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SEC Charges Florida Real Estate Developer Rishi Kapoor

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The SEC announced that it obtained an asset freeze and other emergency relief concerning an alleged $93 million real estate investment fraud perpetrated by Miami-based developer Rishi Kapoor.

The SEC also charged Location Ventures LLC, Urbin LLC, and 20 other related entities in connection with the fraud scheme.

According to the SEC’s complaint, from approximately January 2018, until at least March 2023, Kapoor and certain of the defendant entities solicited investors by, among other things, making several material misrepresentations and omissions regarding Kapoor, Location Ventures, Urbin, and their real estate developments.

The false statements allegedly included misrepresenting Kapoor’s compensation; his cash contribution to the capitalization of Location Ventures; the corporate governance of Location Ventures and Urbin; the use of investor funds; and Kapoor’s background.

The SEC’s investigation uncovered that Kapoor allegedly misappropriated at least $4.3 million of investor funds and improperly commingled approximately $60 million of investor capital between Location Ventures, Urbin, and some of the other charged entities. The complaint also alleges that Kapoor caused some entities to pay excessive fees and to represent higher returns to investors by significantly understating cost estimates.

“As alleged in our complaint, Kapoor was the architect of a multi-pronged real estate offering fraud that misappropriated millions from more than 50 investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “This emergency action reflects our commitment to protecting investors and holding those who defraud them accountable for their actions.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, charges Kapoor, Location Ventures, Urbin, and the 20 related entities with violating provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC seeks permanent injunctions, civil monetary penalties, an officer-and-director bar against Kapoor, and disgorgement of ill-gotten gains with prejudgment interest against Kapoor and certain of the charged entities.

Don’t Count on a March Rate Cut

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After the Fed’s December meeting, market expectations for a March rate cut jumped to surprising heights. Markets are currently putting a 75% chance, approximately, on rate cuts beginning in March. However, Morgan Stanley Research forecasts indicate that cuts are unlikely to come before June.

Central bank policymakers have likewise pushed back on investors’ expectations. As Federal Reserve Chairman Jerome Powell said in December 2023, when it comes to inflation, “No one is declaring victory. That would be premature.”

Morgan Stanley expects rates to remain stable through mid-2024 primarily for two reasons:

Inflation Outlook

A renewed uptick in core consumer prices is likely in the first quarter, as prices for services remain elevated, led by healthcare, housing and car insurance. Additionally, in monitoring inflation, the Fed will be watching the six-month average—which means that weaker inflation numbers from summer 2023 will drop out of the comparison window. Although annual inflation rates should continue to decline, the six-month gauge could nudge higher, to 2.4% in January and 2.69% in February.

Labor markets have also proven resilient, giving Fed policymakers room to watch and wait.

Data-Driven Expectations

Data is critical to the Fed’s decisions and Morgan Stanley’s forecasts, and both could change as new information emerges. At the March policy meeting, the Fed will have only data from January and February in hand, which likely won’t provide enough information for the central bank to be ready to announce a rate cut. The Fed is likely to hold rates steady in March unless nonfarm payrolls add fewer than 50,000 jobs in February and core prices gain less than 0.2% month-over-month. However, unexpected swings in employment and consumer prices, or a marked change in financial conditions or labor force participation, could trigger a cut earlier than we anticipate.

There are scenarios in which the Fed could cut rates before June, including: a pronounced deterioration in credit conditions, signs of a sharp economic downturn, or slower-than-expected job growth coupled with weak inflation. Weaker inflation and payrolls could bolster the chances of a May rate cut especially.

When trying to assess timing, statements from Fed insiders are good indicators because they tend to communicate premeditated changes in policy well in advance. If the Fed plans to hold rates steady in March, they might emphasize patience, or talk about inflation remaining elevated.

“If they’re considering a cut, their language will shift, and they may begin to say that a change in policy may be appropriate ‘in coming meetings,’ ‘in coming months’ or even ‘soon.’ But a long heads up is not guaranteed”, concluded the report.

KKR Completes Full Acquisition of Global Atlantic

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Slatestone y Temperance Partners — Image Developed Using AI

KKR & Co. Inc and The Global Atlantic Financial Group LLC (together with its subsidiaries, “Global Atlantic”) announced the closing of the previously-announced transaction in which KKR is acquiring the remaining 37% of Global Atlantic, increasing KKR’s ownership to 100%.

