Private Markets: An Accessible Promise of Profitability and Diversification for Private Banking Portfolios

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Private markets are one of the fastest-growing assets in recent times, driven by a complex environment in traditional markets, regulation allowing greater access for retail and private banking investors, and increasing financial education, which still requires significant focus. Investment opportunities are attractive in niches like private equity, and especially now in private debt, infrastructure, or real estate. This was a major topic of discussion among asset management, wealth management, and financial services firms at the IMPower Incorporating Fund Forum held in Monte Carlo, Monaco, last week.

Experts agreed on the growth potential offered by the so-called “democratization” of these markets, which have traditionally been exclusive to institutional investors and are now more accessible to wealth and retail channels through regulatory changes, innovations, and technology, as well as new vehicles like ELTIFs or semi-liquid structures.

Institutional investors have benefited from these opportunities for many years, even as public markets have declined and been battered by geopolitical volatility, argued Markus Egloff, MD, Head of KKR Global Wealth Solutions at KKR: “Many institutions have recognized the potential of these assets for years and have increased their allocations. Now, for the first time, thanks to innovation, these markets are more accessible,” he indicated.

“Retail clients deserve the right to invest in private markets as a way to generate consistent long-term results, just as institutional clients have done for many years,” added José Cosio, Managing Director, Head of Intermediary – Global ex US at Neuberger Berman. “It’s an effective way to diversify a portfolio without diluting long-term investment results, and choosing the right manager can really make a difference.”

Diversification, Volatility Management, and Profitability

These markets offer great opportunities for “new” investors in terms of returns, stability, and portfolio diversification: “It is critical to move beyond the traditional 60/40 portfolio to give clients access to value creation,” argued Marco Bizzozero, Head of International & Member of the Executive Committee at iCapital.

For Jan Marc Fergg, Global Head of ESG & Managed Solutions at HSBC Private Bank, the principle of diversification is at the “core” of investment, and it is necessary to move beyond equities and fixed income to add a broader set of opportunities to portfolios that contribute to profitability. “Private markets help in terms of diversification to manage volatility, more so than a traditional 60/40 proposal.”

Similarly, Romina Smith, Senior MD, Head of Continental Europe at Nuveen, explained the importance of going beyond these proposals: “Adding private markets leads to positive solutions, higher returns, and a more stable portfolio. The narrative needs to shift towards having a fixed allocation to private markets.”

“The public markets are undergoing a change: there is a lot of concentration in sources of return and the universe of listed companies is decreasing, a trend that will continue as the incentives for it are diminishing. The value proposition for private markets is on the table,” added Nicolo Foscari, CAIA-CIO, Global Head of Multi Asset Wealth Solutions at Amundi. He further stated: “There is an important change to consider: private markets should not represent a marginal allocation in asset allocation, but rather start thinking of it all together as a whole, like a mosaic, and conduct a top-down and risk concentration analysis in tandem.”

“90% of returns in the public equity markets, such as the S&P500, come from 10 stocks, so the concentration risk is very real, and in fixed income, there is more illiquidity than recognized,” added Stephanie Drescher, Partner, CPS and Global Head of Wealth Management at Apollo. In her opinion, “we have reached a critical point where the industry recognizes that the perception of public markets being safe and private markets being risky is changing. Both simultaneously entail risks and are safe, and it all depends on selection and their complementarity in portfolios, which requires education. There should be a healthier dialogue about this topic.”

The Importance of Education and More Flexible Structures

In this regard, Bizzozero agreed that there is an inflection point around this perception between public and private markets and highlighted the value of financial education to bridge the gap between different investors. George Szemere, Head of Alternatives EMEA Wealth Management at Franklin Templeton, also emphasized education to bridge the investor gap on both sides of the Atlantic: “We must recognize that we are in the early stages of adopting private markets, especially in Europe compared to the U.S. (…) As diversification, liquidity management, etc., goals are achieved and understood, alternative investments will increase. Education is key to this.”

Because “it is an asset not suitable for everyone and must be understood. Democratization is underway but requires a lot of education,” stressed Egloff, warning of the existence of some less scalable strategies that are not as easy to access outside the institutional world.

Precisely to allow greater access to private markets, several structures have been proposed in recent years, from ELTIFs to pure illiquid funds or semi-liquid funds (open-ended or evergreen). Jan Marc Fergg of HSBC Private Bank made clear the coexistence of different structures, more or less liquid, to respond to the demand of different investors: “Open-ended structures also allow for diversifying portfolios and facilitating exposure to private markets; open and closed structures are there for clients and will complement each other,” he argued.

Pablo Martín Pascual, Head of Quality Funds at BBVA, also argued for incorporating private markets into clients’ portfolios via semi-liquid funds, ELTIF 2.0, or Spanish semi-liquid funds. But with a warning: “Semi-liquid funds are the elephant in the room. As an industry, we must be responsible to avoid past disasters – like those in Spain with evergreen real estate funds in 2008 – and it is therefore crucial to perform good selection and due diligence, choose the most prudent funds, and educate private banking.”

