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What Does the Fed Know That the Market Ignores?

On Wednesday, September 18 for the first time since 2020, the U.S. Federal Reserve lowered its benchmark interest rate. This wasn’t a surprise. In fact, the Fed’s Chairman, Jerome Powell, had already hinted at this move during the central bankers’ meeting in Jackson Hole last August.

It wasn’t unexpected for the market either. The U.S. Treasury bond curve had already priced in the Fed’s monetary policy pivot. Even equity markets, reflected in recent index highs, anticipated the move.

So, if the direction of monetary policy wasn’t the surprise, what was? The magnitude.

Eight out of ten Wall Street analysts expected an interest rate cut of 25 basis points. In simple terms, the benchmark interest rate was forecasted to drop by 0.25% to a range of 5.25% to 5.00%. However, that didn’t happen. The cut was 50 basis points. And just as history shows that “the market always kills consensus,” this time it was Powell and his team who carried that burden.

When asked why the aggressive cut, Powell responded, “We are not willing to lag behind events.”

From the Fed’s macroeconomic consistency standpoint, the decision is justified by its projection of higher unemployment rates by year-end and lower expected inflation. The year-end unemployment forecast has increased from 4.2% to 4.4%, while the inflation measure, “PCE Inflation,” is now estimated at 2.6%, down from the previous 2.8%.

Up to this point, there doesn’t seem to be any reason for concern. However, the market doesn’t entirely agree, does it?

After the Fed’s decision, volatility took hold, and indices turned from green to red. It’s true that at this hour, stock futures are pointing to a strong recovery, but the market remains uneasy. Could it be that the Fed knows something the markets don’t at this stage?

Looking at economic indicators and metrics that forecast activity levels, there are no clear warnings beyond a slight marginal deterioration in the labor and manufacturing sectors. Again, nothing alarming.

Therefore, for those who love history and have interests at stake, events may not repeat exactly, though they tend to “rhyme.”

In my view, the Fed’s aggressive move (unexpected to me) is driven by two key factors:

1. The institution doesn’t want to “interfere” in the upcoming presidential election process with monetary policy adjustments, removing any potential noise between the economy and politics.
2. Jerome Powell and his team want to avoid allowing the market to dictate the pace of future adjustments amid the current volatility and extreme sentiment that prevails in today’s times.

If this is indeed the case, investors should focus on the forest, not the trees. The global macro perspective of the monetary policy pivot should, in the medium term, bring a favorable risk-return payoff for emerging market assets, longer-duration corporate debt, and tactical sector-specific equities, seeking value beyond the broader indices.

Time will reveal whether the Fed indeed knew something the investing world didn’t, or if, in this instance, history wasn’t a leading indicator for what lies ahead in the coming months.

The ETF Industry Is Growing Strongly: 1,192 New Product Launches From January to August

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The high number of new ETF launches is a clear example of the maturity and potential of this segment of the investment industry. According to data published by ETFGI, during the first eight months of the year, 1,192 new products were launched, surpassing the previous record of 1,140 new ETFs listed in the same period of 2021. “The new funds listed resulted in a net increase of 845 products after accounting for 347 closures,” noted ETFGI.

Assets invested in the global ETF industry reached a record $13.99 trillion by the end of August, experiencing 63 consecutive months of net capital inflows, accumulating a record $1.07 trillion in net inflows so far this year. As of the end of August, the global ETF industry had 12,677 products valued at $13.99 trillion, from 774 providers across 81 stock exchanges in 63 countries, according to ETFGI’s August 2024 global ETF industry outlook report.

The report explains that until the end of August 2024, the ETF market has seen a notable increase, with a significant accumulation of assets by newly launched ETFs. In this context, the dominance of cryptocurrency ETFs stands out, with the iShares Bitcoin Trust (IBIT US) managing $21.07 billion in assets, followed by the Grayscale Bitcoin Trust (GBTC US) with $13.25 billion and the Fidelity Wise Origin Bitcoin Fund (FBTC US) with $10.51 billion.

“Reflecting the cryptocurrency investment boom since the approval of Bitcoin ETFs in the U.S. in January 2024, the SEC approved Ethereum ETFs for listing in July 2024. The Grayscale Ethereum Trust (ETHE US) reached fifth place in the Top 25 by assets with $4.53 billion, and the Grayscale Ethereum Mini Trust ETH (ETH US) ranked 17th with $924.85 million, both launched by Grayscale Advisors on the New York Stock Exchange (NYSE),” the ETFGI report points out.

In addition to cryptocurrency-focused ETFs, the Top 25 list includes ETFs across various sectors, such as high-dividend ETFs, equity, active, and climate-related ETFs, demonstrating the wide range of investment opportunities available to investors today.

