What Is Behind the Enduring Reign of the U.S. Dollar?

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The U.S. dollar has appreciated by more than 30% compared to other currencies of developed countries since 2022, defying forecasts from two years ago predicting a decline of 30-40%. Furthermore, since 2011, the currency has risen nearly 40% against a broad basket of currencies. In light of these figures, Jeffrey Cleveland, Chief Economist at Payden & Rygel, asks how enduring the “reign of the dollar” will be.

This question and analysis arise in a context where the dollar has strengthened following Donald Trump’s victory in the last elections. “While the policy of the new U.S. president may favor the dollar’s evolution, the strengthening of the U.S. currency has long-standing roots and seems to consolidate its position. Furthermore, since 2011, the dollar has risen nearly 40% against a broad basket of currencies,” he notes. So, why were the dollar “bears” so wrong?

For Cleveland, misconceptions about the role of the dollar in the global financial system mislead both investors and policymakers. In his view, doubts about the dollar stem from four misconceptions about the dollar system. “The most recent crises have only strengthened the dollar’s global reign. During the global financial crisis, the Fed lent $10 trillion in gross swap amounts to its main foreign counterparts, and again during COVID-19. This underscores how vital the dollar is to the global economy,” the expert adds.

Currently, the global dollar system, though born out of crises, has stood the test of time and proven more resilient and durable than its predecessors, Cleveland’s analysis states. He believes there are no viable rivals to the dollar, despite the existence of around 180 currencies worldwide: “The dollar is the most dominant currency, and its status has diminished little in recent decades. According to the Fed’s international currency index, the dollar has remained at the top in reserves, transaction volume, foreign-currency debt issuance, and international banking assets since data has been available. The euro, in second place, scores 23 points on the index—one-third of the dollar’s level—though more than the sum of the next three currencies: Japanese yen, British pound, and renminbi.”

Regarding the renminbi, Cleveland acknowledges that it was once a favorite of the dollar “bears,” who advocated for its displacement by a rising Chinese currency. However, since China’s stock market crash in 2015, the lack of full convertibility of the renminbi, the uncertainty of its legal framework, and the illiquidity of its financial markets make it unlikely to compete with the dollar’s hegemony in the near future. “Additionally, in 2015, countries with currencies pegged to the dollar (excluding the U.S.) accounted for 50% of global GDP. In contrast, economies linked to the euro accounted for only 5% (excluding the eurozone),” he explains.

Cleveland also mentions that the latest trend among dollar bears is de-dollarization, arguing that major economies may prefer to use other currencies to avoid the ire of U.S. policymakers eager to “weaponize” the dollar through sanctions. “These are common and have been used for a long time. Furthermore, the benefits of dollarization far outweigh the perceived reduction in risk from de-dollarization. Using the dollar allows access to 80% of buyers and sellers in global trade activity and the world’s deepest and most liquid financial market. Additionally, the Fed has proven to be a reliable backstop for all participants in global financial markets during past financial crises, particularly through central bank swap lines and foreign repurchase agreements,” Cleveland argues.

Finally, he emphasizes, “One could argue that ‘bad actors’ should be excluded from the dollar financial ecosystem because, ultimately, settling and using dollars is a privilege, not a right. But even if sanctions deter some countries from holding Treasury bonds as reserves, it is unlikely that the majority of dollar reserve holders will abandon the dollar. In fact, foreign governments with military ties to the U.S. hold nearly three-quarters of the total U.S. debt held by foreign governments,” says the Chief Economist of Payden & Rygel. In summary, he believes that the benefits of operating in dollars far outweigh the costs of de-dollarization.

The Myth of Collapse

Cleveland highlights a widespread misconception that the dollar is always on the verge of collapse due to excessive debt burdens: $27 trillion. In his view, this prediction has no validity, as the accumulation of national debt has yet to cause rising yields or debt default.

Secondly, Cleveland considers that each dollar of debt is not just a liability of the U.S. government but an asset for someone else—and a very popular one, even among foreign investors. “Perhaps its popularity is because it is safe (the U.S. has never defaulted) and liquid ($870 billion average daily trading volume in July 2024) and currently offers attractive real yields,” he adds.