Business and Technology

Beyond the benefits for investors, Romina Smith (Nuveen) focused on the opportunities this opening presents for asset managers: “Institutional investors have been leading the demand for private markets, while private banks have been underexposed; but greater product availability and increased education are opening up the space for these latter investors, which means more opportunities for the industry.”

Many also agreed that technology could play a key role in bringing private markets closer to the wealth and retail worlds and in making investment more efficient. “The way wealth investors interact with managers is different from how institutional investors do. Technology simplifies and makes the interaction between LPs (limited partners) and GPs (general partners) more efficient,” added Szemere.

“The demand is still far off: we have a long way to go, although there is a lot of innovation that will make this journey much easier,” said Drescher.

Opportunities on the Table

At the event, experts spoke in various roundtables and conferences about opportunities in private assets, including private equity, private debt, real estate, and infrastructure. They debated the percentage these should occupy in portfolios, always depending on the investor’s profile. From Amundi, they highlighted the importance of looking not only at the percentage but also at what lies beneath, as it’s not the same to invest in assets aimed at generating “income,” like private debt, as it is to invest in capital, like private equity: “Both considerations should go hand in hand: a macro analysis must be conducted, but also look very carefully at what’s beneath,” said Foscari.

Egloff from KKR reminded attendees of the benefits of private equity, but emphasized the importance of selection: “Private equity has outperformed public markets over the past 25 years, especially in times of stress, among other things because allocating capital long-term offers better entry points. But not all managers can weather the storms: in the U.S., there are more private equity managers than McDonald’s branches,” he compared.

While it always depends on the risk profile, HSBC mentioned opportunities in Real Estate and Infrastructure, as they offer stable incomes tied to inflation and infrastructure is linked to key themes such as digitization or data centers, according to Fergg.

For Romina Smith from Nuveen, there are opportunities in private equity, always with the premise of selecting a good manager. Other two attractive segments are real estate, which offers good diversification, high returns compared to other assets and can benefit from macroeconomic stabilization and increased demand, and real assets, such as agriculture and forestry, which offer inflation hedging and are strong diversifiers.

Thomas Friedberger, Deputy CEO & Co-CIO at Tikehau Capital, highlighted opportunities in private credit, private equity, and real estate: “We see opportunities especially in private credit, with a very attractive risk-return ratio, always selectively. We are more cautious about capital investment and bet on megatrends such as energy transition. We also see opportunities in real estate, a sector that has been quiet in recent years but now could be an opportunity to buy at a discount.”

In the realm of liquid alternatives – already outside private markets – Philippe Uzan, Deputy CEO, CIO Global Asset Management at IM Global Partner, highlighted the opportunity in vehicles with liquidity as the basis: “The most important change in recent times is the fact that cash has returned and offers more attractiveness than some bonds. We see opportunities in products that use cash as the basis, such as some liquid alternatives: they could be attractive to generate diversification and absolute returns tactically,” he added.

The Momentum of Private Credit

Returning to private markets, many speakers highlighted the opportunity that private credit investment represents now. “There is a lot of growth potential in everything related to private credit: it only accounts for 12% of these markets,” said Foscari from Amundi. He defended the benefits of private markets for improving portfolio diversification and as sources of alpha, capturing the illiquidity premium, taking advantage of and managing different stages of the cycle, and exposure to different managers. In a higher interest rate scenario, he showed his bet on opportunities in private credit and infrastructure.

“The momentum for private credit is very good for several reasons: while I don’t think returns will be as strong this year as in the past, they can still offer double-digit yields,” also recalled Gaetan Aversano, MD, Deputy Head, Private Markets Group at Union Bancaire Privée, UBP. The expert mentioned the advantages of this asset, which in his opinion faces better times than traditional fixed income, with higher volatility. “There is room for both assets, but private credit is experiencing stronger momentum than a few years ago,” he added.

José María Martínez-Sanjuán, Global Head of Fund Selection at Santander Private Banking, also described an attractive environment. He cited a Preqin survey, according to which 50% of investors seek to increase their allocation to the asset, and 35% want to maintain their positions, showing the strength of demand, which can be explained by attractive yields offered – higher than other fixed income assets –, stable spreads over time, or diversification (allowing exposure to sectors not represented in traditional indices), among other factors such as restrictions on lending activity by banks following Basel IV.

The arguments and investment possibilities favor private credit, something the expert sees in his institution, with direct lending as one of the favorite strategies. “At Santander, we have $3.1 billion in the alternative business, which has experienced strong growth in recent years at a rate of 23%-25%, but the penetration ratio is only 1%, leaving much room for growth,” he recalled. “Almost 35% of our clients are invested in private credit, and 80% of that volume – around 800 million euros – is invested in direct lending, the most popular and senior strategy within the asset, offering advantages such as not having to navigate a company’s capital structure to achieve attractive returns, similar to equity but with more seniority,” he explained at the Fund Forum in Monaco.

Among the asset’s risks, Gaetan mentioned a higher interest rate scenario for a longer time, which could put some companies under pressure and increase defaults, raising dispersion and the importance of manager selection.

Private Credit in a Fixed Income Allocation

For Candriam experts, private credit is also a favorite in their fixed income allocation: “It makes sense to invest across the entire credit market spectrum, with a particular conviction in IG but also opportunities in assets like private credit. With good asset allocation and stock selection, you can achieve good levels of yield and diversification,” defended Nicolas Forest, CIO of the manager, at the forum.

