new political backdrop, the markets are currently calm and focused on what they consider to be the key event of the week: the monetary policy meeting of the U.S. Federal Reserve. The crucial question is whether the Fed will announce its first rate cut of the year this Thursday, following the ECB’s rate cut last week.

To understand what the Fed might do, it’s essential to look at the data. “The latest U.S. employment data gave mixed signals. The ratio of job openings to unemployed workers fell to 2019 levels, suggesting a relaxation in labor market tension. However, the strong growth in non-farm payrolls and the 0.5% increase in average hourly earnings for production and non-supervisory workers could indicate wage inflation pressures. This week’s CPI could help clarify whether the U.S. is enjoying a Goldilocks moment of slowing inflation combined with resilient employment or if inflationary pressures persist,” says Ron Temple, head of market strategy at Lazard.

According to Javier Molina, senior market analyst at eToro, following the latest data on the state of the U.S. economy, the Fed faces significant challenges in achieving its 2% inflation target, given the solid performance of the economy and labor market. “At the next Federal Open Market Committee (FOMC) meeting on June 12, it is unlikely that the Fed will change its guidance on future rate cuts given the lack of confidence in the sustainability of the current disinflationary trajectory,” Molina notes.

Meanwhile, Paolo Zanghieri, senior economist at Generali AM, part of the Generali Investments ecosystem, recalls that in recent weeks, members of the Federal Open Market Committee (FOMC) have called for more patience in easing policy, which will likely result in an upward revision of the median appropriate level for the federal funds rate by year-end. “Our baseline scenario remains two rate cuts (in September and December), with a single cut as the second most likely scenario. More important for long-term rates, the FOMC is likely to continue raising its estimate of the long-term neutral interest rate, an indicator of the level at which the easing cycle will stop. The current median of 2.6%, which corresponds to a real rate of 0.6%, is well below what most analysts think: market-based estimates are consistent with a rate above 3%.”

Implications for Investors

According to Reto Cueni, economist at Vontobel, the election results show a strengthening of far-right “anti-system” parties in Europe, but they have not exceeded expectations. This means the centrist majority remains intact in the European Parliament, likely securing more than 55% of the total votes, while green parties across Europe have lost parliamentary seats.

In his view, this has three implications for investors. Firstly, Cueni notes that this centrist majority provides stability in a Europe facing high geopolitical uncertainty. “For now, this is positive news for investors. However, in the coming weeks, it will be seen if the centrist parties can work together and elect a centrist president of the European Commission for the new five-year term,” he asserts.

Secondly, Cueni believes that the shift towards right-wing “anti-system” parties, which politically oppose the “Green New Deal” and prioritize national security and border control, demonstrates a change in Europe’s political focus. “Investors need to pay attention to the presentation of the programs of the candidates for the next EU presidency, scheduled for mid-July, to understand the parties’ agendas and the political momentum in Europe,” he advises.

Lastly, Cueni adds that the early parliamentary elections in France will increase uncertainty about the political course of Europe’s second-largest economy. Given that the country’s political system makes foreign and defense policy largely a presidential prerogative, “the uncertainty about France’s future cooperation in Europe and geopolitically remains controlled, at least until the spring of 2027, when the next French presidential elections are scheduled.”

Views on the European Elections

Experts from investment firms had already warned that there could be a greater presence of the far right, as some polls had predicted. Nicolas Wylenzek, a macroeconomic strategist at Wellington Management, noted before the elections that these could accelerate a shift in the EU’s political priorities, which could have potentially significant implications for European equities. However, he clarified that this adjustment would depend on several factors, such as the composition of the European Commission, changes in the political landscape of member states, and international events like the war in Ukraine and the U.S. elections.

“While a reduction in administrative burden could be clearly positive for EU companies, I consider the overall shift to be marginally negative. Reforms that promote greater integration, such as banking union and capital markets union, would strengthen the resilience of the EU economy and facilitate growth, while allowing and encouraging the immigration of skilled labor could be important to help limit inflation and improve trend growth,” he explained.