The United States reported the highest number of closures with 115, followed by Asia-Pacific (excluding Japan) with 96, and Europe with 66. The 1,192 new products are managed by 299 different providers, distributed across 38 stock exchanges globally. iShares listed the largest number of new products, with 58, followed by Global X ETFs with 45 new launches, and First Trust and Innovator ETFs with 31 each.

From January to August

When reviewing the cumulative data for the first 8 months of the year from 2020 to 2024, the global ETF industry has experienced a significant increase in new launches, rising from 657 to 1,192. In 2024, the United States and Asia-Pacific (excluding Japan) registered the highest launches, reaching 403 and 390, respectively, while Latin America saw the fewest launches, with only 10.

“The United States, Asia-Pacific (excluding Japan), Canada, and Japan have reached their peak launches in 2024, with 403, 390, 136, and 32, respectively. Europe saw its highest number of launches in 2021, with 290; Latin America recorded 26 launches in 2021, while the Middle East and Africa reached 59 in 2021,” ETFGI reports.

However, the number of product closures accumulated by the end of August decreased across all regions compared to the same period in 2023. In 2024, the United States and Asia-Pacific (excluding Japan) registered the highest number of closures, with 115 and 96, respectively, while Latin America had the fewest, with only 2 closures. “Compared to the last five years of closures, the United States recorded its highest number of closures in 2020, with 174, while Europe had its highest number of closures with 108 in 2020. Asia-Pacific (excluding Japan) registered 116 closures in 2023, and Canada reported 52 in 2023,” the report concludes.

Claudia Sheinbaum Will Inherit a Government With Economic Anchors and Concerns About Legal Certainty

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The new government that begins next Tuesday in Mexico, headed for the first time by a woman in the person of Claudia Sheinbaum Pardo, will have significant advantages in terms of external accounts and the strength of the financial system. But there are also shadows, such as the growing public spending and the fear that the legal security framework of the country may change due to an excess of power in the hands of the ruling party.

Franklin Templeton presented its analysis “Mexico Horizon 2024-2030, between challenges and opportunities,” developed in collaboration with Carlos Ramírez Fuentes, who is also an executive at the consulting firm Integralia.

Opportunities: Anchors of Economic Stability

On the positive side, Franklin Templeton highlights several key data points:

Moderate Debt: Mexico has not excessively indebted itself as in other times, with debt levels as a percentage of GDP at approximately 55%, entirely manageable for an administration that is expected to maintain the economic fundamentals that have been in place for decades.

External Accounts in Order: Remittances, Tourism, and FDI Remain Strong: The country’s external accounts, once sources of economic collapse, now appear solid. Last year, remittances reached historic levels of $60 billion, tourism revenues are rising, and foreign direct investment also reached unprecedented levels, exceeding $30 billion last year.

Resilient Financial System: The financial system is very solid, with more than adequately capitalized commercial banks and no significant short- or long-term pressures.

Flexible Exchange Rate: The exchange rate serves as the pressure relief valve for financial and macroeconomic pressures. Gone are the days of an exchange rate tied to control policies; today it is flexible, and this is essentially a positive factor for the country.

Autonomy of the Central Bank: Essential for Mexico’s economy, this factor has remained untouched by all governments and will remain so in this one as well. Banxico will remain autonomous.

Top Trading Partner of the United States: Although this is a risky position in the event of Donald Trump’s return to the presidency, the economic benefit for Mexico is evident. Its external sector, based on exports to the world’s largest consumer market, is the driving force of the Mexican economy.

Challenges: Complicated Legacy

Tight Public Finances and Spending Pressures: The country’s public finances are fragile, and the new president’s room for maneuver will be narrow. Markets will be watching this factor closely.

Pemex: The state oil company and its situation pose a risk to Mexico. It will be crucial to see what happens with the company in the coming years, as it could be a factor in a downgrade of the country’s credit rating.

Bottlenecks in Energy, Water, and Infrastructure: The investments that Mexico requires are hindered by a lack of resources. Taking advantage of the nearshoring advantage will require addressing challenges in areas such as energy, water services, and infrastructure in general, and there will be no other options—the government will need to rely on private initiatives to carry out projects, given the fragile state of public finances.

Physical and Legal Security: This is perhaps one of the biggest challenges and risks for the new government, which of course affects investments and the economy. Markets are still evaluating the implications of the recently approved judicial reform, but there are factors such as insecurity that will be closely monitored.

Tensions Related to USMCA: The trade agreement with Canada and the United States will be reviewed in 2026, but a landscape of risks is already emerging, especially due to some changes and decisions such as the expropriation of companies in Mexico, which will create a more challenging environment.

Franklin Templeton is optimistic about the country’s future, stating that it has solid foundations and that so far it has been resilient to the external shocks that have inevitably impacted it for many years.