At the firm, they maintain their conviction in investment grade credit in Europe, which has become a “core” asset in portfolios, as it offers stable returns and provides diversification; they bet on global high yield in the long term, benefiting from improved quality and technical factors (excluding U.S. HY, because it is expensive); and they highlight the diversification potential offered by private credit in Europe, also benefiting from increased mergers and acquisitions activity. Their private credit fund – in collaboration with manager Kartesia – invests, through primary and secondary markets, in small and medium-sized European companies and has provided a solid track record of risk-adjusted returns over time.

Is Donald Trump Inflationary?

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Is Donald Trump Inflationary? A group of 16 Nobel laureates signed a letter stating that Trump’s return would bring higher prices. “Many Americans are concerned about inflation, and there is, rightly, the question of whether Trump will reignite it due to his fiscally irresponsible budgets,” they said in the letter.

Among the signatories are George A. Akerlof, Sir Angus Deaton, Claudia Goldin, Sir Oliver Hart, Eric S. Maskin, Daniel L. McFadden, Paul R. Milgrom, Roger B. Myerson, and Edmund S. Phelps.

Some Data from Trump’s First Term

Donald Trump became the 45th president of the United States in January 2017, the year in which the U.S. gross domestic product (GDP) grew by 2.3%.

For the second year of his term, the GDP grew by 3% and advanced by 2.2% in 2019, according to data from the Bureau of Economic Analysis, leading to an average of 2.5% during his administration after the 3.5% decline in 2020 due to the coronavirus pandemic, the largest drop since 1946.

During 2017, his first full year in office, the Consumer Price Index (CPI) was at 2.5% annually and reached a peak of 2.9% in June and July 2018, according to the Bureau of Labor Statistics.

In 2019, the index fell below the Fed’s target range, reaching 1.5% in February, before rebounding as previously noted.

The pandemic caused a downward trend in inflation in 2020, reaching 0.1% in May and 0.3% in April. It finally closed with an annual variation of 1.4%, the lowest rate in five years.

Tariff Surge and Tax Cuts

Returning to the letter, the signatories specifically reference a study by the Peterson Institute, which explains that the tariff surge and tax cuts proposed by Trump would be some of the keys to higher inflation in a potential Republican presidency.

“Eliminating the federal income tax and replacing it with revenue from high tariffs would cost jobs, increase the federal deficit, and lead to a recession with an inflationary spike,” they stated.

One key point is that tariff increases would directly strengthen the dollar, which would be counterproductive, as the appreciation of the dollar after a generalized increase in U.S. tariffs is necessary to maintain balance in global goods markets; this phenomenon would cause an excess supply of foreign goods and more inflation.

For the experts who signed the letter warning about the risks of more inflation with Donald Trump, the global dominance of the dollar would lead to a counterintuitive situation, where a revaluation of the currency would not help combat inflation from imports.

The effect is clear because, unlike most countries that benefit from lower import prices when experiencing a currency appreciation, the United States does not enjoy that advantage because almost all its imports are billed in its own currency.

Due to this, the U.S. price index would not benefit from a sharp and immediate drop in import-related prices resulting from the strength of the dollar, so the inflationary impact of a significant increase in tariffs would be severe, especially since the United States is currently at full employment.

Other Approaches and Analyses

However, other analysts are more optimistic and expect that if Trump returns to the White House, he will not fulfill his promise of a 10% universal tariff on all countries. Nevertheless, they also warn that an average tariff increase from the current 2.5% to 4.3% would have clear implications for prices.

Additionally, a tax cut process with a massive budget deficit could reignite inflation, and according to experts from the German bank Allianz, this combination of lower taxes and higher tariffs would force the Federal Reserve to pause its easing cycle in 2025, with U.S. 10-year bond yields remaining above 4%.

Regarding immigration, the policy outlined so far by Trump, which he would apply in his administration, could also further pressure inflation: the tight U.S. labor market is one of the major factors explaining the resilience of the CPI.

According to the Federal Congressional Office, the United States recorded net immigration of 3.3 million people in 2023, with similar projections for 2024. The increase in the workforce through immigration has allowed employment to grow without increasing inflationary pressures, and lower migration figures could have the opposite effect.

“Higher tariffs and the possible deportation of immigrants would be negative for U.S. economic growth,” analysts from Morgan Stanley told the Spanish newspaper El Economista.

“This blow to the economy would likely encourage the Federal Reserve to cut interest rates, reducing short-term yields, explaining a longer path to price stability,” they said.

“If Trump increases tariffs as proposed, the economy would likely suffer a recession shortly after,” said Mark Zandi, chief economist at Moody’s, according to reports in the Spanish newspaper.

The credit agency even warns of a scenario with interest rate hikes by the Fed to curb a potential inflationary escalation. It is clear that there are fears of an inflationary Trump for the United States and the world.

The Scenario of EdR AM for the Second Half of the Year: “Nearly Ideal” Economic Environment and New Political Obstacles

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Edmond de Rothschild AM unveiled in its investment outlook for the second half of 2024 that the scenario investors will face in the latter half of the year will be marked by a “nearly ideal” economic environment but also by new political obstacles.