KKR acquired a majority of Global Atlantic in 2021, and since that time, KKR has served as Global Atlantic’s asset manager, offering access to its global investment and origination capabilities for the benefit of Global Atlantic’s policyholders.

“Since day one, Global Atlantic has been a great fit for KKR, both from a business and cultural standpoint. With this new ownership structure in place, we look forward to even closer collaboration with Global Atlantic so that we can realize more of the synergies that we have uncovered in the first three years of our strategic partnership,” said Joseph Bae and Scott Nuttall, Co-Chief Executive Officers of KKR.

“KKR and Global Atlantic are a powerful combination. Our shared culture and commitment to excellence continues to enhance our ability to think – and invest – longer-term and deliver compelling solutions for our clients and policyholders. We are thrilled for what lies ahead as a wholly-owned subsidiary of KKR,” said Allan Levine, Co-Founder, Chairman & Chief Executive Officer of Global Atlantic.

Global Atlantic will continue to be led by its management team and operate under the Global Atlantic brand.

Inflation constricts growth and liquidity in 2024 for banks and credit unions

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Persistent inflation and continuing rate hikes have diminished consumer core deposits and savings, and liquidity has tightened. These factors and others have contributed to less bullish predictions from both surveyed financial institutions and credit unions in the 2024 State of banking industry report and the 2024 State of credit unions report.

Wipfli published the results of two industry surveys from the banking and credit union sectors that share insights into their current market challenges and long-term growth strategies.

After record years of M&A activity in banking, 2023 witnessed a significant slowdown. Going into 2024, 78% of surveyed banks are still looking to buy, a drop from 91% during the same period last year. Overall, the banking industry’s M&A fervor and growth projections have cooled, but banks in the $1B of assets range may look to grow through acquisition this year. Credit unions are heavily leaning on technology to maintain their market lead.

“The top message for banks to take away from this report is that the time for sitting in the wings and watching others lead the innovation charge is over,” said Anna Kooi, national financial services leader for Wipfli. “Delivering better digital experiences to customers, solving the talent pipeline drought, transforming digitally, adopting AI, and keeping out cybercriminals. All of these are critical for banks hoping to survive and prosper in 2024.”

A shared concern for both banks and credit unions is an increased emphasis on cybersecurity measures. Cybersecurity is foundational to building trust with customers, especially with digital banking services. Alarmingly, 35% of surveyed banks reported three or more incidents of unauthorized access this past year. Constantly evolving tactics and cyberattacks mean the issue is never completely solved. On the flipside, credit unions have traditionally been able to opt for less stringent cybersecurity measures due to less oversight from regulators. Still, credit unions are nearly as concerned about cybersecurity as banks are.

Another shared concern for both industries is talent management, with credit unions listing it as their top worry. Traditional avenues for both banks and credit unions to attract talent, i.e., increased wages and benefits, are no longer available as liquidity tightens. Both banks and credit unions are starting to look more toward workplace culture shifts to address talent issues; regional banks are leading the charge in offering leadership training, career development, and DEI strategies. Credit unions, in particular, are facing a pivotal moment as traditional banking institutions intensify their efforts to expand service offerings and technological prowess.

“Liquidity is tightening and so are core deposits,” added Kooi. “Add inflation to that you get nervous, cautious credit unions. Oftentimes, that cautiousness can lead to inertia, but it’s going to take decisive and strong actions for them to thrive. The two biggest areas for opportunities are unbanked/underbanked households and open banking. If credit unions are strategic and aggressive in those arenas, it will help them expand their market.”

Finally, credit unions are keen on keeping their technologies on the cutting edge to differentiate themselves from larger, more traditional financial institutions. Accepting instant payments, implementing artificial intelligence and data analysis, and improving digital customer engagement were the top avenues for surveyed credit unions to update digital services.

The banking industry survey was based on responses from 390 financial institutions across 28 states, and the credit unions survey had 83 credit unions respond across 20 states.

Embracing AI: Mapping a New Course in Alternative Investments

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The rapidly integration of Artificial Intelligence (AI) into alternative investments has not only captured the imagination of industry professionals but has also begun to reshape the very fabric of investment strategies and decision-making processes.

