Tiffani Potesta Joins Voya IM as the New Head of Distribution

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Voya Investment Management (Voya IM) has hired Tiffani Potesta as the new Head of Distribution, who will join the company on July 8. She will be based at the New York headquarters and will report to Matt Toms, CEO of Voya IM.

In her role, she will be responsible for overseeing all aspects of distribution for Voya IM’s institutional and intermediary businesses, including defining the strategic direction in national and international sales, distribution strategy, product positioning, client service, and relationship management.

“We are pleased to announce that Tiffani will be joining Voya IM to lead our Distribution team. Tiffani brings a wealth of experience across multiple facets of the industry, and I am confident that her expertise will benefit both our clients and Voya. We look forward to Tiffani’s leadership as we continue to strengthen our distribution of investment products and services globally across institutional, sub-advisory, and intermediary channels,” said Matt Toms, CEO of Voya IM.

Potesta has over 20 years of experience in the asset management industry, where she spent most of her career designing and implementing business and distribution strategies, ensuring asset longevity, mitigating risks, and fostering revenue and client diversification. She joins Voya IM from Schroder Investment Management North America, where she held various leadership positions, most recently as Chief Strategy Officer and Head of Distribution. Previously, she held account management roles at Deutsche Bank, First Eagle Funds, and Allianz Global Investors.

The Fed Insists on Higher Rates for Longer and Aims for Only One Cut In 2024

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Yesterday’s meeting of the U.S. Federal Reserve (Fed) went as expected, with no changes to interest rates yet, but it did convey some clear messages. One of the most relevant was that the Fed sees less need and urgency to ease its monetary policy but still leaves the door open for cuts this year. The key point is that, in the short term, it expects inflation figures higher than anticipated at the beginning of the year, although its long-term projections still show inflation returning to 2%.

“Central bankers delivered a seemingly aggressive surprise at the June FOMC meeting. The updated median projection for the federal funds rate, or dot plot, now indicates a single rate cut by the end of the year, compared to three expected in March. This change of opinion was likely due to a slight improvement in inflation expectations for this year and next,” says Christian Scherrmann, U.S. economist at DWS, regarding his overall view of yesterday’s meeting.

Regarding this change of opinion, Jean Boivin, head of the BlackRock Investment Institute, points out that the Fed has done this several times before, so they don’t give much weight to its new set of projections. “Powell himself said he doesn’t consider it with high confidence, emphasizing the Fed’s data-dependent approach. Regardless of the Fed’s forward guidance, incoming inflation surprises, in any direction, will likely continue to lead to significant revisions in policy expectations,” he explains. Boivin believes that given the lack of clarity from central banks on the path forward, markets have become prone to reacting strongly to individual data points, as we saw again today with the post-CPI jump in the S&P 500 and the sharp drop in 10-year Treasury yields.

For Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable AM, Powell’s message was very balanced. “Although the dot plot shifted upwards, and most officials do not expect any cuts or only one this year, they are also very aware that maintaining a restrictive policy for too long could unduly harm the labor market and the economy. So far, the labor market is much more balanced, which should allow for a downward trend in inflation,” he argues.

What does this mean?

In the opinion of David Kohl, chief economist at Julius Baer, the updated summary of economic projections suggests that only one rate cut in 2024 and higher rates in the long term are appropriate. “The increase in inflation forecasts and the maintenance of growth expectations confirm the view that the FOMC wants to keep interest rates high for longer. The latest U.S. inflation figures, which were surprisingly low, were well received and increase our confidence that the Fed will cut its benchmark rate at its September meeting. We expect the Fed to pause from then and cut rates once more in December in response to a cooling labor market and easing inflation.”

For Kohl, the appropriate path for the federal funds rate has changed significantly for 2024: “Four FOMC participants do not see the need for rate cuts in 2024, seven advocate for one rate cut, and eight for two rate cuts.” This means, as he explains, that the median projection for 2024 has moved towards one rate cut and a preference for cuts in 2025. “The longer-term rate projection has increased, confirming the view that the FOMC wants to keep interest rates high for longer. The adjustment of the long-term rate path is an important acknowledgment that the U.S. economy is withstanding higher interest rates much better than feared,” says the chief economist at Julius Baer.