Middle East Conflict: Tepidness in the Stock Markets Amid Rising Oil and Dollar Prices

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Conflicto en Medio Oriente y sus efectos

Throughout the year, the mantra of “geopolitical risks” has gained relevance as conflicts and international relations have become increasingly tense. The situation in the Middle East has worsened following Israel’s ground invasion of Lebanon and Iran’s response, increasing the likelihood of a regional-scale conflict. The markets’ reaction has been, for now, lukewarm. However, three asset classes have been impacted by this heightened tension: oil, gold, and the dollar.

“Geopolitics is once again a concern. Iran attacked Israel yesterday afternoon, immediately impacting oil, which bounced nearly 6% from the day’s lows. Stocks suffered (S&P -0.9% and Nasdaq -1.5%) and gold surged 1%,” highlighted Juan José del Valle, head of analysis at Activotrade SV. Some investment firms believe there is a tendency to think that conflicts in the Middle East have a limited impact on U.S. stocks unless there is a significant escalation. According to Michaela Huber, cross-asset strategist at Vontobel, and Mario Montagnani, senior strategist at Vontobel, the market reaction was expected, with a risk-aversion movement. Investors shifted from riskier equities to safer fixed-income assets.

“Additionally, the VIX index—the fear barometer of Wall Street—jumped 15% this Tuesday. Meanwhile, the yield on U.S. 10-year Treasury bonds, which stood at 3.78% on Monday, dropped to 3.73% on Tuesday. The U.S. stock market closed ‘modestly’ lower following Iran’s attack. The S&P fell by less than 1%—from record levels—while the Nasdaq dropped 1.5%, managing a slight recovery by the close. Futures moved from flat to modestly positive,” the Vontobel experts explained.

According to Banca March, U.S. markets took profits following the news of missile launches, favoring the more defensive side of the market—utilities, duration, the dollar, and gold. “The main reaction has come from oil prices, which recovered to levels above $74/barrel for the Brent reference. As tensions in the region rise, Brent continues to gain ground, reaching $74.8/barrel, accumulating a 3.9% increase for the week. Meanwhile, gold fell from the highs reached in yesterday’s session and is now trading at $2,649/ounce. After hitting new highs yesterday amid Iran’s attack, the precious metal is down 0.5% this morning, awaiting employment data on both sides of the Atlantic. In the currency market, the dollar continues to advance against the euro, regaining its role as a safe-haven asset amid the tensions between Israel and Iran,” they noted.

Regarding oil, Vontobel experts explained that this market always reacts nervously when Iran is involved, but in the longer term, the supply-demand interaction tends to take precedence. They added that before the attack, oil had been under downward pressure, and unless the situation worsens further, a crisis similar to that of 2022 seems unlikely. “Still, the combination of increased geopolitical tensions and the prospect of more Chinese stimulus makes oil more attractive than it was a few weeks ago. Yesterday’s attack marked the second direct Iranian attack on Israel this year, suggesting that the conflict may have entered a more serious phase. In April 2024, Iran also attacked Israel, but an early warning and the nature of the weapons used (drones and slower missiles) ensured that almost all projectiles were intercepted. This time, Iran gave much less notice and used mainly ballistic missiles (which travel faster and are, therefore, harder to intercept),” said Huber and Montagnani.

The Contrast Between Oil and Gold

For Carsten Menke, Head of Next Generation Research at Julius Baer, the most significant impact has been in the gold market, where geopolitics continues to drive prices. “While oil seems to barely react to the increasing tensions in the Middle East, they are further fueling the bullish sentiment in the gold market. This is despite the fact that, historically, gold’s record as a geopolitical hedge is quite poor. Nevertheless, gold’s fundamental outlook is strong, with increased demand as a safe-haven asset due to the anticipation of further interest rate cuts and a potential adverse outcome in the U.S. presidential elections. Stretched speculative positions carry short-term pullback risks, which we would, however, see as long-term buying opportunities,” Menke pointed out.

In his view, considering the escalation of the conflict in the Middle East, the contrast between the oil and gold markets could not be more evident. “While oil remains at relatively low levels, gold has reached new historical highs in recent days. First, this is due to market sentiment, which is very depressed in the case of oil and very euphoric in the case of gold. As an indication of this, net speculative long positions in gold futures—i.e., bets on rising prices by speculative market participants, minus bets on falling prices—are approaching record highs. Second, this is due to the fundamental context. Demand for gold as a safe-haven asset has increased again over the summer in anticipation of further interest rate cuts by the U.S. Federal Reserve and other central banks,” the Julius Baer expert added.

Given this, Menke warned that historical evidence suggests that, rather than being a geopolitical hedge, gold is more of an economic hedge, as long as geopolitical tensions have economic consequences, as was the case during the Second Oil Crisis of 1979/80. “This assessment is also supported by the First Gulf War of 1991, which did not lead to a lasting rise in gold prices. Therefore, for now, we see the current escalation of tensions in the Middle East as another element driving the bullish sentiment in the gold market. As previously mentioned, the path of least resistance is upward, and we maintain our constructive view. Stretched speculative positions carry short-term pullback risks, which we would, however, view as long-term buying opportunities,” he concluded.