As we look towards 2024 and beyond, AI’s role in the alternative investment market is set to deepen, offering profound insights and innovative approaches that will redefine the industry, according a Lynk Markets report.

AI’s capability to process and analyze massive datasets is transforming market analysis. Advanced algorithms can now forecast market trends with remarkable accuracy, identifying potential growth sectors and flagging areas of risk. This predictive intelligence allows investment professionals to make informed decisions rapidly, adapting to market changes with agility and foresight.

In addition, the predictive nature of AI extends to risk management. By analyzing historical data and current market conditions, AI algorithms can identify potential risks before they materialize. This proactive approach to risk assessment enables investors to mitigate potential losses and capitalize on opportunities with greater confidence.

As AI technology becomes more sophisticated, it enables the creation of highly customized investment strategies tailored to individual investor profiles. By considering factors such as risk tolerance, investment goals, and market conditions, AI can provide personalized recommendations, ensuring that investment strategies align closely with investor objectives.

Democratization of Alternative Investments

Markets are dynamic, and a manager’s ability to adapt and evolve strategies in response to changing conditions is a key differentiator. A good year involves a portfolio manager who demonstrated agility, staying ahead of the curve in a constantly evolving alternative investment landscape.

Beyond market analysis and investment strategies, AI is revolutionizing operational aspects of alternative investments. From automated regulatory compliance to streamlined due diligence processes, AI is enhancing efficiency, reducing errors, and lowering operational costs.

Ethical and Sustainable Investing

AI’s impact extends to the realm of ethical and sustainable investing. By leveraging AI, investors can screen investments based on environmental, social, and governance (ESG) criteria, aligning financial goals with ethical values. This approach not only contributes to a more sustainable financial ecosystem but also resonates with a growing segment of socially-conscious investors.

As we move into an era increasingly dominated by AI, it is crucial for professionals in the alternative investment market to adapt and evolve. This entails staying abreast of technological advancements, acquiring new skills, and embracing a mindset of continuous learning and innovation.

On the other hand, the future of alternative investments lies in the synergy between human and machine intelligence. While AI provides analytical strength and efficiency, the human element remains essential for strategic decision- making, understanding market nuances, and fostering relationships.

A New Paradigm in Alt Investments

The integration of AI into the alternative investment market is more than a technological advancement; it is a paradigm shift. As AI continues to evolve, it promises not only to enhance financial returns but also to bring a new level of sophistication and depth to the investment process. For industry professionals, the time to embrace and leverage AI is now, paving the way for a future that is intelligent, inclusive, and innovative

The Real Estate Crossroads Between Rates and Prices

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Conventional wisdom holds that lower interest rates mean higher home prices, however, given the current supply and demand conditions in housing, “prices could soften in the future if borrowing costs fall to levels that change borrower behavior,” according to a report by DoubleLine.

As the yields on U.S. Treasury bonds began their meteoric rise more than two years ago, calls for a drop in U.S. home prices were a dime a dozen. Most market forecasters have been swayed by a simplistic formulation that higher interest rates mean lower home prices, or the corollary, lower rates mean higher prices.

According to Ken Shinoda, Portfolio Manager at DoubleLine who signs the report, “this naive theory” treats housing prices as analogous to fixed-coupon bond prices, which move inversely with interest rates.

However, the housing market is not that simple. Forming a perspective on housing prices requires digging deeper than single factors such as home prices and mortgage costs, into the dynamics of supply and demand.

In the current market, what Shinoda calls a “rate paradox” occurs with one of the constraints on supply being the “lock-in effect” due to widespread mortgages at 3%-4% rates, hundreds of basis points below new mortgage commitment rates, a legacy of the glory days of quantitative easing.

After a sharp rise in rates on new mortgages, these low-interest legacy mortgages are so valuable that homeowners are very reluctant to move and put homes on the market.

Nonetheless, a recession could increase the supply of housing through new foreclosures, but loss-mitigation strategies developed after the Global Financial Crisis, such as loan modifications and mortgage forbearance widely used during the recent pandemic, are expected to restrict supply to a greater extent compared to other recessionary periods.

“The historical precedent indicates that recessions do not inherently lead to decreases in home prices; in fact, during most of the post-war recessions, home prices either remained stable or experienced an increase, as evidenced by the savings and loan crisis and the dot-com bust,” says the report.