This view is also shared by James McCann, deputy chief economist at abrdn. “In reality, the median FOMC member now expects only one rate cut in 2024, compared to the three expected in March. This change in stance is likely due to higher-than-expected price growth in early 2024, which forced FOMC members to revise their inflation forecasts upwards once again. However, yesterday’s lower-than-expected CPI inflation surprise was much more encouraging, and with most members divided between one or two cuts, we wouldn’t be surprised to see the market continue to flirt with the option of multiple rate cuts this year,” adds McCann.

Alman Ahmed, global head of macro and strategic asset allocation at Fidelity International, emphasizes that during the press conference, Chairman Powell stressed the importance of incoming data flow, especially on the inflation front. “We have seen the Fed completely abandon any dependence on forecasts to set its policy, so we continue to expect it to maintain its current data-dependent approach,” he notes.

Forecast on rate cuts

In Ahmed’s opinion, his base case is that there will be no cuts this year, but “if inflation progress continues during the summer months or labor markets begin to show some signs of strain, the likelihood of one increases,” he explains. That said, he adds: “The U.S. economy continues to hold up, and yesterday’s release was affected by vehicle insurance components and airfares, meaning the bar for starting cuts remains high.”

Conversely, from Julius Baer, Kohl points to September, followed by another cut in December, and gradually reducing the official interest rate in 2025 with three more cuts. “The latest U.S. inflation data, which surprised to the downside in May, increase our confidence in a rate cut at the September FOMC meeting, while further cooling of the labor market in the second half of the year should motivate another round of policy easing at the December meeting,” he argues.

According to Scherrmann, more time will be needed for the term “progress” to move from the press conference to the post-meeting statement, where it would serve as a definitive signal for a first rate cut. Meanwhile, he believes the Fed must avoid scenarios like those in the fourth quarter of 2023, when financial conditions experienced unnecessary easing due to rising rate cut expectations. “Given the inconsistencies observed during the June meeting, we conclude that this goal has been successfully achieved for now: markets have discounted slightly less than two cuts in 2024, a slight decrease from pre-meeting expectations. As we connect the dots, we are likely to agree with this assessment,” defends the DWS economist.

Fed vs. ECB

In the opinion of Wolfgang Bauer, manager of the fixed income team at M&G Investments, these days we are witnessing a strange “mirror world” between central banks. “After the ECB cut interest rates and revised up its inflation forecasts last week, the Federal Reserve did exactly the opposite. Just hours after the release of surprisingly low inflation data, the Federal Reserve decided to keep interest rates at current levels and, more importantly, revised up its dot plot, indicating that it would only cut rates once this year. The Federal Reserve’s caution is likely to help the ECB hawks delay further rate cuts for now. Although the economic situation in Europe is different from that in the U.S., it seems unlikely that the ECB will proceed with monetary policy easing while the Federal Reserve remains on hold,” comments Bauer.

From eToro, they believe that this latest update also underscores that the Fed does not feel pressured to lower rates, as other G7 central banks (such as the BoC and ECB) have recently done.

World Environment Day: Capturing Value in a Carbon-Constrained World

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As investors, World Environment Day serves as a reminder of the crucial intersection between environmental sustainability and economic viability. As global attention increasingly focuses on the urgent need to address climate change, carbon pricing mechanisms (CPM) emerge as a fundamental lever in the transition to a low-carbon economy. This is exemplified by the European Union’s decision earlier this year to expand its Emissions Trading System (ETS) to include maritime transport and last year’s decision to create an additional ETS to address CO2 emissions from fuel combustion in buildings, road transport, and other sectors.

These significant measures highlight the growing importance of regulating carbon emissions across various sectors. This evolution, along with current upward trends in North American carbon markets driven by stricter regulatory reviews and supply adjustments, signals a fundamental shift toward stricter carbon pricing mechanisms globally, emphasizing the need for investors to understand the financial implications.

But first things first: What is carbon pricing? What is its purpose, and how does it work? Regulatory carbon pricing encompasses policy frameworks like carbon taxes and cap-and-trade emission trading systems designed to assign a monetary value to greenhouse gas emissions. According to the World Bank, there are currently 75 carbon taxes and emission trading systems worldwide covering about 24% of global emissions.