Thirdly, he notes that the debt problem is overstated: “The average cost (yield) of U.S. debt was only 3.4% in July 2024, still far below most of the country’s recent history, thanks to the dollar’s status as a global reserve currency and decades of price stability since the 1990s.”

According to Cleveland, net interest costs, which incorporate average costs and the total amount of outstanding debt, reached 2.4% of nominal GDP in fiscal year 2023, still below the historical peak of 3.3%. “Unless the federal funds rate stays above 5% for several years, the current trajectory of the U.S. debt burden remains manageable,” concludes the expert from Payden & Rygel.

A Historical Issue

It’s also worth noting that the dollar system has more in common with evolutionary biology than architectural design: it grew organically. For much of its early history, the U.S. followed a bimetallic standard (linked to gold and silver) and avoided paper money. The panic of 1907 led Congress to create the Federal Reserve (Fed). Subsequently, the Fed issued “Federal Reserve Notes,” lent to banks when liquidity ran dry, and enforced “par” settlements for checks throughout the Federal Reserve System. The U.S.’s favorable geographic position during the two world wars enabled it to become the “center of the global financial system.” Holding nearly 40% of the world’s gold reserves allowed the U.S. to be one of the few countries not to suspend convertibility during the wars.

As Cleveland recalls, at Bretton Woods, delegates dismissed alternative competing plans to the dollar as an international settlement asset, considering them unviable: the dollar was the best and easiest option. Additionally, the dollar’s “reign” had already globalized. “The euro-dollar market was born in the 1920s and revived in the 1950s because London banks began accepting deposits in dollars (and other currencies) and granting loans in dollars to third parties,” he notes.

Why Should the West and the Rest of the World Pay More Attention to the BRICS?

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BRICS attention West and world

From October 22 to 24, the official summit of the so-called BRICS was held in Kazan, Russia. The summit made its main intention clear: to change the world order in favor of the Global South, represented by the BRICS. According to Alicia García Herrero, Chief Economist for Asia Pacific at Natixis CIB, the outcome of this meeting was summarized in a twelve-point statement that resonates as anti-Western rhetoric in a new Cold War.

“Much of this, of course, stems from Russian President Vladimir Putin’s grievances against the West. However, Putin, who increasingly relies on China to continue his war in Ukraine, cannot push the BRICS toward a more confrontational stance without the consent of Chinese President Xi Jinping,” explains Alicia García.

According to the report prepared by this Natixis CIB expert, China is clearly behind the expansion of BRICS. In addition to Brazil, China, India, Russia, and South Africa, the group has added Egypt, Ethiopia, Iran, and the United Arab Emirates. Another 13 countries have become associated nations (Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, Uzbekistan, and Vietnam). Natixis CIB has explained that China’s role as the “first among equals” in BRICS could turn the group into a subgroup of Xi’s Belt and Road Initiative.

“The Kazan statement advocates for a multipolar world, but its concept of multipolarity directly opposes the West in several significant ways. The statement appropriates the same concepts supported by liberal democracies, such as cooperation and respect for international law, including nuclear non-proliferation. This contrasts sharply with the political choices of many BRICS regimes, particularly Putin’s aggression in Ukraine and his threat to use nuclear weapons. Moreover, the Kazan statement criticizes the West for not living up to its own values,” emphasizes the expert in her report.

Another important point in the Kazan statement for García is the high regard given to the United Nations, especially in terms of its centrality to cooperation between sovereign states for achieving peace and international security. However, this support for the UN comes with a strong push for reform to better represent the interests of the Global South, as Alicia García highlights in her report.

“Finally, the Kazan statement also seeks to redesign the international monetary system through reform of multilateral institutions such as the International Monetary Fund and the World Bank, supporting non-Western institutional alternatives to these bodies, such as the New Development Bank, and promoting the end of the U.S. dollar’s preeminent role,” she adds.