Similarly, John Polinski, vice president and fixed income portfolio manager at Federated Hermes, recently pointed out how the 2024 European Parliament elections could result in the first center-right coalition in the EU, with the European People’s Party joining forces with the European Conservatives and Reformists and Identity and Democracy. According to Polinski, this change could moderate environmental and migration policies and alter spending and debt dynamics within the EU. “We believe a political shift to the right will have a moderate effect on European fixed income markets in the short term. But in the longer term, a change could significantly affect the markets, especially concerning cross-border mergers and acquisitions, and industrial, ESG, and fiscal policies,” he asserted.

Lastly, Felipe Villarroel, a manager at TwentyFour AM (a Vontobel boutique), offered a clear reflection on not being swayed by today’s headlines: “In our opinion, the macroeconomic consequences are unlikely to be as significant as some of the headlines following the elections might suggest. While it is very likely that the average MEP will shift to the right, that does not mean that macropolitics will change drastically. Without a doubt, there will be microeconomic consequences for sectors heavily affected by climate policy, for example, if some policies are reversed. But we tend to think that most macroeconomic variables and aggregate company data, such as leverage or default rates, will not change too much as a result of the elections. The most disruptive theoretical macroeconomic impact would be a scenario in which European integration is questioned. Even if the far right achieves a massive victory next week, they will not have nearly enough seats to seriously threaten this. There may be incendiary headlines after the elections, but we believe that from a macro perspective and fixed income portfolio management point of view, the headlines will not translate into facts.”

Phillip Hackleman, Alexandra Valentin, and Juan Carlos Freile Found a New Multi-Family Office in Miami

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Former J.P. Morgan bankers Alexandra Valentin and Juan Carlos Freile joined forces with Phillip Hackleman to establish the multi-family office Tiempo Capital in Miami.

The company has been registered with the SEC as an RIA. However, the partners distinguish between the regulatory status and the services they provide.

“We like to be known as a multi-family office because our work is more selective, both in terms of clients and the operations we undertake,” Valentin told Funds Society.

The firm, which already has approximately $320 million in assets under management, aims to reach $500 million in the next two months, with the goal of reaching $1 billion within the next year, Freile told.

The client profile consists of Latin American families residing both in the U.S. and in the southern region.

“Our work at J.P. Morgan allowed us to develop an excellent relationship with clients from Puerto Rico, and our experience in the industry also helped us forge connections with families from Venezuela, Colombia, Mexico, and Argentina,” added Valentin.

Additionally, the bankers mentioned that Hackleman’s participation as the third partner is crucial for managing investment operations and strategy.

“Phillip has extensive experience in investment matters,” Freile commented.

Regarding custodians, Tiempo Capital will work with J.P. Morgan, “due to the great trust that has been built” during their experience at the firm. However, they also diversify custody with Northern Trust and Morgan Stanley.

A Vision Towards Alternatives

Tiempo Capital emerged from clients’ need to invest in a more diverse range of products than those offered by wirehouses.

Freile described that the multi-family office will create selected and customized portfolios for each client with all types of alternative products. The goal is to expand the universe of alternative offerings that banks have.

For this reason, the firm’s partners mentioned that they will work with direct investments such as Real Estate, Private Equity, among others.

About the Partners

The three partners, Juan Carlos Freile, who serves as CEO, Alexandra Valentin, as Chief Strategy Officer and Head of the Puerto Rico business, and Phillip Hackleman, as Chief Investment Officer, are recognized in the industry for their extensive careers.

Juan Carlos Freile

Before founding Tiempo Capital, he was an executive director and banker at J.P. Morgan Private Bank, where he advised wealthy individuals and families in the United States, Puerto Rico, and Latin America, managing over $2 billion in client relationships.

During nearly 15 years at J.P. Morgan, he led an integrated team that provided customized wealth management solutions, including investments, wealth structuring, fiduciary services, philanthropy, banking, and credit. Previously, he worked in Investment Banking at Goldman Sachs & Co. in New York, advising and executing for Latin American institutional clients on Fixed Income, Currency, and Commodity trading and hedging solutions.

He obtained his degree in Economics and History cum Laude from Dartmouth College in Hanover. He also studied at University College London as a Research Scholar of early 20th-century financial history. Over the last decade, he achieved the CFA charter holder designation and is a member of the CFA Society of Miami.

Alexandra Valentin

She was an executive director and banker in the Miami office of J.P. Morgan Private Bank, where she led the expansion of Puerto Rico and the team covering the Island. Under her leadership and guidance, J.P. Morgan became one of the largest custodians of high-net-worth assets on the Island, according to information provided by the firm.