These mechanisms work by setting a direct price on carbon emissions or establishing a market-based emissions cap with tradable allowances. By internalizing the externalities associated with carbon emissions, carbon pricing essentially creates economic incentives for emission reduction and technological innovation. The aforementioned example of the EU’s ETS expansion shows the financial implications for shipping companies that continue business as usual: companies in the sector must purchase or surrender EU Allowances (EUAs) for each ton of CO2 (or CO2 equivalent) reported, potentially increasing operational costs. Generally, the cost of compliance is expected to be passed on to end customers through higher freight rates, potentially affecting the cost competitiveness of these companies.

The exposure of companies to carbon pricing varies greatly by sector and geography: the recent drop in EU carbon prices due to oversupply and lower emissions from the power sector contrasts with the upward momentum of the California-Quebec joint cap-and-trade program, reflecting the complex interaction of market forces in different regions. Carbon price volatility, influenced by factors like regulatory changes and market dynamics, can have diverse impacts: companies in carbon-intensive sectors such as energy, manufacturing, and transport face significant cost implications and potential asset stranding. These companies must manage higher operating expenses and possible compliance costs, which can impact EBITDA margins and alter competitive dynamics. However, early adopters of lower-emission technologies—such as cleaner fuels like liquefied natural gas (LNG) or energy-saving technologies like air lubrication systems and rotor sails in the maritime sector—are likely to benefit from regulatory incentives and cost savings. These companies can achieve competitive advantages beyond lower compliance costs, such as better market positioning and enhanced brand reputation.

The volatility of carbon prices, influenced by factors such as regulatory changes and market dynamics, can have diverse repercussions: companies operating in carbon-intensive sectors like energy, manufacturing, and transport face significant cost implications and potential asset stranding. These companies must manage higher operating expenses and possible compliance costs, which can affect EBITDA margins and alter competitive dynamics. However, early adopters of lower-emission technologies—such as cleaner fuels like liquefied natural gas (LNG) or energy-saving technologies like air lubrication systems and rotor sails in the maritime sector—are likely to benefit from regulatory incentives and cost savings. These companies can achieve competitive advantages beyond lower compliance costs, such as better market positioning and enhanced brand reputation.

From an investor’s perspective, assessing a company’s exposure to carbon pricing is an integral part of overall risk management and portfolio optimization. The ability of a portfolio company to effectively manage carbon pricing—through strategic asset allocation, operational efficiency improvements, and robust environmental, social, and governance (ESG) practices—becomes a determinant of its long-term financial performance and market valuation.

A significant number of large-cap companies already consider an internal carbon price, often to make more informed investment decisions (though when internal carbon prices are particularly low, they may often be perceived as a marketing tool). However, very few companies propose a business plan that comprehensively integrates the implications of evolving carbon prices. Therefore, integrating carbon pricing into investment analysis requires a sophisticated understanding of regulatory environments, sectoral impacts, and corporate strategies by the investor, which can be reflected in the following approaches:

In addition to staying informed about regulatory developments, it is increasingly important to integrate carbon pricing scenarios into stress tests of corporate earnings, cash flows, and valuation metrics. Additionally, it is crucial to note that the aforementioned carbon price volatility presents both a risk and an opportunity: investors can consider diversifying exposure across regions and sectors to mitigate the impact of price fluctuations. However, carbon pricing can also introduce market inefficiencies that astute investors can exploit: investors leveraging carbon futures and options can capitalize on these price fluctuations to generate alpha. Moreover, inefficiencies in company valuation based on carbon exposure can offer value investment opportunities.

Undervalued companies because the market underestimates their carbon management capabilities can provide attractive entry points for investors. Last but not least, the issue of carbon pricing is one where ESG integration and active ownership gain critical importance: understanding portfolio companies’ compliance strategies, promoting transparency in carbon emission reporting, and adopting best practices for emission reduction help create a more comprehensive framework for identifying value drivers.

From an investor’s perspective, World Environment Day and the issue of carbon pricing remind us how the structural shift to a low-carbon economy underscores the need for long-term strategic allocation to sectors and companies aligned with this transition. This is also accentuated by other recent regulatory developments, such as the start of reporting obligations for the EU’s Carbon Border Adjustment Mechanism (CBAM) in 2023, which aims to level the carbon pricing playing field for traded goods with intensive emissions. By integrating carbon pricing considerations into investment frameworks, investors can not only mitigate risks but also seize the opportunities presented by the transition. Thus, alignment with global climate goals should not be seen merely as a response to regulatory pressures but rather as a strategic imperative that enhances long-term value creation.