Regarding de-dollarization, which was introduced at the 2023 BRICS summit in South Africa, additional steps have been taken, but the Kazan statement did not go as far as Putin may have expected. This is explained in the Natixis CIB report: “The BRICS Clear structure, a cross-border settlement and deposit system designed to trade securities without the need for dollar conversions, using blockchain technology and digital tokens backed by local currencies, was not agreed upon. This is not surprising, as some BRICS members, particularly the United Arab Emirates, are still tied to the dollar, and many fear that the push would primarily favor the use of the renminbi and, to a lesser extent, other local currencies.”

Nevertheless, García’s conclusions point out that the push by Russia and China, the two potential beneficiaries of a de-dollarization effort, whether to avoid sanctions and/or internationalize their currencies, was acknowledged in the Kazan statement, with an agreement to conduct a feasibility analysis of BRICS Clear. “A BRICS Contingent Reserve Agreement was also included in the statement, aimed at including eligible BRICS alternative currencies in existing swap lines between BRICS countries. It is worth noting that most of these swap lines have been extended by the People’s Bank of China, thus using the renminbi as a vehicle currency against each local currency. This further demonstrates how BRICS is evolving into a model with China at the center,” she points out.

Lastly, according to the report, to support the use of local currencies in financial transactions between BRICS countries, a new BRICS Interbank Cooperation Mechanism will be developed. How this mechanism can promote the use of local currencies without reaching the BRICS Clear system is yet to be explored.

In summary, the conclusion of this expert points out that the West and the rest of the world should pay more attention to BRICS, not only because it is growing in size but also because it is evolving into an anti-Western bloc with the firm intention of changing the global order. “China’s dominance over the group, with Putin’s active support, makes it even more urgent for the West to observe and react, offering a better proposal to the countries of the Global South,” concludes García in her report.

Principal Launches an International Equity ETF

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Principal Asset Management is expanding in the ETF sector with the launch of an international equity ETF.

“This ETF will be a large-cap portfolio managed by the Principal equity team. Principal Equities, with $154.8 billion in AUM, follows an investment strategy that combines global perspectives with local insights to offer a broad range of specialized equity investment solutions,” according to the firm’s statement.

The company justifies its launch by highlighting market demand for such products.

“The demand for active ETFs was the strongest in history in 2023, reaching a record high of $349 billion in the category. This trend is expected to continue, with advisor allocations to active ETFs projected to increase by 45% over the next two years,” the statement adds.

“This new offering continues to build out our active ETF lineup, leveraging our strong capabilities and providing investors with an efficient vehicle to invest in international markets,” said George Maris, CIO and Global Head of Equities at Principal Asset Management.

The Principal equity team, led by Maris, has over two decades of experience managing non-U.S. equity strategies, according to Principal.

With the addition of the international equity ETF, Principal completes a suite of 10 ETFs representing approximately $4.7 billion in AUM, “designed to enhance investor returns, mitigate risk, and improve portfolio diversification,” the statement concludes

Pragmatic Optimism Among Managers: Expecting Higher Growth but Also More Inflation

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pragmatic optimism managers higher growth inflation

The monthly global fund manager survey conducted by BofA reflects an increase in optimism about growth, with more investors betting on a “no landing” economic scenario, U.S. equities, small-cap companies, and high-yield bonds, but also more inflation. According to the entity, as a sign of this optimism, the Bull & Bear indicator of BofA rises to 6.2, “although none are yet considered ‘extremely’ bullish, as it is not above 8,” they explain.

“The general sentiment FMS indicator, based on cash levels, equity allocation, and economic growth expectations, decreased to 5.2 in November from 5.5 in October. However, if only the post-election results are considered, the indicator would have risen to 5.9. For 22% of global managers who completed the survey after the U.S. elections, the average cash level was 4.0%,” the survey states in its conclusions.

It is noteworthy that global growth expectations improved, with a net 4% expecting a weaker economy. In fact, after Trump’s victory, 23% of respondents expect a stronger global economy, which represents the highest level of optimism since August 2021. A key issue for this vision is what managers expect regarding “landing.” In this regard, the probability among FMS investors of a “soft landing” fell to 63% from 76%, while the probability of “no landing” increased to 25% from 14%. Meanwhile, the probability of a “hard landing” remained unchanged at 8%. In contrast, the post-election survey shows a lower probability of a “soft landing”, at 55%, and a higher “no landing” probability, at 33%.