The economic environment is more favorable than expected for capital markets for three reasons, according to the firm. Firstly, disinflation continues its course, despite its non-linear trajectory and the fact that the last phase of disinflation normalization is the most challenging to execute. Additionally, labor shortages in the United States have finally begun to ease, supported by a significant influx of immigrants. Lastly, the economic scenario is influenced by interest rate cuts that have begun in Switzerland, Canada, and Europe. Edmond de Rothschild AM assures that “they should start before the end of summer in the United States, knowing that the Federal Reserve, despite all the surprises in terms of inflation, has ruled out the option of another rate hike.”

In this environment, experts remind us that historically, equity markets have recorded positive – and often solid – returns during economic landing periods preceding a first rate cut in the United States. The prospect of monetary easing, starting from decent levels, continues to suggest that the Fed will effectively manage the slowdown and avoid a recession.

Benjamin Melman, Global CIO of Edmond de Rothschild AM, states that observing the returns recorded so far this year, “it seems that history repeats itself, which reinforces our conviction that, given the strength of the global economy, it makes sense to remain well-exposed to equities.” The expert admits that since the beginning of the year, he has been tactically oscillating between neutrality and overexposure, but also that when the Fed first lowers its benchmark rates, “we will have time to review the economic outlook and adjust our main allocation decisions,” though for now, “confidence prevails.”

Can Political Turmoil in France Become a European Financial Crisis?

If the “Rassemblement National” party wins or in the case of a “fragmented Parliament,” it is possible – though unlikely – that the new French government will embark on a spending program that expands the deficit, according to EdR AM. They emphasize that this situation “will not prevent Brussels from opening an Excessive Deficit Procedure,” and that “credit agencies could continue downgrading France’s rating.”

The OAT-Bund spread could widen a bit more, according to the firm, “but a major crisis seems avoidable, especially if the prospect of reducing the deficit is postponed and not buried if Brussels and Paris reach a mid-term agreement.” A favorable scenario could even be imagined in the case of a “fragmented Parliament” and a new political reshuffle, which could lead to an alliance between “governmental” parties of the left, center, and right, allowing the country to continue its initial commitment to reducing the public deficit.

So far, European assets have benefited from an increasingly favorable combination of factors: a stronger-than-expected economy, ongoing disinflation, and a European Central Bank that has taken the reins of monetary policy. Furthermore, the proximity of the U.S. elections is causing a wait-and-see attitude across the Atlantic. However, Edmond de Rothschild AM’s investment teams have chosen not to overweight European assets, waiting for the unstable political balance in France to become clearer, with its implications for Europe.

U.S. Presidential Elections

While the re-election of President Joe Biden would not have significant repercussions on capital markets, the return of Donald Trump to the White House is expected to have implications, according to the firm. Firstly, it would be negative for long-term sovereign bonds due to an inflationary policy involving crackdowns on immigration and plans to deport 11 million undocumented immigrants, as well as new import taxes and a fiscal policy that would not reduce but rather increase the country’s significant public deficit.

However, it would be positive for equities, “especially thanks to the return of a deregulation policy and plans to renew the tax cuts he initiated in 2016, including a possible reduction in corporate tax.” However, the firm notes that while it is difficult to assess the pressure that would be exerted on long-term rates, if long-term yields were to rise too quickly, “it would have adverse effects on equity markets.”

Investment Policy for the Second Half of the Year

Melman recalled that a year ago, the economy posed many questions, “as disinflation remained timid and in the United States, a recession was feared.” However, he now admits that political difficulties were quite contained at that time. “Since then, the issues have reversed. While the economic environment now seems quite promising, it is being overshadowed by political problems. The only constant has been the continued deterioration of the geopolitical environment. This means that there may be some volatility, triggered by French political turmoil or the potential return of Trump to the White House. The good news is that markets can sometimes overreact to political crises, and this can create some attractive opportunities.”

Consequently, Edmond de Rothschild AM’s investment teams are confident in both equities and fixed income. Regarding the latter, they are considering reducing their exposure to long maturities, but as late as possible, to take into account the U.S. elections. In fact, if the economic slowdown materializes quickly in the United States, “all fixed income markets would benefit.”

Within equity markets, while major geographical decisions (United States vs. Europe) will be largely determined by the aforementioned political issues, the investment teams have a preference for Big Data and Health, and for European small-cap companies, which trade at very attractive valuations given the more favorable economic environment and the monetary easing that has already begun.

In fixed income, Edmond de Rothschild AM continues to favor carry strategies and hybrid debt (both corporate and financial) and plans to increase its exposure to emerging debt once the Fed’s pivot signal is strong enough.

Manutara Ventures Invests in the Expansion of Proptech BuildLovers to Latin America

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(cedida) José Manuel Martínez, CEO y cofundador de BuildLovers

In a bid to drive technological transformation in the construction industry, venture capital fund Manutara Ventures participated in the latest funding round for the startup BuildLovers. This investment aims to boost the technological development of the proptech and kickstart its operations in Chile.