Alexandra began her financial services career in 2003 and spent over a decade covering ultra-high-net-worth families in Latin America at UBS International.

Phillip Hackleman

He has experience managing various strategies, including Long-Short Equity, Global Macro, Classic Asset Allocation, Liability Management through Currency Arbitrage, and Absolute Return Fixed Income.

Before founding Tiempo Capital, he was a portfolio manager at a global multi-family office. He also worked for a Swiss global family office with $5.5 billion in AUM, participating in the investment committee representing the North American office. Previously, Philip worked at a multi-family office of a Fortune 500 founder, focusing on growth capital and real estate investments.

BTG Pactual Buys Minority Stake in Bill Ackman’s Asset Manager Before IPO

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BTG Pactual recently announced the acquisition of a minority stake in the asset management firm led by Bill Ackman, Pershing Square Capital Management.

This strategic move comes at a crucial moment, just before the asset manager’s IPO, which is scheduled for the coming months.

The sale, of a 10% stake in the hedge fund, was carried out for $1.05 billion, to a consortium of institutional investors, including Arch Capital, Consulta Limited, Iconiq Investment, Menora Mivtachim, as well as family offices.

“We are very pleased to invite a group of international and long-term partners as investors in our company, which has been entirely employee-owned at Pershing Square since our founding more than 20 years ago,” said Ackman.

The relationship between Bill Ackman and BTG Pactual leaders André Esteves and Roberto Sallouti already has a history of collaboration in events and stock offerings. In February of this year, Ackman was in Brazil for a bank event. He has also been interviewed live by Esteves on other occasions.

In 2010, BTG was one of the coordinators of the stock offering of a Pershing Square branch on Euronext Amsterdam. This long-standing relationship facilitated the recent acquisition of a minority stake in Pershing Square Capital Management.

The Balanced and Predictable Decision of the ECB Leaves the Debate Open for Two or Three More Cuts This Year

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The European Central Bank (ECB), which did not disappoint in its meeting yesterday, has taken the lead over the Fed. However, experts from international asset management firms note that the ECB has made this first-rate cut without providing firm guidance beyond June.

The Governing Council justified the moderation of policy restriction based on greater confidence in the disinflation process and the strength of monetary transmission. Expert projections on growth were revised upwards. ECB President Christine Lagarde was clear: “We are determined to ensure that inflation returns to our 2% target in the medium term. We will keep official interest rates at sufficiently restrictive levels for as long as necessary to achieve this goal. We will continue to apply a data-dependent approach, making decisions at each meeting to determine the appropriate level and duration of restriction. In particular, our decisions on interest rates will be based on our assessment of inflation prospects considering new economic and financial data, underlying inflation dynamics, and the intensity of monetary policy transmission, without committing to any specific rate path in advance.”

Beyond the official statement, firms maintain that Lagarde’s subsequent declaration refrained from committing to future cuts and maintained a data-dependent stance. “It is likely that recent wage and inflation surprises will keep Council members in a cautious position. Therefore, a cut in July seems clearly ruled out. The ECB’s rate trajectory will depend on data evolution from now on and the Fed, which we believe cannot cut rates this year due to the rigidity of U.S. inflation,” says Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International.

Officials not only referred to data dependency but also to flexibility. Indeed, the monetary policy decision statement was clear: “The Governing Council does not commit in advance to follow a determined rate path.” Felix Feather, Economist at abrdn, believes that in practice, the data-dependent approach is likely to be cautious. “The ECB will have little additional data before its July meeting. In particular, there will be no reliable data on second-quarter wage growth. Therefore, we consider that reiterating the emphasis on data dependency is consistent with our request to keep the deposit rate at 3.75% in July.”

Hugo Le Damany and François Cabau, Economist and Senior Economist for the Eurozone at AXA Investment Managers, consider the approach to be cautious but exaggerated. “We believe the ECB made this decision because it considers this rate cut relatively safe, with no significant risk of re-stimulating subsequent inflationary pressures. However, the ECB immediately reminded that internal price pressures remain strong. They reiterated that official interest rates will remain restrictive for as long as necessary to timely achieve their medium-term 2% target. The Governing Council insisted they will remain data-dependent and not commit to any specific rate path in advance,” they explain.