Inflation expectations for the full month of November increased, reaching their highest level since March 2022. As clarified by the entity, expectations for lower short-term interest rates also fell to 82%. “Post-election results show that 10% expect higher inflation, the highest level since July 2021, and a net 73% expect lower short-term interest rates, the lowest level since October 2023,” they explain.

What has not changed is that investors consider higher inflation the main “tail risk”, a perception that has increased from 26% in October. Meanwhile, concerns about geopolitical conflict took second place this month at 21%, down from 33% last month.

Expectations and asset allocation

When assessing managers’ expectations, the November survey shows confidence that small-cap companies will outperform large-cap ones: “Post-election results show that 35% expect small caps to outperform large caps, the highest level since February 2021.” Additionally, a net 41% expect high-yield bonds to outperform high-quality bonds, the highest level since April 2021. According to the November FMS, the asset classes expected to perform best in 2025 are: U.S. equities (27%), global equities (27%), and government bonds (14%). Post-election results indicate that the top-performing asset classes in 2025 will be: U.S. equities (43%), global equities (20%), and gold (15%).

A notable finding is that respondents to the November FMS mentioned the Japanese yen (32%), the U.S. dollar (31%), and gold (22%). However, when asked after the elections, the order shifted: the U.S. dollar (45%), gold (28%), and the Japanese yen (20%).

Finally, respondents to the November FMS noted a disorderly rise in bond yields (42%) and a global trade war (35%). This position will not change with Trump’s arrival: “Post-election respondents answered similarly: a disorderly rise in bond yields (50%) and a global trade war (30%).”

Regarding the positioning investors are taking, the survey shows they are overweight in equities, emerging markets, and healthcare, while they are more underweight in resources (energy and materials), consumer staples, and Japan. If we contextualize this reflection in the long term, the survey shows that investors are “long” in utilities, bonds, banks, and U.S. equities, and underweight in resources (energy and materials), cash, and consumer staples.

UBS Private Wealth Management Adds Jason Zachter to Its New York Office

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UBS Private Wealth Jason Zachter New York

Jason Zachter has joined UBS Private Wealth Management from Morgan Stanley to strengthen the team at the 1285 Avenue of the Americas office, as announced by Thomas Conigatti, Market Director of the Swiss bank’s division.

Zachter worked for 14 years at Morgan Stanley, also in New York, and joins UBS to support their work with multigenerational families and institutions, according to information from the firm.

Accompanying the financial advisor is Debra Rosenbach, who will assume the role of Senior Registered Client Associate.

Zachter holds an MBA from Baruch College, City University of New York, according to his LinkedIn profile.

Increase in Exposure to Alternatives: A Challenge for the Diversification of Afores

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On October 25, the investment regime for Afores was updated, increasing the investment limit in structured instruments from 20% to 30%, according to CONSAR’s press release. This expansion is subject to conditions set by the regulator in the Circular Única Financiera (CUF).

In the coming weeks, criteria are expected to be defined regarding the allocation of these resources. They may be directed toward strategic infrastructure projects in Mexico or subject to prudential limits for investments in local and international alternatives to diversify portfolios and enhance workers’ retirement fund returns.

Currently, 10% of assets managed by Afores equates to approximately $35 billion, a significant amount. However, allocating this new capacity will be gradual. Over the past six years, the proportion of investments in structured instruments has grown by just 2.2 percentage points, from 6.1% in 2018 to 8.3% in September 2024, reflecting an average annual increase of only 0.4%.

As of September, Afores manage approximately $345.762 billion, distributed as follows:

  • 64% in debt (50% in government securities, 13% in corporate debt, and 1% in international debt);
  • 20% in equities (14% international and 6% local);
  • 8% in structured instruments, including alternative investments such as CKDs and CERPIs, with an estimated 4% in local and 4% in international investments. Including committed resources, this percentage rises to nearly 18% in alternatives.

Of the 4% in local investments, approximately 2% is in CKDs focused on sectors like infrastructure and energy.

Despite the progress in diversification since Afores were established in 1997, when 100% of resources were invested in debt, the journey toward full diversification remains ongoing.

