Florida Council of 100 Presents Strategy to Add 200,000 Jobs

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The Florida Council of 100 announced an economic development strategy to leverage the private sector and propel Florida into a new era of success by creating around 200,000 high-paying jobs by 2030, according to a statement accessed by Funds Society.

The initiative includes several industries in its strategy, such as aerospace, financial services, e-commerce, clean technology, biotechnology, and manufacturing, to promote regional economic specialization and expansion.

The “Beyond Sunshine” Initiative

The strategy, named “Beyond Sunshine,” outlines a path to sustain and accelerate Florida’s economic growth by concentrating resources to foster higher-wage economic clusters in the state’s six main regional economies and three rural areas of opportunity.

Research by the Florida Council of 100 indicates that investment in these clusters and regions could add up to 200,000 new high-wage jobs in Florida by 2030, contributing nearly $100 billion in added GDP to the fourth largest economy in the country.

The Beyond Sunshine strategy outlines three priorities to build on this solid foundation and ensure continued economic growth:

  • Foster Existing Higher-Wage Economic Clusters: Focus investment on regional clusters of opportunity in sectors poised for additional growth, such as aerospace, financial services, e-commerce, clean technology, biotechnology, and manufacturing, to drive regional economic specialization and expansion.
  • Creation of Higher-Wage Jobs: Coordinate with universities, state colleges, career and technical education (CTE) programs, and industry partners to align education and workforce development with higher-paying job opportunities and to catalyze economic activity across all sectors.
  • Elevating Florida’s Economic Success Story: Change perceptions both nationally and internationally to highlight Florida as the best place to start a career, generate wealth, and raise a family.

The Florida Council of 100, a group of over 150 business leaders dedicated to fostering economic growth and improving the quality of life in Florida, will coordinate the implementation of the Beyond Sunshine strategy. They will work in partnership with regional economic development organizations, educational partners, and the state to direct investment into higher-wage sectors, align talent with opportunities, and address challenges for sustained expansion.

Texas Advisory Team Joins NewEdge Advisors from J.P. Morgan

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A Dallas-based advisory team, managing approximately $580 million in client assets, will join NewEdge Advisors, the RIA partnership platform based in New Orleans, owned by NewEdge Capital Group. Fortis Wealth Advisors is composed of advisors Erik Linstrom, Ben Roth, Shawn Stanley, and Kris Cawthon; all of whom left J.P. Morgan Securities to join NewEdge Advisors, bringing extensive experience. The team will use Goldman Sachs Custody Solutions for custodial services.

“We were drawn to NewEdge Advisors’ strong portfolio management solutions, which generate significant time and cost efficiencies,” said Kris Cawthon. “Choosing Goldman Sachs to safeguard our clients’ assets was not a decision we took lightly, and we are excited to offer their solutions and expertise to our clients.”

Extensive and Solid Experience

The Fortis Wealth Advisors team joining NewEdge Advisors boasts extensive and solid experience among all its members. According to SEC records, Erik Linstrom worked at AllianceBernstein for several years before joining JPMorgan in 2010.

Ben Roth began his career in the industry in 1983 at PaineWebber, 41 years ago, and worked at several other firms before joining JPMorgan in 1996. Shawn Stanley worked briefly at Chase in 2000 before several other firms and joined JPMorgan in 2014. In 2004, Kris Cawthon worked at Merrill Lynch, then Morgan Stanley, and later Chase before joining J.P. Morgan Securities in 2013.

Exponential Growth

NewEdge Advisors is an RIA partnership platform formed in 2021 as part of NewEdge Capital Group, and its asset growth has been exponential, currently managing approximately $25 billion in assets according to their figures. Just last week, the firm announced that Stonebridge Financial Partners, an 18-member team based in Michigan with $540 million in client assets, joined from Carson Group.

Earlier this year, NewEdge attracted another Carson team: Nesso Wealth, based in Connecticut, a 20-person team overseeing $262 million. The team consisted of nine advisors and 11 support staff members.

