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I admit it: two weeks ago, the fist draft of this article did not have a question mark in the title. Then the “FED pivot” happened… or… did it?
Well, it’s been quite a year. 2023 saw one of the sharpest monetary tightening in recent times, major geopolitical tensions across continents, and uncertainties in the world’s two largest economies. By year-end, however, prophecies of US recession had not quite materialised. Instead, talks of a ‘soft landing’ had increasingly taken its place.
It may be too early to declare victory, though. Tangible risks remain in 2024, especially if the pace of policy easing is unable to match the momentum of slowing economies, as sticky inflation forces central banks to keep rates steady until end-2024. In this backdrop, a combination of elevated interest rates, slowing global growth, and limited access to fresh capital could continue to constrain free cash flow for highly indebted companies.
2024 will be more complex, dynamic, and uncertain than ever before. With this in mind, it is important that asset managers, owners and investors focus on fundamentals and diversification across risk factors, taking an active approach to asset allocation and security selection.
In our previous article, we highlighted the factors that will shape future asset allocation strategies for insurance asset managers, including for risk management, a focal shift towards private assets, and changing regulatory and reporting standards.
In this article, we deep-dive into the techniques that would provide countercyclical elements to profit from market dislocations or price volatility. Such a robust investment framework that powers growth and strengthens portfolio resilience must take a three-pronged approach…
Insurers historically relied on stable allocation to fixed-income assets as the core of their investment strategy, mainly in light of asset-liability management techniques and regulatory, accounting, and financial implications. This, though, has led to missed opportunities to profit from market volatilities. While cash flow matching as a standard, well-established approach to insurance asset management remains a key investment process component, the most recent monetary tightening cycle, which began in March 2022, altered conventional wisdom, as dislocations in the fixed-income and equity markets hurt portfolio values. This highlighted the need for a more dynamic portfolio management approach…
May 2023
After a decade of abundant market liquidity followed by Covid-19 exogenous shock in 2020 that led to market repricing than quick recovery, year 2022 marked the onset of a period of heightened volatility. Macroeconomic weakness, inflation, rising interest rates and geopolitical risks have left investors/asset managers navigating murky waters. The banking crisis that ensued in the aftermath of the SVB failure has lowered risk appetites and players are closely watching liquidity stress in the financial markets. In the next few years, asset allocators will likely move away from traditional strategies such as liquid/alternative assets play to an integrated risk factor approach where the capital and risk allocation goes to for e.g., credit and then the implementation spans across liquid securities (IG or HY), private placements and infrastructure debt, etc. Lines are blurring when it comes to liquid and illiquid investing…
December 2022
A busy year ends, and one that can be considered pivotal for financial markets and the real economy globally.
A “new normal” in monetary policy is taking shape, more and more distant from the previous decade of low interest rates that forced institutional and individual investors to a sanguine search of yields. Investment strategies have adapted, highlighting the importance of dynamic asset allocation and overlay strategies in portfolio management.
We do not expect financial conditions to revert back to pre-pandemic anytime soon.
At Origins, the advisory activity to institutional asset management has been the focus, spanning from asset allocation, investment governance and process to operational and negotiations support.
It has also been a year dedicated to build the foundation for expanding Origins Capital’s business, by connecting with more clients, including pension funds and family offices on the one hand and financial service providers on the other.
More is coming in 2023!
September 2021
HV Advisors became Investment Advisor to Hamilton Global Opportunities PLC (“HGO”) in 2021. Hamilton Global Opportunities PLC is an investment company listed on the Euronext Growth Market (ALHGO.PA) focusing on investments in Tech, Fintech and MedTech.
HGO gives investors the opportunity to access private equity capital returns through a listed investment vehicle.
May 2021
Pierangelo Franzoni, MD of Origins Capital, will act as a senior advisor of the asset management unit, supporting investment process’ optimization, best-in-class active asset allocation and portfolio overlay management projects
March 2021
White… right but let me joke around similarities. It still seems financial markets are living in Alice’s wonderland, a tale that plays with logic.
Or not.
Are financial markets actually playing with logic? The narrative that valuations do not reflect fundamentals’ risk has been around for a while, supported by the increasing divergence between main street real struggle and wall street relentless enthusiasm.
Now, in fairness, where would you invest in a world of still low or negative interest rates (see financial repression)? Equity valuations, in general, do not look so irrational if you keep that in mind.
Follow the y rabbit…follow the yield level, let’s say the 10y Treasury. Of course, it is fundamentally crucial to understand whether the nominal yield rise is a reflection of a new inflation cycle (so look at the real yield) or not.
Here there are opposite balancing factors between secular deflationary trends and newborn inflationary forces due to the expansionary economic cycle. This has been reflected in the recent cyclical rotation trade.
Let’s play “Simplify”: I think that 10y treasury yield above 1.5% is not good for credit (Investment Grade in particular), and close to 2% is not good for equity when thinking in relative value terms.
Ask yourself the question: how good is a 90 basis points spread vs a 70 bps Treasury yield and how good instead vs 170bps Treasury yield? Ask can yourself a similar question when looking at Treasury vs equity dividend yields.
True, with the worldwide intense vaccination campaign, monetary and fiscal aggressive actions, strong GDP growth bounce back, one can argue that valuations could stretch well further…
And there is a good chance that it will happen.
Just let us be mindful of the risks. Either or not you agree with Larry Summers about the “Least Responsible” fiscal policy in 40 years, markets are going to face new challenges: will we move to a “new normal”? Is the equity market ready to lower support from monetary policy? We shall see it soon!
In the meantime, the lower the government yield, the better for equity: have a look at European vs US equity…
Cheers from sunny Zurich!
Pierangelo
March 2021
In this section we’ll publish short articles and thoughts about macro and markets! We’ll be short and informal, certainly contrarian and hopefully thought-provoking! Pierangelo Franzoni, MD will be sharing his views. So much is going on, we’ll have plenty of topics! Cheers
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