Picton Aims to Turn Its Latam Summit Into the Largest Alternatives Event in the Region

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With the ambition of becoming the largest alternatives event in Latin America, investment firm Picton is gearing up to host its first Latam Summit. This event, expanding on the format of its traditional anniversary seminar, will attract a diverse range of high-level investors, GPs, and international LPs.

The summit will take place starting at 8:30 a.m. on Wednesday, October 16, and Thursday, October 17, at the Ritz-Carlton Hotel in Santiago, located in the Las Condes district.

According to Picton’s preview shared with Funds Society, the two-day event will feature the participation of hundreds of high-level investors and managers, including representatives from major global alternative brands. The summit will include over 80 speakers, more than 30 GPs, and over 500 representatives from more than 100 LPs, alongside family offices, insurance companies, pension fund managers, and industry players from across Latin America.

In addition to a series of panels focused on private equity, there will be segments covering topics such as pension funds (AFP), family offices, insurers, and wealth management. Over 1,200 business meetings are also scheduled to take place during the two-day event.

On the second day, after a morning of panels dedicated to various alternative asset classes, the 12th edition of the traditional seminar organized by Picton and El Mercurio will take place. As in recent years, the guest of honor is a prominent political figure: Boris Johnson, former Prime Minister of the United Kingdom. Johnson will deliver a speech titled after his most recent book, *The Churchill Factor*.

Picton Latam Summit is supported by several major names in the global alternatives management scene. According to the Chilean firm, KKR, EQT, TPG, Goldman Sachs Asset Management, Ares, and Morgan Stanley Investment Management are among the main sponsors, while Clearlake, TJC, Strategic Value Partners, Great Hill Partners, and Kelso Private Equity are in the golden sponsor category. The silver sponsor category includes American Securities, Permira, OHA, Macquarie, Vitruvian Partners, Centerbridge, Barings, M&G Investments, Federated Hermes, Kayne Anderson Real Estate, Archimed, Harvest Partners, and Hayfin.

Founded in 2011, Picton is one of the most prestigious names in Chile’s financial market. It is one of the leading placement agents for alternative assets and international mutual funds in Latin America and also participates in the multi-family office business. They have offices in Santiago, Bogotá (Colombia), and San José (Costa Rica), along with a presence in Mexico City through a partnership with 414 Capital.

Investor Perspectives

The program for Thursday, October 16, kicks off with welcoming remarks from Osvaldo Macías, Superintendent of Pensions of Chile, followed by a panel specializing in pension systems in Latin America. This session, moderated by Paulina Yazigi, president of the Chilean Association of Pension Fund Managers (AAFP), will feature the general managers of four pension funds: Alejandro Bezanilla from Chile’s AFP Habitat, Miguel Largacha from Porvenir, Juan David Correa from Protección (Colombia), and Aldo Ferrini from Peru’s AFP Integra.

Next will be the investment managers of pension fund managers. The following panel, focused on pension fund investment regimes, will include Carolina Mery from AFP Habitat, Andrés García from AFP Cuprum, Francisco Guzmán from AFP Capital (Chile), Felipe Herrera from Protección (Colombia), Rafael Trejo from Afore XXI Banorte (Mexico), and Juan Pablo Noziglia from AFP Prima (Peru).

Before moving on to panels dedicated to various client segments, Solange Berstein, President of the Financial Market Commission (CMF), will deliver an opening address.

Following this, investment managers from insurance companies will share their perspectives. Attendees will hear insights from Jorge Espinoza from Confuturo, Renato Sepúlveda from Consorcio, Jorge Palavecino from Penta Vida (Chile), Gustavo Morales from Global Seguros (Colombia), and José Pedro Martínez from Rimac (Peru).

Next will be the family office representatives, who will discuss portfolio construction and relationship development. This session will feature Mauro Bergstein, investment manager of Mercury (Brazil), Sebastián Piñera, general manager of Odisea, Patricio Leighton, general manager of Stars Investments (Chile), Raquel Fernández, investment manager of Cuestamoras (Costa Rica), and José Larrabure, investment manager of Allié Family Office (Peru).

Later, the focus will shift to expanding the wealth management spectrum. This discussion will be led by Leonardo Martins, investment manager of Turim, Eduardo Castro, investment manager of Portofino (Brazil), Gabriela Gurovich, general manager of Banchile Inversiones (Chile), Roberto Melzi, investment manager of Vicctus, and Ignacio Arróspide, investment manager of Creuza (Peru).

Private Capital Perspectives

After an invitation-only lunch and remarks from Pablo Antonio García, former Vice President of Chile’s Central Bank, a series of panels dedicated to private capital will take place.