Private Debt: A Resilient Asset in a Diversified Market

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Private debt has established itself as a resilient and diversified market, according to the latest report by Union Bancaire Privée (UBP).

“It is said that private debt emerged as an asset class following the global financial crisis. The contraction of bank lending, combined with quantitative easing and zero interest rate policy, created conditions where both borrowers and investors turned to private debt. This perspective of private debt, as a relatively new asset class associated with specific monetary policy conditions, raises questions about the sustainability of private debt and, in particular, how it will remain relevant for borrowers and investors now that interest rates have normalized,” they explain.

In this regard, their response is clear: the entity expects private debt to continue evolving and growing. “This growth will continue as long as there is an insufficient supply of bank financing and non-bank financial intermediaries, such as funds, to channel financing to potential borrowers. In particular, although the period of low interest rates spurred the growth of private debt, its continued growth does not depend on any specific monetary policy. Over the past decade, direct lending and, to a lesser extent, commercial real estate have been the dominant segments within private debt,” they explain in the report.

Additionally, they are convinced that investors will increasingly seek to diversify away from these segments and favor those that offer both resilience and attractive returns. “We believe that real economy sectors, such as residential real estate and asset-backed financing, meet these requirements and will attract investors. Origination will be an important differentiator among asset managers. The real economy is more fragmented than the world of private equity firms or commercial real estate. Originating transactions in the real economy will require origination capabilities through which asset managers will differentiate themselves,” they argue.

Delving into Assets

Interestingly, private debt has existed in various forms for over 4,000 years, thanks to its very nature: it is privately negotiated between the borrower and the lender. “The strength of private debt lies in its diversity of strategies and transactions. Its longevity is due to its flexibility and its ability to reinvent itself for new financing opportunities. The recent growth of private debt is due to the scarcity of bank loans and the evolution of non-bank financial intermediaries. We expect private debt to continue growing, particularly in strategies different from those that have been predominant in the last decade,” notes the UBP report.

In this regard, one of the report’s conclusions is that the increase in demand for private debt among borrowers is driven by a shift in the supply of credit from the banking system. “In the absence of a change in the supply of bank credit, which we believe is unlikely, the demand for private debt will continue to grow,” they insist. This has led to direct lending being the fastest-growing segment, according to Preqin data, followed by distressed debt, real estate debt, and mezzanine debt.

Another notable conclusion of the UBP report is that direct lending has dominated the narrative around private debt since the global financial crisis. “Private equity fund managers have been able to deploy a significant amount of capital for transaction financing, resulting in the origination of borrowers by private equity firms. Increasingly, according to the report, fund managers seek to diversify away from these sponsor-backed loans and towards other sectors, such as asset-backed financing,” they explain.

Furthermore, the report indicates that investors in direct lending funds likely have indirect exposure to the private equity sector. “We have observed recent reports of delays in private equity exits and an increase in loans within portfolio companies to finance private equity dividends and payments to their investors. These reports are likely short-term cyclical, but they serve as a reminder that transaction origination is a determinant of diversification,” they clarify.

The Demand for Private Credit

In UBP’s view, not all investors have the resilience needed to maintain their investment allocations during market downturns. “An allocation to private debt offers diversification relative to public debt markets. Within private debt, there are many opportunities for diversification, and the four major segments offer diversification among themselves and relative to public debt markets. Greater diversification can be found outside of sponsor-backed direct lending and commercial real estate financing. We believe that investors will increasingly be drawn to other strategies,” the report indicates.

Lastly, the report notes that the market’s expectation is that the transition to normalized interest rates is complete and that short-term rates have peaked. This implies that market commentary has shifted to when rates will begin to fall and how quickly they will do so, and, in response, bond markets have already moved. “Credit spreads have fallen significantly, anticipating better times ahead. However, some sectors still need to emerge from the transition and will likely continue to face headwinds. For highly leveraged borrowers, it is not enough that rates have peaked; they need rates to fall. In the commercial real estate sector, it could take several years to overcome the oversupply and financing gap. We believe it makes sense to invest now, entering a period of falling rates. However, we suggest it is better to choose strategies that do not depend on a rapid fall in rates, are less leveraged, and are not expected to face headwinds in the coming years,” they conclude from UBP.