NewEdge Advisors was originally Goss Advisors, co-founded by Alex Goss and Neil Turner in 2020, before the launch of its parent company the following year. NewEdge Capital Group includes NewEdge Wealth, which Goss described as predominantly focused on UHNW families. NewEdge Advisors operates as the company’s more traditional independent model.

New Amnesty and Taxes: The Impact of the Framework Law on the Argentine Tax System

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The main legislative initiative of Javier Milei’s administration, the Framework Law, was approved in Congress after six months of processing and negotiations. On the fiscal side, Argentina has launched a new tax amnesty that exempts assets up to 100,000 dollars from costs. Additionally, the Income Tax is reinstated, and the Personal Assets Tax is reformed.

The specialized tax team at KPG Argentina explains the changes regarding capital regularization.

The regime provides the opportunity to regularize undeclared assets in Argentina and abroad, including stocks, real estate, money in accounts, and crypto assets. The amount to be declared is determined based on a progressive scale and specially designed conditions to encourage adherence to the regime. Taxpayers who are considered fiscal residents as of December 31, 2023, and non-residents who were once fiscal residents in Argentina, can adhere to the tax amnesty. As a condition for non-residents who once were residents to enter the regularization, they must regain the status of fiscal resident in Argentina, which implies being taxed on global income and assets.

Adhering to the regime means that tax authorities cannot claim taxes on the declared assets and/or the operations that generated them.

Assets up to 100,000 dollars—considering the family group up to the first degree of kinship—can be declared at no cost (0% rate). Assets exceeding 100,000 dollars are taxed at progressive rates of 5%, 10%, or 15%, depending on the stage of adherence to the regime.

Under special conditions, declared funds exceeding 100,000 dollars will also have no cost (0% rate) if the money is deposited in an Argentine banking institution and kept there until December 31, 2025.

Taxpayers can declare assets in Argentina and abroad under this regime. It is particularly attractive for those who do not intend to repatriate their assets from abroad since the regime allows assets to remain outside the country without an obligation of repatriation.

Impact on Argentine Taxes with the New Law

The Argentine government’s tax reform entails an increase in taxes, with the controversial reinstatement of the Income Tax (salary or income tax) affecting around 800,000 workers. The tax will impact more people but at a lower rate, especially for higher salaries.

Additionally, the minimum threshold for the Personal Assets Tax (wealth tax) has been increased.

The “Country Tax,” which taxes imports and is part of the legal framework needed to lift exchange controls, remains in place.

Summary of Changes by KPG Experts

Personal Assets Tax: The Special Entry Regime for the Personal Assets Tax has been incorporated, allowing for the advance payment of the tax for the years 2023 to 2027 inclusive, at a rate of 0.45% on the assets existing as of December 31, 2023, multiplied by 5, resulting in a rate of 2.25% for that period.

The benefit, in exchange for this advance tax payment, is fiscal stability until 2038 concerning national patrimonial taxes.

Income Tax: With the approval of the “tax package” in Congress, the Cedular Tax that taxed workers’ income for the current fiscal year was repealed, and the general Fourth Category regime was reinstated with retroactive effect to January 1, 2024.

The new “floor” for the Income Tax will be approximately 1,800,000 pesos (about 1,321 dollars at the MEP dollar rate) per month for single workers and 2,300,000 pesos (1,688 dollars) per month for married workers with two dependents. A progressive tax scale will be applied, starting at 5% of net taxable income, reaching a maximum of 35%.

Real Estate Transfer Tax: The 1.5% tax on the sale of properties purchased before December 31, 2017, is repealed.

Monotax: The parameters and amounts of the regime are updated, effective from January 1, 2024, allowing those excluded for exceeding parameters during 2024 to re-enter.