So far, the market reaction has not been very violent, but volatility persists in sovereign debt amid growing rhetoric that rates will take longer to return to expected levels, concentrating the likelihood of more cuts in the last quarter meetings of the year. “In the stock markets, attention is increasingly focused on upward revisions of corporate profits, although the banking sector performed well during the session due to the ECB’s hawkish tone, which augurs better margins for the rest of the year,” explains Carlos del Campo from Diaphanum’s investment team.

Forecast on upcoming cuts

In light of Lagarde’s words, Ulrike Kastens, Economist for Europe at DWS, estimates that the ECB will pause in July before “probably,” she notes, cutting rates again in September and December. “Data dependency remains key. At the same time, the upward revision of inflation forecasts for 2025 suggests that it may now take longer to reach the inflation target. These forecasts are much more restrictive than expected and imply very gradual rate cuts,” she argues.

Mauro Valle, Head of Fixed Income at Generali AM, part of the Generali Investments ecosystem, believes the ECB has room to cut again in the second half of the year, as monetary policies will still be perceived as restrictive. “The debate revolves around the probabilities of a third cut in December 2024: the market is pricing about a 50% probability, while our analysis indicates three cuts. The decision will depend on upcoming economic data, mainly inflation and wage trends, as Lagarde reiterated during the press conference,” Valle notes.

“Given the ECB’s reaction function, we anticipate the entity will continue cutting rates in meetings where projections are evaluated. September offers the next opportunity to globally reassess the disinflation process. Unlike earlier this year, market prices seem reasonable and generally align with our baseline of three cuts for this year. We expect additional cuts in September and December. Risks tilt towards fewer cuts, especially due to the rigidity of service inflation, labor market resilience, financial condition easing, and the ECB’s risk management considerations,” adds Konstantin Veit, Portfolio Manager at PIMCO.

Tomasz Wieladek, Chief Economist at T. Rowe Price, also shares his forecast: “I believe the ECB will end up making two more cuts this year. The bar for new short-term surprises in its forecasts is high. However, markets should not expect any future guidance. All of this year’s future rate cuts will likely be hawkish. However, this purely data-dependent approach also means the ECB could easily cut less than twice. We might only see one more cut towards the end of the year if inflation remains much more persistent than expected.”

In this regard, Axel Botte, Head of Market Strategy at Ostrum AM (Natixis IM), recalls that it was not a unanimous decision. “This implies that the prior commitment to a cut may have been largely motivated by political reasons. In fact, the ECB raised its inflation forecast to an average of 2.2% for next year but kept it at 1.9% for 2026. In any case, Christine Lagarde struggled to justify a rate cut at a time when wage increases remain uncomfortably high. Wage growth should hover around 4% until the end of 2024. The ECB’s message is hard to understand, as ECB rate cuts are applied alongside quantitative tightening. Still, the ECB could cut more in September when it updates its macroeconomic forecasts,” Botte adds.

Divergence with the Fed

For international asset managers, yesterday’s ECB decision is also relevant because it shows the divergence between the European institution and the Fed, something that hasn’t happened since 2011. “The real point of interest is to know how far the ECB can diverge from the Federal Reserve. We believe the scope of this divergence will be limited, given the incipient signs of a slowdown in the U.S. will give the Fed room to ease rates. This is our base scenario and means we see minimal risk of importing inflation. However, any prolonged divergence in policy could have a side effect on the currency market,” notes Monica Defend, Head of the Amundi Investment Institute.

Tim Winstone, Portfolio Manager in the Corporate Credit team at Janus Henderson, believes we started seeing a divergence in central bank communication earlier this year. “Compared to Europe, demand-driven inflation in the U.S. has been firmer; growth/employment, better; and the consumer, exceptionally strong. The Eurozone economy is experiencing less rigid inflation, largely driven by energy prices. This divergence provides us an opportunity as active managers,” explains Winstone.

The Rise of Artificial Intelligence and Stock Splits, Key Factors in Nvidia’s Success

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Nvidia has surpassed expectations by achieving sales of approximately $26 billion, placing it as the second most valuable company, only behind Microsoft. According to the quarterly results presented on May 22, the company once again exceeded consensus estimates, with sales of $26 billion compared to a forecast of $24 billion. What is behind its success?