 

BNY Mellon IM Changes its Brand to BNY Investments

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In celebration of the 240th anniversary of the creation of the Bank of New York, the entity has sought to project its innovative spirit through a rebranding. From now on, the commercial brand will be BNY, updating its name and logo, and Mellon IM will become BNY Investments.

According to the firm, to improve familiarity with who they are and what they do, they have updated their logo and simplified their brand to BNY, while the legal name will remain The Bank of New York Mellon Corporation. “The changes to the logo include a more modern, custom font, a simplified structure, and a distinctive teal color scheme for the arrow,” they note.

The new BNY brand and logo will be implemented across the company immediately, with updates continuing over the next 12 months.

“Under our new corporate brand, BNY Mellon Investment Management will also be abbreviated to BNY Investments. This abbreviated name better represents the variety of distribution and advisory services, beyond asset management, that we offer to our clients,” they add.

Finally, they clarify that BNY Mellon Wealth Management has also been abbreviated to BNY Wealth, and Pershing will become BNY Pershing “to maintain a unified visual identity.”

The SEC Initiates the Collection of Diversity Policies for Regulated Entities

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The SEC has begun its biennial collection of diversity self-assessment submissions from regulated entities.

“This initiative provides organizations with the opportunity to closely review their diversity and inclusion policies and practices in search of strengths, opportunities, risks, and vulnerabilities,” says the statement from the regulatory agency.

The SEC uses the data from the submissions to evaluate and report on progress and trends in the diversity-related activities of regulated entities.

“The participation of regulated entities in submitting diversity self-assessments is crucial for a more comprehensive understanding of the diversity practices and policies being implemented, as well as for sharing information on practices and identifying opportunities,” according to Nathaniel H. Benjamin, Director of the Office of Minority and Women Inclusion (OMWI).

Conducting and submitting diversity self-assessments is voluntary and is not part of the SEC’s examination process. SEC-regulated entities can use the Diversity Self-Assessment Tool (DSAT) to conduct a self-assessment.

Alternatively, regulated entities can submit diversity self-assessments in the format of their choice.

The Fed Maintains Rates Despite Inflation

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The FOMC announced Wednesday that it will maintain the target range for the federal funds rate between 5-1/4 and 5-1/2 percent, based on strong U.S. economic activity, despite positive signs in inflation.

“Recent indicators suggest that economic activity has continued to grow at a solid pace. Job gains have remained strong and the unemployment rate has stayed low. Inflation has decreased over the past year but remains elevated,” says the Fed’s statement.

While the Fed Committee was meeting, it was revealed that the consumer price index grew 3.3 percent compared to the same month in 2023, marking the smallest increase since October.

However, the monetary authority insisted that “in recent months, there has been modest progress toward the FOMC’s 2% inflation target.”

The Committee considers that the risks to achieving its employment and inflation goals have moved toward a better balance over the past year. However, economic outlooks remain uncertain, and the Committee remains highly attentive to inflation risks, the statement adds.

In support of its objectives, the FOMC decided to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities.

Additionally, the Committee does not expect it to be appropriate to reduce the target range until there is greater confidence that inflation is moving sustainably toward 2 percent.

Expert Forecasts

Before the Fed’s resolution, experts from various management firms opined on the measures the monetary authority would take towards the end of the year.

For example, Blerina Uruci, Chief U.S. Economist at T. Rowe Price, said she expects the Fed to show only two cuts for 2024.

“This is a very consensual forecast, as most FOMC members, including (Jerome) Powell, want the September meeting to be optional. If the economy continues to hold up and inflation remains stable, the market can discount the price of September as data evolves,” she commented.

However, the expert warned that it is expected to be a very tight decision for many participants, given the resilience of the labor market, and for this reason, she believes the risks tilt in an aggressive direction, meaning there could be only one cut this year.

On the other hand, Charlotte Daughtrey, Equity Investment Specialist at Federated Hermes Limited, stated that U.S. inflation was well received by the market. However, Daughtrey warned that this would not be a strong signal to extrapolate this single data point and “would expect the Fed to continue acting cautiously, with the prospect of limited rate cuts for the remainder of the year.”

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.