The Framework Law includes a moratorium on the payment of various taxes: “a regime for regularizing tax, customs, and social security obligations due by March 31, 2024, inclusive, with total waiver of fines and substantial interest reductions. The new moratorium explicitly includes the possibility of regularizing the Solidarity and Extraordinary Contribution (“wealth tax”) created during the COVID-19 pandemic. In addition to the possibility of entering the debt into payment plans with the indicated waivers in installments (the number of installments varies according to the type of taxpayer, from 36 to 84), the new law allows for the waiver of non-final fines and interest when the principal is paid before March 31,” explain the KPMG experts.

HMC Capital Will Bring 20 New ETFs From U.S. Asset Manager First Trust to Brazil

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The ETF market in Brazil is set to soon receive more product offerings: 20 new tickers from U.S. asset manager First Trust will arrive in Brazil through HMC Capital. According to April Reppy Suydam, Head of Distribution for First Trust in Latin America, the assets should be available by the end of the year, distributed across three or four fronts.

The manager is targeting the institutional market but will also cater to individuals. “At this moment, we are prioritizing thematic and multi-strategy solutions,” says April. First Trust is the sixth-largest ETF manager in the U.S., with $158.7 billion distributed in this segment, the most representative part of the total $225 billion in assets managed.

“There are disruptive AI strategies; both related and unrelated to clean energy. We have healthcare, ‘green’ buildings not related to ESG, as well as geographic solutions with assets from Japan and India,” says the Head of Distribution in Latam.

HMC: Focusing on Diversification

According to Felipe Durán Amoedo, ETF and cryptocurrency specialist at HMC Capital, the new assets aim to meet the diversification needs of some institutional players, such as local investment funds. “We see many assets, banks, and family offices seeking diversification solutions,” he says, highlighting that the distributor also sees “growing activity among individual investors” for ETFs.

A significant part of the demand, Amoedo says, comes from the technology sector. “The technology theme is hot,” he states. AI, cloud computing, and cybersecurity are present in recent conversations with HMC’s institutional clients. Fixed income remains active in the house’s portfolio, which should incorporate products from the category with actively managed ETFs.

Investor Education as a Fundamental Step

However, it is not enough just to bring new products to the country, according to April Suydam. The Latam Distribution Head at First Trust states that an important step for the manager is to expand knowledge about the potential benefits of ETFs. “Although ETFs have existed in Brazil for 20 years, they are still just beginning to be used,” she says.

“We have a lot of work to do for certain investors, but I am excited because there is an evolution, which we knew would happen and has to do with diversification from an educational perspective,” she says, referring to individual investors. “The institutions we work with already understand it well. But it’s another thing to convey this to the common Brazilian investor, competing against all the biases towards fixed income,” she states.

“However, I already notice a difference in investments, which are gradually expanding to other products. Personally, I have a lot of patience, and we will be here in Brazil for a long time.”

AllianceBernstein Names Its First Director of Artificial Intelligence

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AllianceBernstein (AB) announced Andrew Chin as the firm’s first Director of Artificial Intelligence.

As a member of AB’s Operating Committee with a 27-year career at the firm, Chin previously served as Head of Investment Sciences and Solutions at AB. Throughout his career, he has held various positions, including Head of Quantitative Research and Data Scientist, and served as the firm’s Chief Risk Officer for over a decade.

“The appointment of Andrew to this new position recognizes our company’s progress with AI and its future potential,” said AB’s Chief Operating Officer, Karl Sprules.

In his previous role, he was Head of Investment Sciences and Solutions and a member of the firm’s Operating Committee. Additionally, he has held several leadership positions in quantitative research, risk management, and portfolio management in the firm’s New York and London offices since joining AB in 1997.

Chin holds a Bachelor’s degree in Mathematics and Computer Science, and an MBA in Finance from Cornell University.

As AI continues to play a fundamental and transformative role in enhancing AB’s operational, business, and investment research procedures, and improving efficiency across all corporate functions, “we look forward to having an industry veteran like Andrew lead our company into the future in this newly created role,” added Sprules.

