Posted inFSA Spy

The FSA Spy market buzz –26 August 2022

Blue Owl hires, Perpetual wants to merge, Texas goes badass on ESG managers, The Hong Kong Exodus rolls on, Uranium jumps; Active vs Active, Side hustles and much more.
Market Spy

It may be the dog days of August when the sweaty weather favours cold beer, a hammock and a Thai beach, but instead all investment eyes will be on Jackson Hole. Central Bankers will be spinning platitudes at their annual shindig about their (mis)management of the global economy. Today, Fed Chair, Jay Powell, is expected to give an inkling on where rates are going. With the US housing market already in a tailspin, his tightrope balancing act of keeping inflation in check whilst not killing off the economy, seems an unlikely pipe dream. Hold on to your hats.

News reaches Spy that Christy Chan has moved roles. Christy has been pinched from Value Partners in Hong Kong, where she focused on Wealth Distribution, by Blue Owl. Christy will continue to focus on the wholesale market; her new role is Principal, Private Wealth Distribution. Blue Owl is an American, New York-headquartered alternatives asset manager with more than $120bn in AuM. The firm is known for its direct private lending and real estate strategies. Christy also had stints at Neuberger Berman and Standard Chartered Bank.

Another week another asset management merger. This time it is taking place Down Under. Australia’s Perpetual has announced it is acquiring Pendal. The combined entity will result in a manager with assets under management of more than A$200bn. The market was rather unimpressed and sent its shares tumbling yesterday, falling 8%. With the recent track record of active manager mergers around the world proving less than stellar, Spy can hardly blame Perpetual’s shareholders from running for the hills. We can but see if this one plays out better and all those ephemeral “cost savings” and “synergies” materialise as promised.

And boom, just like that, the culture wars arrive in asset management. Spy is not talking about whether we should have pronouns or not. The battle ground is ESG. The State of Texas passed a law last year that, in essence, wants state pensions and school funds to shun asset managers and banks who care about ESG. The logic is simple: their attitude may harm local oil interests. BlackRock, Jupiter, Nordea, Schroders, BNP Paribas, UBS and Credit Suisse, among others, are targets of the law. A list of 348 mutual funds have been earmarked for active “divestment”. Expect a lot of back and forth as asset managers and banks defend their active investment in oil to Texas, whilst simultaneously telling the vocal ESG lobby elsewhere that they also care about the world and are promoting green energy. A very difficult circle to square.

Fund jumps can come in the most unexpected quarters, notes Spy. Take a look at the Sprott Uranium Miners ETF, it is up more than 22% in the last 30 days. Japan has decided that despite the Fukushima disaster, it has no choice but to continue to invest in nuclear energy. With no oil of its own, being beholden to the global oil price has its drawbacks when you are a major industrial nation. France traditionally uses nuclear power and, in the dying days of his term in office, British Prime Minister Boris Johnson has signed off another nuclear power station in the UK. How do you say yellowcake in Japanese?

Traditional active mutual funds continue to, in general, bleed assets as investors move towards ETFs. Certainly true of the US and Europe. The ETF evangelists have won the public relations “lower cost” war, reckons Spy. However, if one looks closely, active format ETFs are in fact rapidly gaining assets. Investors may love an index but the allure of active fund managers “beating the market” still holds appeal to wealth managers and investors. The data may suggest that few active managers outperform over the long term, but investors seem perpetually excited to let them have a go over the short term at least.

We live in the era of the “side hustle”, what our grandparents used to call “moonlighting”. What if you sign up for a job full time, but in fact work full time for somebody else, wonders Spy? Caixin has a great story this week that a private equity firm in China discovered its entire newly-hired sales team had connived to do exactly that. Each team member was employed elsewhere, full time, and collectively they had deceived management that they were “out on the road” selling deals. Of course, no such work was going on, and all the while, they were clipping healthy basic salaries at both firms. Nice work if you can get it.

Would the last person to leave, please turn out the lights? It seems the exodus from Hong Kong is not slowing down. It is almost shocking to read that since August 2018, a mere four years ago, Hong Kong’s total labour force has dropped by six percent. In April this year, the total number of people that were employed, or indeed looking for working in the city, dropped by more than 33,000. This is the highest number since 1990. It is not hard to understand why people have decided to look elsewhere. Hong Kong’s ridiculously strict quarantine rules, combined with changes in certain traditional freedoms, are taking their toll. Singapore must be thanking its lucky stars.

Pithy, but absolutely true: “In bull markets, investors are blind to the risks. In bear markets, investors are blind to the opportunities” ~ Brian Feroldi.

Until next week…

Part of the Mark Allen Group.