The first will address North American private equity, featuring insights from Ted Oberwager, Partner of Private Equity North America at KKR, John Flynn, Partner at TPG Capital, and Prashant Mehrotra, Partner at Clearlake. The panel will be moderated by Miguel Gravat, Alternative Assets Manager at AFP Capital.

Next, the discussion will shift to European private equity, with Marcus Brennecke, Institutional Partner and Chairman of EQT, Chris Pell, Principal of Permira Equity, and Fabian Wasmus, Partner at Vitruvian Partners. The session will be moderated by Angélica Rojas, Alternative Assets Manager at AFP Cuprum.

Following that, a panel on mid-market private equity will be moderated by Francisco Mina, Foreign Investments Manager at AFP Habitat. This panel will feature perspectives from Rafael Cofiño, Managing Director at Great Hill Partners, Frank Leverro, co-CEO at Kelso, Rich Caputo, Chairman & Chief Executive Partner at TJC, Aaron Sack, Managing Director and Head of Capital Partners at Morgan Stanley, and Bill Chisholm, Managing Partner and CIO at STG.

Finally, there will be a session on innovation, focusing on venture capital. This conversation will include Matthew Brush, Managing Director at DST, Marc Bhargava, Managing Director at General Catalyst, and Alejandro Tocigi, Partner at Kayyak. The discussion will be guided by Matías Muchnick, co-founder and CEO of the Chilean foodtech unicorn, The Not Company.

Category Sweep

On the second day, Thursday, the morning will feature four segments, each dedicated to exploring perspectives in the major alternative asset categories, starting with a presentation by Kipp deVeer, Partner and Global Head of Credit at Ares.

The first segment will focus on direct lending, with Cristóbal Larraín, Alternative Assets Manager at AFP Provida, as the moderator. Panelists will include Mark Bickerstaffe, Managing Director of Private Credit at Hayfin, Mark Liggit, Partner at Ares Credit Group, Sean Sullivan, Managing Director and Head of Direct Lending Origination at Morgan Stanley, Eric Muller, Portfolio Manager and Partner of Private Credit at Oak Hill Advisors, and George Muller, Partner at KKR Credit.

Next, the focus will turn to opportunistic credit, with a conversation moderated by Alexandra Ponce de León, Alternative Assets Manager at AFP Planvital. Panelists will include Kevin Lydon, Managing Director at Strategic Value Partners, Mike Ginnings, Managing Director of Credit Solutions at TPG, Richard J. Grissinger, Senior Managing Director of Credit at Centerbridge, Aaron Rosen, Partner at Ares Credit Group, and Beat Cabiallavetta, Managing Director and Global Head of Hybrid Capital Investing in Private Credit at Goldman Sachs.

The discussion will then shift to infrastructure, where five specialists will explore “a decade of opportunity.” Insights will come from Alex Darden, Head of EQT Infrastructure, Cecilio Velasco, Managing Director at KKR Infrastructure, Karl Kuchel, CEO of Macquarie Infrastructure, Markus Hottenrott, Managing Director of Infrastructure at Morgan Stanley, and Philippe Camu, Chairman and co-CIO of Infrastructure at Goldman Sachs. The panel will be moderated by Rodrigo Ordoñez, Alternative Assets Manager at AFP Habitat.

The regional summit will conclude with a panel dedicated to real estate market trends. Moderated by Daniel Selman, Head of Alternative Assets at AFP Cuprum, the session will feature perspectives from David Selznick, CIO of Real Estate at Kayne Anderson, Paul Rubincam, Partner and European Head of Real Estate at EQT Exeter, Avi Banyasz, Partner at Real Estate at TPG, and Mark Schwarts, Executive Managing Director and Head of Gaming Investments at Sculptor.

Finally, guests of Picton’s anniversary seminar—a by-invitation-only event—will attend a lunch that will feature, in addition to Boris Johnson, a presentation by Chile’s Minister of Finance, Mario Marcel.

Moody’s: We Still See Mexico With Investment Grade, but There Are Concerns

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Mexico is still considered an acceptable country to maintain its investment grade, but there are factors that concern rating agencies.

During the annual event “Moody’s Inside LatAm Mexico,” Renzo Merino, Moody’s sovereign analyst for Mexico, stated that a downgrade of the country’s rating, currently at “Baa2” with a stable outlook, is unlikely. Such a downgrade would require a scenario of greater macroeconomic weakness and institutional deterioration. However, there is indeed concern.

“Despite the judicial reform and other structural changes that will be implemented in the country, Moody’s continues to view Mexico with investment grade, but there are concerns and uncertainties due to fiscal deterioration, weak growth, and the pressure of supporting Pemex,” said the specialist.

“A sharp change in the rating is unlikely without a material shock that affects the credit profile. To put it in context, this only happened during the pandemic,” said the analyst.

In this regard, he added that for a loss of investment grade to occur, there would need to be significant institutional deterioration and weak macroeconomic prospects for the country.