Chin also appreciated the firm’s commitment to the new role.

“This new role signifies the evolution not only of my professional trajectory at AB but also of the increasingly significant role that data science and artificial intelligence are playing across the financial services industry,” said Chin.

The Fed Could Afford to Be Patient

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We explained last week that more and more signs point to an acceleration in the cooling of the labor market, which would stimulate savings, discourage consumption, and later, investment.

As an immediate consequence, the nascent recovery in manufacturing activity experienced since the beginning of the year—largely due to the resilience of the U.S. consumer and the fiscal push from the Joe Biden administration—would be threatened.

Although GDP has been slowing since the third quarter of 2023 (4.9% vs. 1.3% for the first quarter of 2024), preliminary data from the S&P PMI indices indicate that the United States remains in the lead in June, despite investors betting on a globally synchronized GDP growth scenario. The composite indicator (manufacturing and services) for the eurozone, the UK, or Japan points in the opposite direction.

In fact, other surveys, both regional and national (ISM, LCMI), anticipate that the U.S. may end up following in the footsteps of those other economies.

Leading indicators of industrial activity, such as confidence in the residential property sector (NAHB), financial conditions and their effect on production costs, or sentiment in the semiconductor sector (measured by stock prices), are showing signs of fatigue. Similarly, the recovery cycle in the new orders subcomponent of the ISM survey takes an average of 18 months to travel from trough to peak, which is the time that has passed since the last valley to the most recent peak.

As we can see in our regression model, U.S. manufacturing momentum could begin to slow over the summer. Likewise, it is worth monitoring the situation in Europe: the German IFO (manufacturing), worse than expected, may be an early sign that the U.S. consumer push and fiscal support are beginning to fade. And although in Europe, unlike on the other side of the Atlantic, households still have a savings cushion, they are also more sensitive (especially in Italy or Spain) to interest rate hikes, which will increase the cost of about a third of the loans they are currently enjoying over the next few months.

The nascent signs of this weakness may explain the optimism of CEOs of large companies regarding the business environment their firms will face over the next 12 months, which would imply an increase in investment. Interestingly, the perspective of SME managers or that reflected by the sub-indices is quite different and points in the opposite direction. The tug-of-war between the restrictive monetary policy implemented by the Fed and the public spending expansion driven by the Democratic Party has an amplified effect on medium and small-sized companies, which are responsible for two-thirds of the new jobs created in the country. Lower-income households, but with a higher propensity to consume, are shown to be the most sensitive in this situation. In fact, recent news and behaviors from companies like NKE (Nike), KRUS (Kura Sushi), WBA (Walgreens), H&M, and L’Oreal suggest that consumers are beginning to suffer.

Meanwhile, Bloomberg’s macro surprise index has dropped to its lowest levels in the past five years, while Citi’s is one standard deviation below its 20-year average. Despite this, expectations for rate cuts remain stable and point to a 0.25% cut by the Fed on November 7 (with the U.S. presidential elections two days later?), and a 76% probability of an additional adjustment in December.

This perspective makes some sense given the Fed’s dependence on the publication of macro data, which sometimes reflect what has happened rather than what may happen, and a macro context—which, in our opinion, is quite uncertain—as evidenced by the distribution of “dots” among central bank members who only foresee one action before the end of the year, those who foresee two, and those who would not act until 2025 (7, 8, and 4 bankers, respectively).

Several governors and presidents of regional Federal Reserve banks have shared a range of scenarios regarding the evolution of the labor market and inflation in the coming months. Christopher Waller, for example, warned months ago of an increase in unemployment once job vacancies exceeded 4.5%. As shown in the graph, it is at 4.7%, and decreasing.

As we can see in the graph of the latest BofA survey among managers (FMS), the consensus remains a soft landing, although looking back, this is the least plausible alternative. Since 1965, the United States has experienced 12 monetary tightening cycles, resulting in 8 recessions and only one true “soft landing.”