Firstly, the company, which specializes in manufacturing microchips used to train and operate artificial intelligence models, has become “the engine of artificial intelligence,” according to David Rainville, Luca Fasan, and Marie Vallaeys, managers at Sycomore AM, part of the Generali Investments ecosystem. These managers believe that Nvidia’s share in the AI microchip market will remain above 80% for several years, thanks to the company’s technological leadership over its rivals and the high entry barriers in the sector. “In the future, the company’s strong growth will inevitably extend to the supply chain. Therefore, we are convinced that companies supplying components or services to AI graphics processing units will also benefit,” they add.

The management team of Edmond de Rothschild AM’s Big Data fund agrees with this view: “Nvidia is the absolute number one with a market share of over 80% in generative AI accelerator hardware.” Nvidia is not only one of the “7 Magnificent,” but it could also be considered their leader. “Microsoft, Amazon, Meta, and Google are trying to develop the application of large language models (LLMs) and a new monetization combined with their existing business model primarily based on software and the cloud. The last group, Apple and Tesla, both have specific use cases for GenAI but struggle to deliver to the end customer in consumer electronics and automotive applications in the short term. All these companies and those necessary to maintain the development of their products should continue the upward momentum of their assets. In fact, the supplier companies configure what we call the Horde,” they add, aiming to contextualize the current tech sector.

“The company’s GPUs (graphics processing units) are the best-in-class products, capable of handling the complex calculations required by the large language models driving generative AI applications,” adds Alex Tedder, head of global equities at Schroders.

For Sam North, market analyst at eToro, another factor in Nvidia’s success is the stock split. North explains that Nvidia will carry out this stock split to make them more accessible to a broader range of investors. “The company’s stock price has risen considerably in recent years, making it difficult for some investors to buy whole shares. With the 10:1 split, Nvidia hopes to attract more investors and increase the liquidity of its shares. Although, in Nvidia’s case, there are both risks and benefits. On the one hand, the stock split could help attract new investors and increase share liquidity. There are no guarantees that the stock price will regain its pre-split level, and it could be interpreted as a sign that the company is struggling to maintain its stock price,” reasons the eToro analyst, who believes this is not the case.

In Nvidia’s Shadow

The expectations for the company are very high. In Tedder’s opinion, “after an extraordinary acceleration, revenues are expected to double year-on-year in 2023. However, the sustainability of the company’s growth profile is uncertain. In the short term, an overcapacity scenario is entirely plausible, especially since key customers, such as hyperscaler providers, have been volatile spenders in the past.”

Experts believe Nvidia’s success is likely to be long-lasting, not fleeting, and the company’s economic forecasts are quite positive. This optimistic view is dragging many companies in its wake, at least according to the management team of Edmond de Rothschild AM’s Big Data fund: “From subcomponent suppliers to power grid upgrades. Nearly $7 trillion in market capitalization is moving in tandem with Nvidia, now showing a correlation above 0.5. Among these companies are Marvell, AMD, Applied Materials, and also companies like VAT Group in Switzerland, ASML in the Netherlands, and Vertiv and Eaton, industrial companies with exposure to data center cooling and power grid modernization. These companies have recorded average gains of 25% in 2024 and 60% in the past year (compared to the market’s 22% and 7%, respectively) since generative AI gained significant stock market traction.”

Schroders Appoints Rafael Cantisani as Head of Wealth and Family Offices for Argentina and Uruguay

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Schroders has strengthened the family office segment in Argentina and Uruguay with the appointment of Rafael Cantisani as Head of Wealth and Family Offices for both countries. According to the asset manager, this decision is part of the company’s strategy to promote sustained growth and better adapt to the constantly evolving needs of its clients.

A year ago, Schroders undertook a major restructuring of the Client Group, a team of professionals from across the organization that now includes Sales, Business Development, Client Experience, Marketing, and Communications teams. The firm notes that this new unit aims to ensure a smooth and personalized service for Schroders’ clients while collaborating with investment teams to deliver the best results.

Regarding client segmentation, redefinitions were also made: historically, Schroders grouped clients into Institutional or Intermediary categories. Now, the company is focused on four key segments: pension funds, insurance companies, wealth management, and long-term asset owners, which include family offices.

This client-centric strategy aims to provide a service more suited to the specific needs of each client, seeking to tailor its messages and services to the particularities of each segment.