From the launch of the first CKD in 2009 to June 2024 (Source: CONSAR, Quarterly Report, 2Q 2024, p. 34), the average return for Afores has been 8.1%, with structured investments contributing 0.2%. While increasing the investment limit from 20% to 30% will take time to materialize, how these resources are allocated will be critical for Afores’ long-term profitability.

Currently, among 89 active managers, 64 manage 135 CKDs, often with a single manager but occasionally two. 25 manage 212 CERPIs, with over 50 funds spread across various sectors, though exposure varies by Afore.

37 of 133 CKDs launched since 2009 report an IRR exceeding 8%. 32 of 210 CERPIs, primarily international investments since 2018, exceed this benchmark. Of the 13 CKDs that have matured (market value zero), five achieved an IRR above 8%.

Currently, 14 managers oversee CKDs in infrastructure and energy, managing $8.686 billion with commitments totaling $12.971 billion. Ten managers handle at least two CKDs.

The diversification of Afores gains importance considering reforms to worker contributions in 2020, which are expected to increase assets under management.

According to JP Morgan Asset Management’s February 2024 analysis, “Mexico Pension Fund System Overhaul: Afores in the Spotlight”, Afores are projected to manage $451 billion by 2026 and $659 billion by 2030.

The decision on how to invest the additional authorized 10% will be crucial in determining the future performance of workers’ retirement funds, presenting a significant opportunity to optimize Afores’ returns.

Rothschild & Co continues Middle East expansion with new Wealth Management office in Dubai

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Rothschild & Co Middle East expansion Dubai

Rothschild & Co announced the opening of its new wealth management office in Dubai, which offers independent investment advice to high net worth families, entrepreneurs, charities and foundations, and operates under a DFSA Category 4 license, the firm released in a statement.

The new office, located in Dubai International Finance Centre (DIFC) and already fully operational, is headed by Sascha Benz, a senior banker who has relocated from Rothschild & Co in Switzerland.

“Clients will benefit from increased access to locally based advisers, supported by the established Geneva-based Middle East team,” the Press Release said.

Laurent Gagnebin, CEO of Rothschild & Co’s Wealth Management business in Switzerland, says: “As our Wealth Management business continues to grow substantially, we are excited to be able to strengthen our presence in the Middle East with our new office in Dubai. With Sascha’s experience and existing broad network of qualified clients among local investors, business owners and wealthy local and international families, we are confident of growing a strong Wealth Management client base in the region, working closely with our successful Global Advisory and Five Arrows businesses here.”

Creating a local presence in Dubai is key for Rothschild & Co’s ambitious Wealth Management growth strategy, to invest in markets where it has an established network and reputation. Rothschild & Co’s Global Advisory business is one of the leading independent financial advisory firms in the Middle East, where it has been providing expert M&A, Debt Advisory and Restructuring, and Equity Advisory advice to a broad spectrum of clients for almost 20 years, the firm added.

Sascha Benz, Rothschild & Co’s Head of Wealth Management, Middle East commented: “This strategic expansion is a testament to our commitment to strengthening client engagement in the region. As a financial centre with impressive demographics and a growing GDP per capita, Dubai is a highly attractive market for us. Its international positioning acts as a gateway to the entire Middle East region.”

Principal® Names Deanna Strable as the New President and CEO, Succeeding Dan Houston

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Principal Deanna Strable new president CEO

Principal Financial Group has announced that its Board of Directors has appointed President and Chief Operating Officer Deanna Strable as the next President and CEO of the company, effective January 7, 2025. She will also join the Board of Directors of Principal in January 2025. Prior to being appointed President and Chief Operating Officer in August 2024, she served as the company’s CFO from 2017 to 2024, and before that, as President of its Workplace Benefits and Insurance business.

“I am incredibly proud of the company we have built, the culture and experience developed, and our unwavering commitment to our clients. It has been an honor to serve as president and CEO and work with so many talented employees around the world. Deanna has been a trusted partner and co-architect of the company’s growth strategy. I have the utmost confidence in her leadership and business acumen, and I look forward to working with her to ensure a smooth transition,” said Dan Houston.