With a gradual decline in inflation series but growth close to or slightly above trend, the Fed could afford to be patient in initiating the rate cut cycle.

However, the lack of consensus within the U.S. central bank is similar to that shown by the BofA report and reflects the lack of visibility in the macro environment we have been discussing from this column.

Recent comments from Mary Daly (San Francisco Fed), Patrick Harker (Philadelphia Fed), or Michelle Bowman show the weak conviction of their positioning: “In my view, we should consider possible scenarios that could unfold in determining how monetary policy decisions [of the Federal Open Market Committee] may evolve,” Bowman recently explained.

And although other colleagues of Jerome Powell (Lisa Cook or Alberto Musalem) skew their discourse towards a “no-landing” scenario that would again dust off the possibility of rate hikes, the fact is that the objectives for core inflation (PCE) and the unemployment rate for the end of 2024 outlined in the latest Summary of Economic Projections have already been reached, and the risk is that they will be exceeded in the coming months.

At the time of publishing this comment, we are still awaiting the release of the May figures for personal spending and income and core PCE inflation. The next Fed meeting, where they will update their forecasts, will be on September 17-18. There are three months of employment, inflation, and growth data between now and then, which, if they follow the trajectory of April and May, will undoubtedly result in a “dovish” surprise.

The divergence in the RSI of the weekly graph of the yield on the American bond, the macro surprise index, and the shift in speculative positions may continue to appreciate public debt.

Elections in France: Impact on the Market and Possible Scenarios

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From June 30 to July 7, France faces its early elections. The call for these general elections arises from the high degree of polarization and fragmentation in the country, as shown by the results of the European elections. According to experts, the outcome of this election could limit the French government’s ability to address its most urgent challenges, such as the rehabilitation of public finances.

Since the announcement of the dissolution of the National Assembly on June 9, the French market has experienced a notable decline compared to its European counterparts. “From June 10 to 13, the CAC 40 fell by 3.6%, compared to a 1.4% loss for the Stoxx Europe 600. In fixed income, the spread between the 10-year German bond and its French counterpart widened by almost 50%, rising from around 50 to 75 basis points. This level reflects 2017 conditions, which already included concerns related to the French presidential elections. If the spread between France and Germany surpasses this level, the comparison point would then be the eurozone crisis of 2011-2012, when there were concerns about the union’s survival. At that time, Greece was in default, and the National Front, the former name of the National Rally party, advocated for France’s exit from the common currency,” says Alexis Bienvenu, fund manager at La Financière de l’Echiquier.

However, could this retreat in French financial markets go much further? According to Bienvenu, it is impossible to know, as there are numerous political scenarios, and market surprises are uncontrollable in the short term. “The market could perfectly adapt to a situation where politics is not dictated by the stock exchanges, according to General de Gaulle’s quote. However, the Italian scenario shows that any policy of a heavily indebted state will increasingly depend on the market, despite its efforts to avoid this. Ignoring this reality means ultimately becoming even more dependent on it over time,” he comments.

According to analysts at Edmond de Rothschild AM, the spreads of French public debt with Germany could have widened by approximately 26 basis points in recent days, but a very pessimistic scenario has been ruled out for now. Additionally, spreads widened across Europe, from about 10 basis points in the strongest countries to around 20 basis points in some peripheral ones.

“Other risk assets also fell in recent days. High-yield spreads widened by 28 basis points, and European equity markets also declined, with France being the most affected country. The contrast with a buoyant Wall Street is revealing. The flight to quality supported 10-year German and US public debt, whose yields fell by 24 and 23 basis points respectively, leaving the absolute yields of French OATs virtually unchanged,” added analysts at Edmond Rothschild AM.

A Source of Reassurance

According to La Financière de l’Echiquier (LFDE), markets have already begun to reduce country-specific risk premiums. “Proof of this was the issuance of French public debt on June 20, which garnered reassuring subscription levels and issuance rates. The Paris Stock Exchange has also begun to recover part of the decline accumulated a week after the dissolution. Investors seem to see the horizon clearing gradually, although it remains uncertain,” they argue.