According to the analyst, a year ago, the outlook for the country was still positive, as the arrival of foreign companies was expected to trigger greater investment and economic growth, driven by nearshoring.

“However, many of the investment announcements or projects have not materialized, while political concerns emerged after the presidential elections and the expected changes by the next administration,” he explained.

“In June, our expectation was that Mexico would defy historical trends because election years usually do not bode well in terms of growth. However, with nearshoring, we expected a growth trend of between 2.5% and 3% for the coming years,” said Renzo Merino.

Pemex, the Major Risk

On the other hand, Roxana Muñoz, a Moody’s analyst for Pemex, said that the company could require up to $20 billion in government support by 2026 due to its fragile financial situation.

As a result, the new government led by President Claudia Sheinbaum will face a fiscal puzzle, pressured by high support for Pemex and spending demands from social programs, Moody’s warned.

Muñoz explained that the oil company began and will end the current administration facing numerous challenges, as refineries continue to generate losses, fiscal pressures increase, and no short-term improvement is expected.

In an optimistic scenario, she added that the next administration could surprise with measures such as greater openness to private investment or new agreements with the union regarding pensions.

Moody’s thus clears up doubts at the start of a new administration in Mexico, this time led for the first time by a woman, Claudia Sheinbaum, and confirms that the country will retain its investment grade.

Winning, but Avoiding Losses: This Is How Asset Managers of Alternative Investments Should Think

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Private credit can be sensitive to defaults, but the key for asset managers is to consider the possibility of loss when making investment decisions, Toreigh Stuart, Head and Managing Director of Garrington Capital, told Funds Society.

“Any type of credit, whether public or private, can be susceptible to defaults; however, the risk of loss from such defaults lies in the investment philosophy behind issuing these loans,” Stuart explained.

The executive outlined Garrington Capital’s philosophy for mitigating losses in their loan portfolio, which starts with a mindset of “winning by avoiding losses.”

Stuart highlighted three key pillars to consider when investing in private credit:

1. Lending against the liquidation value of a company’s tangible assets.
2. Keeping loan durations short—Garrington’s portfolio averages less than one year.
3. Ensuring borrowers make cash interest payments rather than “payment-in-kind” to guarantee loan balances amortize instead of increasing.

However, private credit is not the only product within alternative investments. On the contrary, real estate, private equity, and other assets complement and diversify portfolios. According to Stuart, this is due to two main reasons: return potential and diversification benefits.

“Alternative investments become more attractive when the outlook for more traditional investments, such as equities and fixed income, is less clear, leading investors to seek other options,” Stuart commented, illustrating how the prolonged period of low-interest rates “pushed investors to seek alternative solutions for their fixed income allocations, such as private credit, among many other options.”

On the other hand, the only “free lunch” in the investment world is diversification, Stuart noted. By adding non-correlated investments to a portfolio, investors can benefit from better risk-adjusted returns.

“Although alternative investments are not foolproof and come with their own risk factors, many tend to derive returns from different sources, which allows for diversification benefits over time, especially compared to traditional investments in bonds and equities. This differentiated return stream that alternatives can provide is one of the key factors for including a long-term asset allocation to this class,” Stuart explained.

Alternatives and Inflation

An inflationary period presents challenges for companies. Input costs tend to rise, squeezing operating margins unless companies can pass these costs on to customers, and it is often accompanied by rising interest rates, which increase borrowing costs for companies—another hurdle.

Conversely, a deflationary environment tends to have the opposite effect and is generally positive for businesses, Stuart contrasted.

Regarding private credit, in an environment of rising interest rates and inflation, “private credit strategies tend to protect investors as their loans are typically floating rate, meaning that as interest rates rise, the returns these strategies offer to investors also increase,” the executive pointed out.

Furthermore, during a period of declining interest rates and inflation, most floating-rate loans tend to have a minimum rate when issued, thus protecting investors from the full extent of the decline, offering partial insulation.

Financial Education and Alternatives

According to Stuart, education is always a crucial factor for advancing in the fields of finance and portfolio management.

“The alternative asset investment landscape has evolved significantly, from individual investors to the most sophisticated institutions. Large institutions have been using alternative investments for decades, allocating more than 50% of their portfolios to these assets due to a deep understanding and comfort with them,” he explained.

However, when considering Latin America, Stuart noted, “there is still room for growth in awareness and education” around alternative assets in the region.

“There is great potential here, and it is essential for firms like Garrington to continue providing accessible and ongoing educational resources to support the region’s financial evolution,” he concluded.

2023 Was the Worst Year for Argentine Wage Earners in the Last Five Years

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“2023 Marks the Year of Greatest Loss in Purchasing Power Over the Last Five Years, declared Mercedes Bernardi, Senior Manager of New Business Development at Mercer Argentina, Uruguay, and Paraguay, during the Mercer Annual Forum, which brought together over 500 executives and HR leaders from Argentina’s top companies.