According to a statement, the early-stage specialized vehicle – originating in Chile and operating in Silicon Valley and Miami – invested 300,000 dollars in the firm. This represents half of the capital raised in the round, they added.

The company aims for greater autonomy through technology, the initiation of operations, and sales growth in Chile and Spain. In the future, they are considering expanding operations throughout Latin America or the United States from Chile, they detailed.

“In the short term, our main objective is to establish a solid presence in Chile, using this market as a starting point or hub for our future expansion. In the long term, we aim to consolidate our position in the Latin American market and continue innovating in the industrialized and customized housing construction sector,” said José Manuel Martínez, CEO and Co-Founder of BuildLovers, in the statement.

The focus is also on how to reach clients once the platform is launched and on building alliances with financial entities. The digital platform, which already operates in Spain, has sold more than 20 homes since its launch and has over 75 projects in the pipeline.

Thus, the proptech joins Manutara’s portfolio, which includes several recognized startups such as Xepelin, ETpay, and OpenCasa. Overall, the total valuation of the portfolio exceeds 1 billion dollars, reaching a value more than ten times the initial investment.

Investment Story

The connection between the two entities in the entrepreneurial ecosystem was established when the startup made the first approach, according to the venture capital fund’s statement.

“On our part, we observed, thanks to an investment in Fund I, that there is a certain difficulty in acquiring homes at a reasonable price and within an appropriate timeframe, a problem that BuildLovers helps to solve. Additionally, the construction industry has seen very little technological innovation from a client perspective,” said Nicolás Moreno, Portfolio Manager of Manutara Ventures.

Martínez, on the other hand, highlights the fund’s “solid reputation in supporting innovative projects and visionary entrepreneurs” from Chile.

What factors ultimately led them to invest in BuildLovers? The portfolio manager emphasizes that “the team is fundamental to any investment” and assures that the founding team of the startup has “what it takes to take this startup to the next level.”

Furthermore, the investment firm highlights that “model validation is very relevant, as this fund seeks to invest in more mature companies, which goes hand in hand with the traction achieved to date. The traction was quite promising, considering that the technology was in its MVP (minimum viable product) stage to validate the model. Having the model validated at the time of investment is very positive for us,” adds Moreno.

Assets in UCITS and AIF Funds Doubled Over the Last Decade to Reach €20.7 Trillion

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The European Fund and Asset Management Association (EFAMA) has published its annual Fact Book on the behavior and main trends of the European investment fund industry, as well as a general review of regulatory developments in the 29 European countries. One of its main conclusions is that in the last decade, assets in UCITS and AIFs (alternative investment funds) have doubled, reaching €20.7 trillion, demonstrating the industry’s robustness.

“This year’s Fact Book shows that UCITS are delivering good returns with declining costs, attracting both European and foreign investors. While this is good news for the financial well-being of those investors, there are still too many European households not reaping the benefits of investing in capital markets. This is a crucial year of change within EU institutions, with a clear recognition by lawmakers that we need to further encourage retail investment to address the pension gap and support economic growth. To achieve this, we need decisive actions that simplify investment, reduce bureaucracy, and bring us closer to a Savings and Investment Union,” says Tanguy van de Werve, Director General of EFAMA.

Among the data collected in the report, it is noted that net sales of fixed-income UCITS in 2023 were greatly influenced by the evolution of interest rates. Net inflows were driven by the pause in central bank rate hikes and expectations of rate cuts in 2024. It also highlights that inflows into money market funds were mainly driven by short-term interest rates. In contrast, multi-asset UCITS funds experienced their first net outflows in ten years.

One of the trends identified in the report regarding UCITS funds is that large vehicles are gaining more importance in the European market. “UCITS funds with less than €100 million represented less than 4% of the total net assets of UCITS in 2023, with a market share that is gradually decreasing. At the same time, the share of funds with more than €1 billion in net assets is increasing,” the report indicates.

According to the document, the share of US equities in the allocation of equity UCITS has increased significantly. Specifically, it doubled from 22% to 44% in the last decade. EFAMA explains, “This is because US equity markets outperformed Europe, particularly large US tech stocks.”

The Appeal of UCITS Funds

One reason European market funds are attractive is their costs, which, according to EFAMA’s report, have been gradually decreasing. In fact, between 2019-2023, the average cost of long-term active UCITS decreased from 1.16% to 1.06%, while UCITS ETFs dropped from 0.23% to 0.21%. “This trend is expected to continue, driven by greater transparency in fund fees and intensified competition among asset managers,” they indicate.

According to EFAMA, foreign investors are an increasingly significant group of EU fund buyers. Evidence of this is that, in the past five years, foreign investors purchased an annual average of €276 billion in EU investment funds. In comparison, €174 billion were sold cross-border within the EU, and €196 billion were bought domestically.

Additionally, EU retail investors continued to buy funds in 2023 but shifted their focus to bonds. “Given the reluctance of banks to increase interest rates on savings accounts, national governments in countries like Italy and Belgium successfully attracted domestic retail savers by offering bond issues with higher yields,” the report indicates.