“Deanna brings strategic vision, strong leadership experience, and a deep understanding of the company’s interconnected business units,” said Scott M. Mills, principal independent director of Principal’s Board of Directors. He added, “Deanna has developed extensive and deep experience over her 35 years with Principal and has held key leadership positions in shaping its strategy and business portfolio. We look forward to her continued leadership to drive Principal into the next phase of growth.”

According to the company, Strable has been instrumental in the strategy and business operations as Principal has experienced significant growth, and she has continuously strengthened the company’s market position, as detailed by the entity. She helped build the company’s Benefits and Protection business, as the first leader of its Special Benefits division, and led the integration with its life insurance business before assuming the role of President of the business unit in 2015.

“I am honored to be named the next President and CEO of the company and to build on the solid foundation we have established under Dan’s leadership. Throughout my career, I have seen Principal strengthen its position as a global financial services leader dedicated to helping clients build a solid financial future. Along with our dedicated and passionate colleagues around the world, I look forward to continuing our culture of innovation, inclusion, and service, with a focus on meeting client needs to drive growth and create value for shareholders,” said Deanna Strable.

Strable will succeed Dan Houston in the role. Houston has served as President and CEO of Principal since 2015 and has held several leadership positions during his 40 years with the company. During this time, he navigated highly complex business issues, from the financial crisis to industry reform and throughout the global pandemic. Under Houston’s leadership, Principal’s market capitalization grew from $13 billion to over $20 billion, as he focused the company’s strategy on high-value opportunities and growth drivers to serve clients and shareholders worldwide.

“Dan has been the driving force behind Principal’s evolution over the last 10 years,” said Mills. “He set the company’s growth agenda and led it through a significant transformation. Principal is in a strong position today and well-positioned for continued growth thanks to his leadership.”

Four Reasons That Will Fall Short of Growth Forecasts for Alternatives: Sovereign Funds, Individual Investors, Insurers, and Asia

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alternatives growth forecasts sovereign funds Asia

The growth of the alternative assets industry will be exceptional: it is estimated that the volume of private assets will increase to over $24 trillion, from a volume of $15 trillion in 2022, according to Preqin’s calculations. For now, the current alternative assets market still represents less than 11% of global GDP and only 2.4% of global financial assets, according to KKR. A study by the firm on the past, present, and future of the alternative market suggests that there are reasons to believe these figures may be conservative, as there are growth opportunities both by product, client base, and geographic areas.

1. Increased Growth of Sovereign Fund Allocations

Over the last decade, the maturity of alternatives as an asset class is evident, as Sovereign Wealth Funds (SWFs) – which the firm estimates to total at least $12 trillion in assets under management – have increased their exposure to private markets from around 16% in 2016 to 26% in 2024. However, conversations with sovereign funds from Latin America, the Middle East, and other parts of the world suggest a healthy desire to do more with alternatives, in addition to using private markets to broaden exposure to both emerging and developed markets.

In particular, “the reach and scale of sovereign funds is rapidly expanding beyond traditional infrastructure and real estate investments to include most private market asset classes across all geographies,” the report states.

At KKR, they believe the reason for this shift is twofold: in many cases, private markets can help boost returns and reduce volatility, especially as the correlation between stocks and bonds has increased. For example, sovereign funds can leverage private opportunities to invest excess revenues or diversify their total dependence on natural resources or their local economies. Alternative investments can also enable sovereign funds to acquire strategic stakes in local companies in economically important sectors.

2. Individual Investors Increasingly Turning to Alternative Products

The study notes that the individual investor market presents a significant growth opportunity. “Consider that the consulting firm Cerulli states that only 2.3% of assets from U.S. financial advisor clients invested in alternatives in 2023. However, this estimate pales in comparison to the 60% increase since 2007 in the number of individual investors with between $1 million and $5 million in the U.S., many of whom are seeking to compound their long-term returns more efficiently,” the firm explains.

In line with this view and with some of the customer work and surveys conducted by KKR’s Chief Investment Strategist, Paula Roberts, “allocation to alternative products may increase as private products become more accessible due to lower minimums, greater transparency, and greater liquidity.”