As part of this restructuring, Rafael Cantisani, who previously served as Sales Director – Intermediary, will now hold the dual role of Head of Wealth and Family Offices for Argentina and Uruguay.

“I am excited to continue growing professionally at Schroders and have the opportunity to drive growth in this segment. In this role, I will be responsible for overseeing and strengthening relationships with high-net-worth clients and family offices, as well as developing personalized investment strategies to meet the specific needs of clients in both countries,” said Rafael Cantisani, Head of Wealth and Family Offices for Argentina and Uruguay.

Mariano Fiorito, Country Head for Argentina and Uruguay at Schroders, added: “Rafael has been part of the Schroders team for over six years, and his appointment as Head of Wealth and Family Offices for Argentina and Uruguay represents a strategic step for the company. His deep market knowledge and experience in the region are essential for strengthening our client relationships and expanding our service offerings in these key countries.”

The restructuring of the Client Group and the strategy of segmenting clients based on their specific investment needs highlight Schroders’ commitment to excellence and adaptability in a constantly evolving and challenging market.

Pershing Launches New Features on Its Wove Platform to Empower Advisors

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BNY Mellon announced new enhancements to Pershing X’s Wove platform, designed to help registered investment advisors, broker-dealers, and wealth management firms connect an investor’s entire financial landscape in one place, the company said in a statement.

The new offerings include Wove Investor, a comprehensive client portal that allows investors to view account information from multiple custodians and use self-service features to quickly complete simple tasks on their own.

Additionally, Wove Data has been launched, a cloud-based data platform designed for high-level financial professionals in wealth management firms to manage large sets of multi-custodial data and gain deeper insights into the performance of their advisor teams, operations, and investment products within their firms.

Another enhancement is Portfolio Solutions, a set of tools designed to save time and help advisors more efficiently and quickly find investment products that align with a client’s risk objectives and add them to a portfolio.

“When we launched Wove exactly a year ago, we said we wouldn’t stop innovating until it became the most connected advisory platform on the market, and today we are delivering on that promise,” said Ainslie Simmonds, President of Pershing X and Global Head of Strategy.

According to Simmonds, “Advisors asked us to create a simple and interconnected portal for their clients, so we created Wove Investor, while Wove Data allows larger firms to turn vast amounts of data into actionable business intelligence. These new products are helping us fulfill our mission to change the future of wealth management.”

The platform also includes additional features, such as the first wealth management platform tool designed for investors and a cloud-based tool created for high-level financial executives to better manage business data.

What Changes and What Doesn’t for Investors with Modi’s Narrow Victory in India

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The outcome of the election in India, where 642 million people voted, has surprised analysts and the market. Narendra Modi, the favorite, has declared victory, but it was much closer than expected. According to the experts from investment firms, the fact that Modi’s party lost the simple majority raises some questions but does not undermine the country’s strong growth drivers.

“After exit polls pointed to a landslide victory for Modi, markets saw heavy selling on Wednesday morning as it appears Modi’s Bharatiya Janata Party (BJP) lacks a simple majority, erasing the 2.5% gains made the previous day following the exit poll results. The NDA (National Democratic Alliance) coalition can still form the new government with about 300 seats; however, Modi seems to have lost the majority, so while he can remain prime minister, coalition partners may oppose some of his initiatives, leading to the market reaction,” explains Liam Patel, Small-Cap Equity Investment Manager at abrdn.

Kenneth Akintewe, Head of Asian Sovereign Debt at abrdn, views this as a classic case of “buy the rumor, sell the fact.” He attributes part of the voter dissatisfaction with Modi to high food inflation, agricultural sector difficulties, and cuts in certain subsidies.

“India has experienced high growth levels, but not everyone has benefited, and consumption has not been as strong. The election result will serve as a wake-up call for the government and could act as an important catalyst for refocusing. However, these are not easy challenges to address. This underscores the urgency of developing a prosperous manufacturing sector to create more well-paid jobs and continue pushing reforms to strengthen the economy and generate the resources needed for economic transition, such as through privatizing public enterprises and monetizing assets,” notes Akintewe.

The Templeton Emerging Markets Equity team at Franklin Templeton describes the election outcome in India as clearly disappointing for investors compared to initial expectations. “Nonetheless, it is important to focus on the long term, and we do not foresee significant political changes in Modi’s likely third term. India’s growth drivers remain centered on manufacturing, infrastructure, and consumption.”