Lower mortgage rates could soften home prices, says Shinoda’s report, calling it “an ironic twist”.

More affordable financing could incentivize would-be sellers who have been stubbornly locked into 3%-4% mortgages. There is a ‘magic number for fixed mortgage rates’ that could unfreeze the housing market.

“A price that brings together willing buyers and sellers, a market-clearing price,” says the expert, simplifying it to 5%.

The supply and transaction volume triggered by mortgage rates in the 5% zone might decrease home prices nationwide or at least stabilize them.

In the case of the “magic number,” the expert expects sideways price behavior. He anticipates that the supply would be good for the market, good for both buyers and sellers.

Additionally, the supply would be good for the economy, as housing activity is not just about buying and selling homes, but all the associated expenses, such as home renovation, repair, and the purchase of new appliances and furniture. New home construction would also likely rebound as transaction volume picked back up.

This is a summary of the report, to read it in its entirety you must access the following link.

Franklin Templeton Completes Acquisition of Putnam Investments

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Franklin Resources, Inc. a global investment management organization operating as Franklin Templeton, announced the successful completion on January 1, 2024 of its acquisition of Putnam Investments (“Putnam”) from Great-West Lifeco, Inc. (“Great-West”).

Per the terms of the transaction, Great-West becomes a long-term shareholder in Franklin Resources, Inc., consistent with Great-West’s continuing commitment to asset management.

“With complementary capabilities and a track record of strong investment performance, Putnam expands our ability to offer more choice to more clients,” said Jenny Johnson, President and CEO of Franklin Templeton.

The addition of Putnam accelerates our growth in the retirement sector by increasing our defined contribution AUM and expands our insurance assets, further strengthening our presence in these key market segments to better serve all our clients. Putnam also shares our client-focused culture and emphasis on delivering strong investment results, the CEO said.

Founded in 1937, Putnam is a global asset management firm with $142 billion1in AUM as of November 30, 2023.

The transaction adds a target date fund range and complementary investment capabilities with scale, including in the areas of stable value, ultra short duration and large cap value. Consistent with Franklin Templeton’s previous acquisitions, the execution plan is designed to minimize disruption to Putnam’s investment teams and client relationships.

Franklin Templeton’s global infrastructure will enhance Putnam’s investment, risk management, operations and technology capabilities. The addition of Putnam brings Franklin Templeton’s AUM to $1.55 trillion as of November 30, 2023.

Chicago Atlantic Funds Margo Bitcoin ATM Network

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EBW Capital and AIS Financial form strategic alliance — Image Developed Using AI

Chicago Atlantic announced the funding of a $16 million senior secured term loan to Margo, a cryptocurrency ATM operator that provides a secure and convenient way to instantly turn cash into digital currency.

Chicago Atlantic’s capital investment will help support Margo’s growing kiosk network.

“Margo is redefining the way consumers interact with digital currency, shaping the future of financial literacy by making cryptocurrency more accessible. We couldn’t think of a company better aligned with our people-first values and our drive to push innovation forward in categories of highest need. It’s an honor to partner with Margo as they expand their reach,” said Tony Cappell, Founding Partner of Chicago Atlantic.

Founded in 2019 as PowerCoin and rebranded in 2023, Margo’s user-friendly Bitcoin ATMs are featured nationwide in retailers including Royal Farms, H-E-B, Yesway, United Natural Foods Inc. (UNFI) and Ace Cash Express, among others. The company also includes a Private Client Desk, where individuals and institutions can trade $3,000 to $1 million in cryptocurrency per day across Bitcoin (BTC), Ethereum (ETH), USD Coin (USDC), NFTs or other tokens. Margo also helps business entities set up digital currency as a form of payment, the company said.

“Chicago Atlantic brought detailed solutions to the table designed to scale our business with the utmost care and confidence,” said Austin Haller, CEO of Margo. “Their experience in our cutting-edge industry will help propel our long-term objectives, and we look forward to empowering secure digital currency investments for years to come.”

New Year’s Portfolio Resolutions

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Now is a good time for investors to balance, manage liquidity and build a strategy to achieve their financial goals, says the investor letter signed by Mark Haefele, Chief Investment Officer of Global Wealth Management who provides 10 resolutions to boost portfolios.