According to the asset manager’s analysis, the most costly measures are progressively disappearing from programs and could do so even more with the exercise of power. While electoral programs aim to seduce voters, the exercise of power may require realism and rigor to maintain it.

“The maxim borrowed by several French politicians, stating that promises only bind those who believe in them, seems not to have completely deceived financial markets. Political uncertainty is very present in France, undoubtedly, but as seen in recent elections in Mexico or India, it could automatically dissipate with a quick resolution starting July 8,” added La Financière de l’Echiquier.

And a Source of Instability

For Thomas Gillet and Brian Marly, analysts of sovereign countries and the public sector at Scope Ratings, “these elections will be crucial in determining President Macron’s ability to drive France’s fiscal agenda and reformist momentum ahead of the 2027 presidential elections.” However, they recognize that it is unclear to what extent French voters’ preferences in parliamentary elections will differ from European elections, “which typically favor protest votes with relatively low participation,” they explain.

Gilles Moëc, chief economist at AXA Investment Managers, believes that the surprise legislative elections called by the French President have affected markets beyond French borders. In his opinion, “the uncertainty about the macro-financial outcome of July 7 is high, as the fiscally extravagant programs of both the far-right and the left-wing alliance compete with the more orthodox offer of the centrist majority in power. According to the limited available polls, the most likely scenario is a divided Parliament. France has much more capacity than the United States to avoid government shutdowns. However, a suitable majority is needed to implement the significant discretionary fiscal correction measures implied by the current French Stability Program.”

Moëc considers a thorny issue to be the role of the European Central Bank (ECB) if pressure on French and possibly peripheral bond markets increases. “At this time, given the absolute level of yields, there is no need for the ECB to intervene, but further widening cannot be ruled out in case of complete fiscal paralysis in Paris or if an administration led by the National Rally decides to adopt a very extravagant stance. The ECB’s tool to re-enter the bond market, the Transmission Protection Instrument, gives the Governing Council enormous leeway to decide whether to act, but the documentation still makes it clear that the recipient country must comply with the EU’s fiscal surveillance framework. This is where the problem could lie. Indeed, although the National Rally no longer questions the existence of the monetary union, it remains a sovereignist party, and its willingness to accept instructions from Brussels in the event of a financing crisis could be limited,” he warns.

Possible Scenarios

In the opinion of analysts at Edmond de Rothschild AM, the President is betting on the disorganization of opposition parties but has taken a significant risk and opened up a period of uncertainty. “The main hypothesis is that the National Rally (RN) only achieves a relative majority, especially after the left-wing parties managed to form a coalition, but the current momentum could still lead to an absolute majority. A Parliament without a majority cannot be ruled out: a non-partisan figure would be needed to lead a technocratic administration, as in Italy. Markets also bet that the RN will introduce significant changes to its program, especially to the most costly ideas. Again, like Georgia Meloni. The party has already indicated that this could happen: Jordan Bardella, from the RN, has said that the cancellation of the recent pension reform would be postponed to a later date to address emergencies,” they note.

Florian Spaete, fixed income strategist at Generali Investments, points out that although it is difficult to predict an outcome given France’s two-round electoral system, there are two main scenarios: “The far-right National Rally (RN) becomes the largest group but without an absolute majority in Parliament (stalemate), or the National Rally achieves an absolute majority (probably with the support of dissident center-right deputies), with Macron remaining President but having to cohabit with the new government.”

Additionally, he mentions other less likely scenarios, such as a majority left-wing coalition, which would probably have a negative impact on French assets, although this would be mitigated by the strong presence of social democrats (PS), who would likely oppose the radical left’s proposals. “Macron, and the markets, would dream of a national centrist coalition, but it is unlikely that the numbers would work, and both the Socialist Party and the Republicans would hesitate to enter such an unnatural alliance,” Spaete clarifies.