Impact of the Election Result

If the final result is achieved with a coalition majority, abrdn’s expert believes that while India is expected to continue progressing, there is a risk of more populist policies being implemented. “Fortunately, on the fiscal side, the starting point is a much stronger fiscal performance than expected and a structurally stronger fiscal position that provides significant buffers, reinforced by higher transfers from the Reserve Bank of India (RBI) to the government,” says Akintewe.

“Indeed, regarding bond market prospects, the election result does not significantly disrupt them, as the supply-demand dynamics for bonds remain very favorable and inflation and official interest rates continue to trend downward. The instinctive response of higher yields and some currency weakness could be an attractive opportunity to add risk. However, it may complicate the continuation of some of the more challenging reforms, such as those related to agriculture, labor, and certain aspects of agricultural reform. The ball will be in the government’s court, and if there’s one thing we’ve learned about the BJP in the last decade, it’s that they are not a government that weakens in the face of adversity.” Akintewe adds.

The Templeton Emerging Markets Equity team believes that while the election results may have potential negative consequences for certain market sectors, they do not believe it changes the overall policy direction of the BJP-led National Democratic Alliance (NDA). “In the manufacturing sector, the focus will remain on developing the manufacturing base through the Production-Linked Incentive (PLI) program. Additionally, infrastructure growth will shift from the public to the private sector, with particular attention to manufacturing, including renewables,” they explain. On consumption, they note that consumption stimulation will continue, with potentially renewed focus on rural incomes, including higher fiscal transfers. “This is likely to benefit the discretionary and staple consumer sectors, where our investments in India are concentrated,” they conclude.

India in Investment Portfolios

Regarding the main challenges ahead for the Indian market to become the top emerging country in investor portfolios, Avinash Vazirani, Investment Manager, Indian Equities, at Jupiter AM and Director of the Jupiter India Select Fund, indicates that it is simply a matter of time. “Investors tend to be slow to adapt to market paradigm shifts. Over the last two decades, China has had the highest weighting in global emerging market indexes; India has been gradually gaining a higher weighting as its economy and stock market grow faster, and we believe this process will continue in the coming decades,” he argues.

He points out that the best opportunities in this market are found in “companies exposed to India’s internal growth, especially in sectors such as healthcare, where we see possibilities for spending to grow faster than the economy in general, as current spending levels are low compared to other countries.”

“Investors should know that the most common benchmark for Indian funds (MSCI India) is concentrated in large and mega-cap stocks, which can trade at higher valuations than equally attractive companies lower down the market cap spectrum but still quite large by European standards,” he concludes.

A Solid Economy

Mark Matthews, Head of Research for Asia at Julius Baer, believes the changes introduced in India’s management over the last ten years have placed the economy in a solid position. Among these milestones are the demonetization of banks, the goods and services tax, the bankruptcy code, the real estate law, the corporate tax reduction, and the privatization of government-controlled companies.

“Although the BJP’s power has been diluted, it remains intact. The momentum of current economic reforms remains strong and will not fade. GDP growth in the January-March quarter, at 7.8% year-on-year, confirms an economic cycle that we believe still has several years to run. This should translate into annual earnings growth of around ten percentage points over the next few years. Finally, on June 28, India will be included in JP Morgan’s emerging markets bond index, with inclusion in two more bond indexes expected to follow. The result is that tens of billions of dollars will flow into the Indian economy from abroad over the next two years,” comments Matthews.

Ashish Chugh, Portfolio Manager at Loomis Sayles (Natixis IM), believes the BJP’s growth- and investor-friendly agenda will continue. “India has many structural growth drivers that will continue regardless of the party in power. Additionally, significant investments in physical and digital infrastructure over the last decade will continue to boost productivity and economic growth. This election result does not change India’s path to becoming the world’s third-largest economy in the coming years,” argues Chugh.

In this regard, Vivek Bhutoria, Emerging Markets Equity Portfolio Manager at Federated Hermes Limited, highlights that the country’s economy is set to grow around 7% in the foreseeable future and, in nominal terms, possibly around 11%. “The drivers of this growth are very sustainable. If we look at other major economies, while they face the challenge of an aging population, India will add between seven and eight million people to its workforce each year, which is a significant competitive advantage. Urbanization is occurring, which will generate growth in various sectors of the economy,” Bhutoria points out.