In this context, Bernardi conducted a thorough analysis of salary increases in 2024, stating, *’This year, although inflation is progressing at a slower pace than expected, it continues to bring compensation management into focus.’* She also noted that fewer instances of salary increases are anticipated in 2025 compared to this year: *’perhaps four versus six in 2024.’ She added, ‘Only 15% of companies report having a budget for 2025 salary increases.’

Bernardi concluded by forecasting a shift in dynamics for 2025: ‘With inflation declining, merit-based increases are gaining momentum.’

How is Argentina Faring in the Global Talent War?

Ricardo de Almeida, Regional Leader of Mercer Marsh Benefits for Latin America and the Caribbean, highlighted during a special panel that *’Argentina has a major advantage with its demographic bonus, a significant concern for other countries facing labor shortages, although,’ he warned, ‘the country is moving toward that reality within the next 25 to 30 years.’ As such, he emphasized that ‘Argentina needs to prepare for the talent war.’

Agustín de Estrada, Leader of Health & Benefits Consulting at Mercer Marsh Benefits, discussed the challenges of implementing well-being programs, focusing on emotional health in challenging environments. He shared key strategies for achieving the desired impact and, most importantly, sustaining it over time. He also provided an important statistic: ‘64% of companies are taking action to address workforce burnout.’

Guillermo Martin Barbosa, Team Leader of Well-being and Health at Santander Argentina, shared details of self-care programs, internal communication channels, and support communities developed by the company to focus on prevention and early warning tools. He also warned that ‘there has been an 18% increase in mental health issues among employees.’

During the panel on Argentina’s future, experts debated alongside Dolores Liendo, Sales Leader of Marsh McLennan, and Javier Tabakman, Partner and Latin America Career Leader at Mercer, about the current macroeconomic situation and its impact after the government change. Mariana Camino, CEO and President of ABECEB, noted that *’a process of macroeconomic order and normalization is underway, with some encouraging results.’* However, she emphasized that *’the economy has not grown in the last 12 years, and productivity has been affected since 2011. To exit the economic depression, growth needs to be restored, and investment policies must be prioritized. There is optimism for a stable and low-inflation 2025.’*

Regarding the recent labor reform announcement, José Luis Zapata, Partner in charge of the Labor Law Department at O’Farrell Law Firm, stated that *’the new regulatory framework will support employment recovery, as the current labor laws have not been modified in over 50 years and are now obsolete.’*

Rodrigo Solá Torino, Partner at Marval, O’Farrell Mairal, praised Argentina’s healthcare coverage, which is highly regarded regionally but pointed out the country’s significant shortcomings regarding the pension system. Tabakman concluded the discussion by commenting on the shift in the HR agenda: *’During the pandemic, the focus was on inflation and salary increases to ensure employees maintained their purchasing power. Today, the conversation revolves around productivity, acquiring new skills, and integrating AI into the workforce.’*

Generative AI and Other Trends in Human Resources for the Coming Years

Ivana Thornton, President of Mercer Argentina, Paraguay, and Uruguay, kicked off the first session, ‘The New Shape of Work,’ by stating, ‘Unlearning is the path to letting go of old beliefs, knowledge, habits, and behaviors to make room for new paradigms that open new possibilities. AI undoubtedly enhances our work and helps us be faster, more accurate, and efficient.’

Key topics discussed included the rise of generative AI in the workplace, the importance of companies focusing on creating a digital mindset, the growing relevance of change management in HR, and the increasing trend toward skill-based talent management as a key resource for business productivity and sustainability.

Matías Rosales, CEO of Marsh McLennan for Argentina and Uruguay, emphasized that ‘collaboration, teamwork, and continuous innovation are the keys to business success.’ Sebastián Otero, recently appointed Director of Mercer Marsh Benefits for Argentina and Uruguay, added, ‘As leaders, we have a significant responsibility to unlock human potential in this era of artificial intelligence.’

Viviana Cesareo, Senior Manager of Transformation and Talent Management at Mercer Argentina, Uruguay, and Paraguay, analyzed the impact of skills and AI on workforce planning and how HR can address the redesign of talent management processes by understanding current skills and identifying those necessary to face the new world. Fabiana Frattari, Head of HRBPs & Talent at Banco Galicia, reflected on the strategic evolution of talent, the new skills model required for each role, and the need to move away from traditional job descriptions: *’I prefer to talk more about a development map than a career path,’* she emphasized.

Later, María Marta Kenny, Head of Human Resources at IBM for Argentina, Uruguay, and Paraguay, shared her experience in transitioning the company to a skills-based talent management model, which has allowed it to adapt to the constant changes in the labor market, where skills become obsolete in increasingly shorter periods. She reflected on the importance of rethinking the approach to recruitment, learning, growth, and employee development.