JPMorgan Announces Growth Plan in Miami, Aiming to Capitalize on South Florida’s Wealth

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Miami has become a strategic point for investors from the United States and various parts of the world, to the extent that it has been dubbed the “Wall Street of the South.” In light of this, major financial institutions are keen to establish or consolidate their presence in the area, as demonstrated by JPMorgan Chase.

The largest banking institution in the United States, with financial assets around $2.4 trillion, daily operations of nearly $10 trillion in over 120 currencies and more than 160 countries, and safeguarding more than $32 trillion in assets, according to a letter sent last April by JPMorgan CEO Jamie Dimon, announced that it will increase its presence in Miami and South Florida with the intention of accommodating up to 400 employees in the coming months. With this expansion, the bank’s downtown Miami office will double in size.

According to a company statement, the office currently has over 500 employees across all JPMorgan Chase business lines and functions. This new two-year project will also renovate and expand the firm’s Miami Client Center to create a world-class meeting and function space for hosting client and employee events.

Additionally, the largest U.S. bank announced that it has leased 13,000 square feet for an office in West Palm Beach, while also planning to open three financial centers in South Florida early next year. The goal is to consolidate more than 60 employees from various business lines and functions who are currently spread across different locations in Palm Beach County.

JPMorgan and the Miami Economy: The Messi Factor

A recent independent study revealed that JPMorgan Chase contributes approximately $1.9 billion annually to the Miami economy and generates around 5,200 additional jobs in various local industries.

JPMorgan’s expansion in South Florida is expected to add an average of $151 million in economic activity to the region, as well as 380 construction jobs, according to the bank’s statement.

In his recent annual letter, Jamie Dimon highlighted JPMorgan’s commitment to driving economic growth throughout Florida. The bank has made over $46 million in philanthropic and business investments in South Florida and nearly $65 million statewide to increase homeownership opportunities.

JPMorgan is leaving nothing to chance. Earlier this year, it signed a naming rights agreement for the soccer stadium in Fort Lauderdale where Lionel Messi plays. The iconic Argentine world champion has become a significant attraction and sales and image force in the region by his mere presence.

Including Miami as an essential factor in its U.S. expansion, Dimon’s emphasis on the bank’s investments in this part of the country in his most recent annual report says it all.

Special Purpose Vehicle (SPV): An Advantage or a Disadvantage When Investing in Private Markets?

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According to a survey conducted by CSC among professionals working in private markets, 29% believe that the necessary conditions are in place for an increase in investments and deals. Additionally, 46% think that the market context will improve in the next two to five years, which will lead to an increase in special purpose vehicles (SPVs), also known as special purpose entities.

The study, whose authors assert that SPVs play a fundamental role in optimizing investments in private markets, provides a geographical perspective. For instance, respondents in the Asia-Pacific region are the most cautious, with only 16% believing that market conditions will improve within a year or are already improving. This contrasts with North America and Europe, where 37% and 33%, respectively, already see improvements or expect improvements within a year.

Among other key findings of this survey is the significant role that SPVs and private debt are playing in increasing investment in private markets. Specifically, 67% of debt professionals believe that market conditions will improve in the next two to five years.

“Our study has found a much more optimistic sentiment among senior professionals in private markets after years of significant market volatility, which bodes well for the broader investment sector and the global economy. Private debt professionals were much more optimistic than their colleagues in other sectors. This supports the trend we are seeing more generally in the market, which is leaning towards private debt,” says Thijs van Ingen, Global Market Head of CSC Corporate and Legal Solutions.

CSC’s study comes at a time when private markets have begun to recover after significant volatility and headwinds in recent years. The firm notes that the use of SPVs, critical structures at the heart of the global investment system, has also grown, but so has the complexity faced by managers due to increased multi-jurisdictional regulation, stricter reporting requirements, and the need for richer levels of data granularity.