He believes policies are being implemented to attract investments, and the global supply chain realignment will benefit India over time. “We are already starting to see some benefits in terms of exports of electronics and chemicals. Additionally, other factors, such as investment in infrastructure and digital investments, are converging at the same time,” concludes Bhutoria.\

JP Morgan AM indicates that the BJP’s plans for its third term include efforts to become the third-largest country by GDP, from its current fifth position, within the next five years. “We expect the government’s overall tone and general policy outlook to remain unchanged. Given the election results, the government is likely to move forward in less controversial areas. Continued focus on infrastructure spending, boosting manufacturing capacity as part of the Make in India program, and its integration as a more significant player in supply chains will continue. Areas where India can see rapid improvements, such as continued urbanization, formalization, and digitalization, should unlock more growth potential. Where India has a competitive edge, such as labor costs, IT services, and business support, more promotion is likely,” notes Ian Hui, Global Market Strategist at JP Morgan AM.

However, he clarifies that now the more divisive issues will likely require more political maneuvering to achieve, if at all possible.

“Constitutional changes are out of reach without a two-thirds majority in the Lok Sabha. Others will require more political capital: land and labor reforms, rationalizing food and fuel subsidies now seem more challenging to pass. The next government budget will be key to understanding the approach to developments,” Hui concludes.

1,600 Vehicles and up to 40 Billion Euros at Stake Following the Adjustments Required by the EU Guidelines on the Naming of ESG Funds

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The latest guidelines approved by the EU on the naming of funds that claim to be ESG could force more than 1,600 investment vehicles to rebrand or divest up to 40 billion euros, according to an analysis by Morningstar.

The requirements include a minimum of 80% of investments that meet environmental or social characteristics or sustainable investment objectives, and exclusions as established by the EU regulations for the Paris-aligned benchmarks (PAB) and climate transition benchmarks (CTB). In this regard, the PAB exclusions are particularly important, as they would exclude investments in companies that derive a certain level of revenue from fossil fuels. Additionally, funds with the key term “sustainable” in their names will need to invest “significantly” in sustainable investments, and funds using terms related to “transition” or “impact” will be subject to specific qualitative requirements.

“While it is impossible to predict the full impact of these guidelines, we expect their implications to be significant. They have the potential to completely reshape the landscape of ESG funds in Europe, with possibly thousands of ESG funds changing names and/or adjusting their portfolios to comply with the new rules. It might be tempting to assume that the upcoming major adjustment means many ESG funds could have been greenwashing, but the reality is that there were no standards until now, and it is a complex area. The guidelines have the benefit of setting minimum standards for ESG products and, hopefully, will provide greater clarity to investors about what they are investing in,” says Hortense Bioy, Head of Sustainable Investment Research at Morningstar Sustainalytics.

Morningstar has identified around 4,300 EU funds with terms related to ESG or sustainability in their names that could fall within the scope of the new guidelines. According to Morningstar, of the 2,500 funds with equity holding data, more than 1,600 are exposed to at least one stock that could be violating the PAB and CTB exclusion rules. “This represents a significant number (two-thirds) of funds that may need to consider divesting from the stocks or rebranding,” they indicate.

Morningstar explains that if all these funds retained their names, it could lead to stock divestments worth up to 40 billion dollars. “The sectors most affected by potential divestments include energy, industries (e.g., railroads, defense), and basic materials. The countries most impacted would be the USA, France, and China in terms of market value, but China, the USA, and India in terms of the number of companies,” states the latest Morningstar report.

Morningstar explains that when interpreting the PAB/CTB exclusion rules and obtaining data, managers will decide how far they want to go in the companies’ value chains and assess the related investment implications. “Due to the rigorous nature of the PAB exclusions, we expect many funds to remove terms like ESG and related terms from their names, while some will reposition as transition funds, which are subject to the less restrictive CTB exclusions, provided they can demonstrate a clear and measurable transition trajectory,” they add.

According to their estimates, in the best-case scenario, only 56% of funds with the specific term “sustainable” in their names could retain the term if the minimum threshold for a “significant” allocation to sustainable investments is set at 30%. Meanwhile, “the remaining 44% of funds would need to increase their allocation to sustainable investments, adjust their sustainable investment methodology, or rebrand.”