A remarkable year is drawing to a close. A record-breaking pace of interest rate hikes helped push bond yields to 16-year highs. The US economy confounded expectations for a recession and grew at a 5% annualized pace in the third quarter. Transformative innovations in generative AI powered a stock market rally. Wars impacting two energy-producing regions also captured market attention.

The dawn of a new year is a time to reflect and to make plans for the year ahead. In this letter, we present 10 New Year’s resolutions aimed at helping your portfolio navigate what we are calling “a new world”:

Spend more time with family and friends – best wishes for the year ahead
Take up yoga – get in balance, and stay disciplined yet agile
Go for quality over quantity – buy quality in both bonds and stocks
Embrace change – pick leaders from disruption
Prepare for a rainy day – hedge market risks
Don’t put all your eggs in one basket – diversify with alternative credit
Try to see things from both sides – trade the range in currencies and commodities
Think about the long term – capture growth with private markets
Build a plan – a strategy for achieving your goals is key
Seize the moment – manage liquidity

We enter the new year with a preference for quality bonds, which we think still offer attractive yields and the potential for capital appreciation as growth decelerates. Lower bond yields in 2024 should also provide a supportive backdrop for equities.

In equities, we see particular opportunity in quality stocks across all sectors, including the US technology sector, which should be well placed to grow earnings despite a weaker economic environment.

Longer term, we expect disruptive trends in technology and other industries to create compelling investment opportunities in both public and private markets.

A Shift to Higher Interest Rates

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Vanguard has been predicting a shift to a higher interest rate environment, signaling a return to sound money. This transition, challenging for investors, is seen as a structural shift that will outlast the current business cycle, the asset manager says in its annual report titled A Return to Sound Money.

The persistence of positive real interest rates is expected to provide a stable foundation for long-term risk-adjusted returns. Unlike the past decade, the future promises more balanced returns for diversified investors. In light of this, a defensive risk posture might be prudent for those with suitable risk tolerance, given the higher expected fixed income returns and an equity market still adjusting to this shift, the experts added.

Policy Shift Towards Restriction

Monetary policy is anticipated to become more restrictive in real terms, as inflation approaches the targets set by central banks. As economic resilience dwindles, central banks might reduce policy interest rates. However, after peaking, policy rates are expected to stabilize at a higher level than pre-COVID-19 levels, marking the end of zero interest rates and ushering in a long-term higher-rate environment.

The Re-emergence of Bonds

With higher interest rates, long-term bond investors, particularly in U.S. aggregate bonds and intermediate Treasuries, are likely to see improved returns. U.S. equities, especially growth stocks, however, seem more overvalued compared to a year ago.

Long-term Implications

The next decade is set to experience an enduring shift in interest rates to higher levels than those seen since the 2008 global financial crisis. This change indicates a return to sound money, characterized by positive real interest rates. The implications for global economy and financial markets are substantial. A reset in borrowing and savings behavior, more judicious capital allocation, and recalibrated asset class return expectations are on the horizon. Vanguard believes this environment will benefit long-term investors, despite potential short-term turbulence.

Global Economic Resilience and Policy Changes

The global economy, particularly in the U.S., has shown more resilience than expected in 2023. However, this resilience may wane in 2024, with monetary policy becoming increasingly restrictive. The U.S., while currently counteracting the impact of higher policy rates, might face economic downturns as inflation returns to target. In contrast, Europe risks anemic growth due to restrictive policies, and China faces challenges despite policy stimulus.

Future Outlook

A potential recession may be necessary to reduce inflation, through decreased labor demand and slower wage growth. Central banks are likely to cut policy rates in late 2024, but these rates are expected to remain higher than in previous years. This shift reflects demographic changes, long-term productivity growth, and higher structural fiscal deficits. This higher interest rate environment, a significant financial development since the global financial crisis, will likely persist for years.

Implications for Stakeholders

This era of higher interest rates will influence borrowing, capital costs, and saving behaviors across households, businesses, and governments. It will compel governments to reassess fiscal outlooks amid rising deficits and interest rates. For diversified investors, the permanence of higher real interest rates offers a stable base for long-term risk-adjusted returns. However, financial markets may continue to experience volatility in the near term as the transition to higher rates continues.