In fact, the report claims that all segments, from Ultra High Net Worth to retail investors, have significant growth potential, as the value of the illiquidity premium also becomes significant in a world where aggregate returns are falling. “We are not the only ones who think this way, as Cerulli also estimates that an additional $1 trillion could be invested in retail alternatives, with the total allocation from retail investors rising from the current $1.4 trillion to more than $2.4 trillion over the next five years,” KKR asserts.

3. Growing Appetite from Insurers

For insurers, the study suggests that uncorrelated private asset classes, especially higher-yielding ones, have gained importance. In a higher interest rate environment, they have created highly liquid asset funds that can offer global returns in support of reserves for claims when underwriting new business – something most want to do more of.

Moreover, the most recent investment environment has created a shift in mindset, allowing CIOs to focus on leveraging both liquid and illiquid allocations to build more resilient and all-terrain portfolios.

“We believe that the value of an uncorrelated asset in one’s portfolio increases materially if we are right in our base-case scenario, which points to the neutral rate for Fed funds now being higher; traditional government bonds can no longer diversify as much as they did in the past and global yields have compressed now that we’ve moved out of a low-rate, flexible monetary policy and restrictive fiscal policy environment,” the report reads.

The firm considers it “important” to highlight that diversification among issuers, sectors, and asset classes contributes to mitigating idiosyncratic risk, while diversification across asset classes helps mitigate systematic risk.

4. Increased Demand for Private Markets in Asia

Investments allocated to alternatives in Asia have grown at an average annual rate of 22% since 2000, nearly double the rate of private alternatives in North America and comparable in size to current private markets in Europe. “These numbers seem especially interesting given that we have seen a retreat in investment in private markets in China – from around 10%-12% to about 5% – while demand for alternatives from Asian clients is on the rise,” KKR explains.

The study also suggests that investment managers in Asia are seeking to diversify beyond equities, fixed income, and listed real estate, toward private equity, infrastructure, and private credit.

In line with the growth of Asian private markets, KKR has been increasing exposure to the region. Over the past five years, the firm’s allocation to Asia has grown from 10% to 16%, with a target allocation of 20% to 30%.

The firm justifies its optimism about Asia by stating that, of all the macro trends it observes, the rise in urbanization in Asia is one of the most powerful tailwinds it is monitoring: between 40% and 50% of the growth in urban population per decade, both in 2030 and 2040, will come from Asia. Additionally, urbanization generates demand for technology and energy efficiency. It also believes that key markets such as China, Japan, and India will spend significantly on a wide range of retirement and healthcare offerings in the future.

FINRA Plans to Increase Member Fees to Address Costs

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FINRA increase member fees address costs

FINRA has requested approval from the SEC to increase member fees to address the costs of supervising the industry.

In the proposal, FINRA outlines a phased approach to fee increases between 2025 and 2029, ultimately aiming to boost its annual fee revenues by $450 million, with total fees growing at a compound annual rate of 5.3% over this period.

The rise in expenses is largely attributed to increased salaries and accelerated hiring to meet expanding enforcement mandates, as well as higher spending on technology, including cybersecurity and data storage, according to FINRA’s submission.

FINRA highlighted the anticipated fee increases in its annual report from July, noting a net operating loss of $119 million in 2023, double the $60 million loss from the previous year, as reported by industry media. The regulator also expects to record further annual losses at the close of this fiscal year.

The implementation of new SEC mandates, including Reg BI, has required “substantial investments,” stated FINRA.

The increases will apply to a range of fees, including membership, qualification exams, arbitration, and other services. Some fees, such as the routine branch fee, will increase for the first time since 2013.

Registration fees will rise in 2028. For example, firms will need to pay $175 to submit a file for transferring a hired broker’s license, compared to the current $125. The cost of filing a U5 termination notice will increase from $50 to $70, as estimated by AdvisorHub.

Firms with more than 500 brokers will face over $400,000 in additional fees by 2029, according to the proposal. Firms with 10 to 150 brokers will see their contributions rise by more than $4,000 over the next five years.

The last time FINRA proposed fee increases was in 2022, with a plan to fund its operations up to this year, resulting in a total increase of $225 million.