In general terms, the average annual performance of all major types of UCITS was positive. Equity UCITS delivered an average of 14.2%, multi-asset UCITS generated 8.7%, bond UCITS 5.7%, and money market funds 3.3%. “With an EU inflation rate of 3.4% for the year, most UCITS proved to be an excellent investment option in 2023,” EFAMA adds.

Sustainable Investment

Something that caught EFAMA’s attention is that sales of sustainable funds slowed down. “Net sales of dark green Article 9 SFDR funds declined compared to 2022. Conversely, Article 6 funds (without a sustainability focus) saw a shift, attracting €41 billion in net inflows. These trends were mainly driven by the growing popularity of ETFs, as most ETFs are Article 6,” the report indicates.

New York Remains the World’s Richest City in 2024

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New York, the San Francisco Bay Area and Tokyo are the three wealthiest cities in the world, according to the latest report by Henley & Partners.

“The document offers a fascinating view of the changing face of global wealth, revealing a landscape where investment migration programs have emerged as a powerful tool for high-net-worth individuals looking to capitalize on the world’s most promising cities,” highlights Juerg Steffen, Chief Executive Officer of Henley & Partners.

The report shows the clear leadership of the United States, with 11 cities within the ranking of the world’s 50 richest cities. At the top is New York, with an astonishing 349,500 millionaires, followed by the Northern California Bay Area (305,700) and Los Angeles (212,100). “China also has a notable presence, with five cities in mainland China and seven cities if we count Hong Kong (a Special Administrative Region of China) (143,400) and Taipei (30,200). Beijing (125,600 millionaires), Shanghai (123,400), Shenzhen (50,300), Guangzhou (24,500), and Hangzhou (31,600) have seen significant increases in their millionaire populations over the past decade,” points out Steffen. In his opinion, this dynamic reflects broader changes in the global economy, where the United States maintains its traditional strongholds, while China’s rapid urbanization and growing technological prowess play an increasingly important role in wealth creation.

Focusing on the table, New York leads with 349,500 millionaires, 744 centimillionaires (with investable wealth of over $100 million), and 60 billionaires who, together, surpass $3 trillion, which is more than the total wealth of most major G20 countries. Hot on its heels, in second place, is the Northern California Bay Area, which includes San Francisco and Silicon Valley. “The Bay Area has enjoyed one of the highest wealth growth rates in the world, increasing its millionaire population by a massive 82% over the past decade, and now hosts 305,700 millionaires, 675 centimillionaires, and 68 billionaires,” notes Steffen.

Regarding Tokyo, which topped the group as the world’s richest city for a decade, it has suffered a 5% decrease in its resident high-net-worth individual (HNWI) population over the last ten years, and now ranks third with just 298,300 millionaires. Notably, the city-state of Singapore has risen two places to fourth in the global ranking after an impressive 64% increase in millionaires over the past 10 years, and it seems likely to soon overtake Tokyo as the richest city in Asia. Widely considered the world’s most business-friendly city, Singapore is also one of the top destinations globally for migrating millionaires: approximately 3,400 high-net-worth individuals moved there in 2023 alone, and the city now boasts 244,800 millionaire residents, 336 centimillionaires, and 30 billionaires.

The Decline of London

London, the world’s richest city for many years, continues to fall in the rankings and now occupies fifth place with only 227,000 millionaires, 370 centimillionaires, and 35 billionaires, a 10% decrease over the past decade. In contrast, Los Angeles, home to 212,100 millionaires, 496 centimillionaires, and 43 billionaires, has risen two places over the 10-year period to sixth place, enjoying a remarkable 45% growth in its wealthy population. Paris, the richest city in continental Europe, maintains its seventh place in the ranking with 165,000 millionaire residents, while Sydney climbs to eighth with 147,000 HNWIs, after experiencing exceptionally strong wealth growth over the past 20 years.

“The 24% gain in the S&P 500 last year, along with the 43% rise in the Nasdaq and the staggering 155% rebound in Bitcoin, have boosted the fortunes of wealthy investors. Additionally, rapid advancements in artificial intelligence, robotics, and blockchain technology have provided new opportunities for wealth creation and accumulation. However, even as new opportunities arise, old risks persist. The war in Ukraine, which has seen Moscow’s millionaire population drop by 24% to 30,300, is a stark reminder of the fragility of wealth in an uncertain and unstable world,” adds Steffen, who considers a key factor driving growth in the world’s richest cities to be the strong performance of financial markets in recent years.

China’s Millionaire Boom

China has established a notable presence in the latest ranking of the world’s 50 richest cities, with 5 cities in mainland China on the list and 7 cities if we include Hong Kong (a Special Administrative Region of China) (with 143,400 millionaires) and Taipei (30,200). Beijing (125,600 millionaires) is ranked in the Top 10 for the first time after a 90% growth in its millionaire population over the past decade. Although Hong Kong has dropped four places over the 10-year period to ninth in the ranking, Shanghai (123,400), Shenzhen (50,300), Guangzhou (24,500), and Hangzhou (31,600) have seen significant increases in their millionaire populations.