In the second session, ‘People at the Center,’ Ángeles de Nicola, Senior Consultant in Mercer’s Health and Benefits area, explained how to design an employee value proposition and holistic well-being—encompassing physical, financial, and emotional aspects—by considering each employee’s experience. She stressed the importance of listening and being close to employees. Laura Barderi, Head of Payroll, Well-being, and Benefits at Movistar (Telefónica Hispam), affirmed that prepaid medical care and Christmas bonuses remain the most valued benefits by employees in their company.”

The Path Toward Lower Interest Rates in Mexico Is Uncertain

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Incerteza en las tasas de interés en México

While the market consensus anticipates that the Bank of Mexico (Banxico) will reduce interest rates in the coming months—a view shared by Bank of America (BofA)—the path remains uncertain.

Mexico’s headline inflation is still close to 5%, the labor market is tight, the peso has weakened, and inflation expectations remain above 3%. These factors, along with others, lead BofA to believe that the road to lower rates is not without risks.

“The direction is clear. The reasons for Banxico to cut rates are evident: core inflation is below 4%, the economy is weak, and the Federal Reserve has already started cutting rates. But there are risks, and the path is uncertain,” the institution stated in a report to its clients.

One risk, for example, is that Banxico may cut rates too quickly.

BofA anticipates that at the next meeting on September 26, Banxico will reduce its benchmark rate by 25 basis points, bringing it to 10.50%, with a decision that could be unanimous (5-0 in the votes of the board members) or possibly a 4-1 vote split.

The U.S. bank also expects Banxico to cut rates gradually but steadily for the rest of this year and into early next year, potentially accelerating the pace once there is more evidence of weaker growth.

“We expect the policy rate to be 10.00% by the end of 2024 and 8.25% by the end of 2025. However, we need to monitor Banxico’s pace of rate cuts closely, among other factors,” noted BofA experts.

BofA also warns of the risk that Banxico could cut rates by 50 basis points this week, bringing the policy rate to 10.25%, in response to the U.S. Federal Reserve, despite inflation still hovering around 5.0%.

Unanimous Consensus for Rate Cut

The Citibanamex survey, which has a long history and widely reflects the sentiment of Mexico’s analyst community, unanimously points to a rate cut by Banxico in the coming days.

The consensus expects a 25-basis-point cut to the interest rate, with most participants (28 out of 36) anticipating this move. However, six participants forecast a 50-basis-point cut in September, and two predict the next change will be a 25-basis-point cut, but not until November.

The median estimate for the interest rate at the end of 2024 has dropped from the previous survey to 10.00% from 10.25%, with a range of 9.50% to 10.50%. For the end of 2025, the median expectation also fell by 25 basis points, to 8.00% from 8.25%, with a wide range of 7.00% to 10.00%.

For the entire month of September, analysts estimate that headline inflation will be 4.7% annually. The consensus predicts a monthly inflation rate of 0.18% or an annual rate of 4.72%, lower than the 4.99% annual rate recorded in August.

Inflation expectations remained relatively stable. The median projection for headline inflation at the end of 2024 stood at 4.55%, slightly lower than the previous survey’s 4.60%, while the core inflation forecast remained at 3.90% annually.

In the Citibanamex survey, exchange rate estimates for 2024 have adjusted slightly upwards. The median projection for the exchange rate at the end of this year was revised to 19.57 pesos per dollar, from 19.50 pesos per dollar in the previous survey. For the end of 2025, the consensus estimate remained unchanged at 19.85 pesos per dollar.

Atlantia Wealth Management Strengthens Its Commercial Team In Switzerland

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Atlantia Wealth Management y su equipo comercial

Carmen Serrano has joined Atlantia Wealth Management in Switzerland as an Associate, where she will support the commercial and management teams in order to enhance the quality of service and advice to their clients.

The hiring of Carmen reaffirms the independent advisory firm’s commitment to growth, both in Spain and Latin America, where they foresee significant organic growth in the next 18 months, the firm explained to Funds Society.

Carmen Serrano began her career in the financial sector in 2017, having worked for the Bank of Spain and Deloitte (Spain) and more recently for Capital Vision (Switzerland). She holds a degree from Universidad Carlos III de Madrid, a master’s degree in auditing from ICADE, and another in financial advisory from Universidad Politécnica de Valencia.

“We feel fortunate to have Carmen join us. Her energy, passion, and creativity will help us continue achieving the company’s strategic objectives,” said the firm.

Atlantia is a Swiss multi-family office that recently entered Spain in the form of an EAFN to advise Spanish and Latin American families.

The firm was founded in 2021 by Juan Araujo, Alberto Gómez Justo, and Carlos García Práxedes, three equity partners who, after starting their careers at other companies, worked together at Banco Santander in Geneva for over 10 years. There, they covered the Latin American market in various regions, and in April 2021, they decided to establish their own advisory firm to provide comprehensive and independent services to their clients.