According to Delphine Jones, Managing Director of CSC Client Solutions, SPVs have become increasingly complex and involve more management work. “The SPV ecosystem has also become relatively inefficient, with a lot of unnecessary complexity. It is in this environment that outsourcing to specialized SPV administrators is also growing,” Jones comments.

This complexity has led many firms investing in private markets to opt for outsourcing part of the management of these special vehicles. In this regard, the CSC survey shows that the main criterion for outsourcing is “finding a good administrator,” according to 66% of respondents. Other criteria mentioned, in order of relevance, include finding a reputable administrator, technology and data and reporting capabilities, and access to a sophisticated technology platform. Additionally, respondents involved in real assets like private equity and debt indicated that they would like technology to provide a centralized portal for a single view of all SPVs (57% and 59% respectively).

“Many cited technology as an important factor when selecting their SPV administrator, highlighting the importance of technology in SPV management. This includes optimizing deal sourcing, investment, helping portfolio performance, and many other areas. Regardless of the strategy, fund managers aim to have a technology-enabled approach and seek to achieve an all-in-one administrative solution as much as possible. While it may seem advantageous to use multiple outsourcing partners, having too many partners can actually make processes even more complex. Consolidating their SPV administration to a single global outsourcing partner helps to optimize their processes,” concludes Thijs van Ingen.

Invesco Launches a New ETF Focused on China’s Most Innovative Companies

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Invesco has announced the launch of Europe’s first ETF providing investors with specific access to the ChiNext 50 Index, composed of the largest and most liquid companies in China’s technology and other innovative sectors. According to the asset manager, the Invesco ChiNext 50 UCITS ETF will replicate a capped version of the index to reduce concentration risk and ensure sufficient diversification.

Following this announcement, Gary Buxton, Head of EMEA ETFs at Invesco, highlighted one of the advantages of their global business model is having a strong local presence in the world’s major financial centers. “In collaboration with Invesco Great Wall, our joint venture investment management company in mainland China and a leading specialist in the Chinese market, we are pleased to announce, together with the Shenzhen Stock Exchange, the launch of a UCITS ETF linked to the ChiNext 50 Index. Our new ETF provides investors with unique access to China’s long-term growth potential, particularly given its focus on the innovation-driven transition to a new economy. As the ChiNext 50 Index celebrates its tenth anniversary in June, this ETF also marks a milestone in the index’s overseas expansion, accelerating the internationalization of Chinese A-shares,” Buxton added.

The asset manager believes that China is one of the fastest-growing markets in the world, with steady progress in key areas of economic growth, including technology. The country’s current five-year plan includes a goal to increase research and development (R&D) spending by at least 7% per year from 2021 to 2025, focusing on areas expected to yield high-value patents. For equity investors, increased R&D spending can be a significant driver of corporate earnings growth.

The ChiNext 50 Index reflects the performance of 50 of the largest and most liquid companies listed on the ChiNext market of the Shenzhen Stock Exchange. The capped index replicated by Invesco’s ETF comprises the same securities as the parent index but applies limits such that, at each quarterly rebalance, no individual security can have a weighting greater than 8%, and the aggregate weighting of securities with weightings above 4.5% cannot exceed 38%.

“While the index is not subject to explicit sector restrictions or requirements, investors can logically expect an overweight in technology, industry, and healthcare. The fund will invest in companies from rapidly growing innovative segments such as artificial intelligence, electric vehicles, renewable energy, robotics, automation, and biotechnology. Compared to broader Chinese indices, the average company in the ChiNext 50 Index has used more than double its operating income over the past six years for R&D financing to drive innovation,” highlighted Laure Peyranne, Head of ETFs Iberia, LatAm & US Offshore at Invesco.

The ETF will employ a replication method that aims to hold, as far as possible and feasible, all the securities in the index in their respective weightings but will use sampling techniques in circumstances where this is not reasonably possible.