Andrew Amolis, head of research at New World Wealth, explains that Shenzhen is the world’s fastest-growing city for the wealthy, with its millionaire population soaring by 140% over the past ten years. “Hangzhou has also seen a massive 125% increase in its number of high-net-worth residents, and Guangzhou’s millionaires have grown by 110% over the past decade. When it comes to potential wealth growth over the next decade, cities to watch include Bengaluru (India), Scottsdale (USA), and Ho Chi Minh City (Vietnam). All three have enjoyed exceptional growth rates of over 100% in their resident millionaire populations over the past ten years.”

As for the Middle East, Dubai easily takes the crown as the region’s richest city, with an impressive 78% growth in its millionaire population over the past 10 years. Currently ranked as the 21st richest city in the world, it is very likely that this modern wealth magnet will enter the Top 20 in the coming years. Although Abu Dhabi, the oil-rich capital of the United Arab Emirates, has yet to secure a spot in the Top 50 ranking, growth rates above 75% make it a likely contender in the future.

While no African or South American city features among the world’s 50 richest cities, the report identifies several rising stars that could well join the ranks of the world’s leading wealth centers in the near future. Nairobi, Kenya’s bustling capital, now has 4,400 millionaires, a 25% increase over the past decade, driven by its thriving tech ecosystem and growing middle class. Cape Town, South Africa’s stunning coastal jewel, has enjoyed a 20% increase in millionaires, making it the country’s preferred city, now home to 7,400 of them.

World’s Most Expensive Cities

Monaco, arguably the world’s top safe haven for the super-rich, where average wealth exceeds $20 million, is also the world’s highest-ranked city in terms of per capita wealth. More than 40% of the Mediterranean principality’s residents are millionaires, the highest proportion of any city globally. It also tops the list of the world’s most expensive cities, with apartment prices regularly exceeding $35,000 per square meter.

New York City ranks second, with prime real estate prices averaging $28,400 per square meter, followed by London ($26,500 per m²), Hong Kong ($25,800 per m²), Saint-Jean-Cap-Ferrat in France ($25,000 per m²), and Sydney ($22,700 per m²).

Dominic Volek, group head of private clients at Henley & Partners, says that 7 of the world’s 10 richest cities are in countries that host investment migration programs actively encouraging foreign direct investment in exchange for residency or citizenship rights. “You can secure the right to live, work, study, and invest in major international wealth hubs such as New York, Singapore, Sydney, Vienna, and Dubai through investment. Being able to relocate yourself, your family, or your business to a more favorable city or having the option to choose from several different cities around the world is an increasingly important aspect of international wealth and legacy planning for private clients. The more jurisdictions a family can access, the more diversified their assets will be, the lower their exposure to regional and country-specific risks, and the greater the opportunities they will be able to enjoy. Similarly, cities and countries can use investment migration as an innovative funding mechanism to attract the world’s wealthiest and most talented to their shores,” concludes Volek.

Thornburg Signs William “Billy” Rogers and Jodan Ledford

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Thornburg has added William “Billy” Rogers as the new Chief Operating Officer (COO) and Jodan Ledford as Head of Institutional to its team, according to a statement obtained by Funds Society this Thursday.

The new hires arrived a few months after the hiring of Richard Kuhn as head of product and Jonathan Schuman as head of international, as previously reported by Funds Society.

Billy Rogers, as the new COO of Thornburg, will determine the strategic direction of technology and operations and drive interdepartmental initiatives to ensure the organization’s continued success and growth, the statement adds.

Before joining Thornburg in 2024, Rogers worked at PIMCO for 12 years in various roles, including product management, compliance officer, and head of regional operations and advisory. In 2010, he left PIMCO to join Janus Henderson, where he spent eight years as a fixed income trader and four years leading their global unconstrained macro office.

Subsequently, Rogers spent three years as an executive consultant, helping to integrate and lead a large West Coast retail SMA business. Additionally, he has participated in numerous fintech startups throughout his career.

He holds a BBA in business administration from the Anderson School of Management at the University of New Mexico and an MBA from the Marshall School of Business at the University of Southern California.

Jodan Ledford will be responsible for developing and executing sales strategies, building and maintaining high-level relationships, and representing the company within the institutional investment community, according to the information obtained by Funds Society.

Before joining Thornburg in 2024, Ledford was CEO of Smart USA, a retirement fintech provider. Previously, he was managing director of clients at Legal & General Investment Management America, where he led a team in sales, marketing, investment solutions, product strategy, and portfolio management.

Earlier, Ledford was an executive director at UBS Global Asset Management, where he developed investment solutions and risk management strategies for large institutional clients and led a mid-market initiative for medium-sized US corporate pension plans.

He also worked as an associate in the investment banking division of J.P. Morgan, developing risk management strategies for companies with large pension plans. Ledford began his career as an actuarial analyst at Watson Wyatt Worldwide.

He holds a master’s degree in applied statistics from the University of Miami and a bachelor’s degree in mathematics from Emory University.

The Afores Transfer 1.344 Billion Dollars to the Pension Fund for Welfare

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As required by the President of Mexico, Andrés Manuel López Obrador (AMLO), on Monday, July 1, his government began delivering the first pension supplements to retired workers.

The date was significant for the president and his administration because it marked the sixth anniversary of what he considers his historic electoral victory in 2018, and the start of an economic and social regime change known as the “Fourth Transformation.”

One of the initiatives promoted by the president a few months ago was the creation of the Pension Fund for Welfare (FPB), a state-managed fund that will be used to supplement workers’ pensions so that they can retire with 100% of their salary, up to a cap of approximately 932.10 dollars at the current exchange rate.

The first pension supplements were to be delivered on July 1, a promise that has been fulfilled.

These pensions will consist of the pension the worker receives from their individual account (replacement rate) and the supplement that brings their pension to 100% of their salary at the time of retirement, provided it does not exceed the cap of 16,777.77 pesos and pertains to the 1997 law generation.

Afore Transfers

In a statement, the Mexican Association of Retirement Fund Administrators (Amafore) reported compliance with the law requiring the transfer of resources to the Pension Fund for Welfare.

“As part of the process to carry out the transfer, the Afores, in collaboration with the authority, conducted a thorough review to determine which accounts belonged to people over 70 years old in the case of IMSS and 75 years old in the case of ISSSTE, and who had not contributed to social security for one year,” said the institution.

Thus, the total amount of resources sent to the trust established at the Bank of Mexico was approximately 1.34 billion dollars.

Amafore indicated that in the coming days, it will send a certificate of transfer of the resources from this sub-account to the last registered contact point of each worker.

Additionally, in the next month of September, an account statement will be generated with the latest movements under the Afore administration. Subsequently, the account statement delivered will include the performance reports of the Pension Fund for Welfare.

The Labor Market With Pre-Pandemic Numbers Brings Fed Cuts Closer

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The U.S. labor market continues to show signs of recovery, with a steady trend in job creation and a decline in the quit rate, suggesting normalization and cooling. This keeps the door open for rate cuts later this year, according to analysts.

Job vacancies increased to 8.14 million in May, which is above expectations. However, the trend remains a decline in vacancy figures as the U.S. economy moves closer to pre-pandemic levels.

The quit rate was the major warning sign of an imminent increase in labor costs that caused inflation to spike in 2021 and remain elevated since then. However, the marked decline in the quit rate suggests that the labor market is cooling, as companies are less willing to pay more to hire staff or workers themselves are becoming more reluctant to move.

Similarly, The Conference Board states in its analysis that “the modest cooling of the labor market in the second quarter, from heated to robust, should be welcomed by the Fed.”

Additionally, the weakening of consumer demand and, consequently, the growth of real GDP in the first half of 2024 should have brought some calm to the labor market, adds The Conference Board.

However, with no signs of a collapse in the labor market, the Fed can maintain a restrictive monetary policy to drive consumer inflation back towards the 2 percent target.

“We continue to forecast that the unemployment rate will peak this year below the natural rate of 4.4%,” says the study, which adds that inflation is likely to stabilize at 2% by mid-2025, allowing for a 25 basis point rate cut at each of the November and December 2024 meetings.

According to ING Bank, wage growth and inflation should continue to cool, keeping the door open for rate cuts later this year, states an ING Bank report.

Fed Chairman Jerome Powell, speaking at the ECB Forum on Central Banking in Sintra, Portugal, acknowledged that the economy and labor market have been strong, but that inflation is showing “signs of resuming its disinflationary trend” along with a “rebalancing in the labor market,” adds the report signed by James Knightley, Chief International Economist, U.S.

While Powell declined to provide details on the timing of any potential rate cuts, markets are now pricing in a roughly 75% chance of a cut at the September FOMC meeting.

“If we get another couple of core inflation numbers at or below 0.2% monthly, unemployment exceeds 4%, and more evidence of cooling consumer spending growth, we believe the Federal Reserve will begin to shift monetary policy from restrictive territory to ‘slightly less restrictive.’”

UBS Private Wealth Management Announces the Arrival of a Team in Tampa

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UBS Private Wealth Management announced this Tuesday that the Reynolds, Grindel & Hall Wealth Management Group has joined the Tampa, Florida office from Morgan Stanley.

The team, consisting of Jeffrey Reynolds, David Grindel, and Jeremy Hall, who together bring nearly 70 years of industry experience, will be under the leadership of Managing Director and Florida Market Director, Greg Kadet.

“I am delighted to welcome Jeff, David, and Jeremy to UBS,” said Kadet, who oversees UBS’s Wealth Management and Private Wealth Management businesses in the Greater Florida region.

“These talented financial advisors employ a comprehensive planning approach to meet clients’ financial needs and are excellent additions as we continue to expand our capabilities and presence in the region,” the statement said.

Reynolds is a multigenerational financial advisor with over 30 years of experience serving families, organizations, and business owners, focusing on understanding each client’s wealth as well as their short- and long-term goals, according to the firm’s statement.

“He and his team create tailored plans to help clients achieve their wealth goals,” the statement adds.

Grindel is a certified financial planner with 20 years of industry experience. He strives to build long-term, trusting relationships and help guide clients to simplify their financial lives while ensuring their financial plans remain aligned with their goals and objectives over time, says the firm.

Hall is also a certified financial planner who focuses on helping clients navigate assets, estate planning strategies, retirement planning, and insurance needs, UBS adds.

“His approach is based on designing financial plans that reflect an integrated view of clients’ multigenerational and legacy goals,” the statement concludes.