This biweekly piece highlights a range of happenings in the ecosystem. Please send a note if you have comments or ideas for future issues.
Crosscurrents
One-way markets no more? In recent weeks, volatility has picked up in fixed income, as debates rage about inflation (are these high levels transitory or not?) and central banks start to change policies at different times. Cycles of sentiment have moved rates in one direction and then the other, and investors have struggled to get their footing in the new environment.
To wit:
“Government-Bond Swings Burn Wall Street Investors” (WSJ).
“Central bank induced bond tumult stings big name hedge funds” (FT).
“Central Bankers Are Blowing Up Macro Hedge Funds” (Bloomberg).
Each story (and there have been others, too) includes a slightly different list of funds that have taken it on the chin. There have been a few notable winners as well. The tendency is to ascribe skill or the lack of it to such short-term results, when it’s but a skirmish in a longer battle.
The bigger questions remain:
After more than a decade of inflation undershooting expectations (and central bankers allowing that more inflation would be nice and not thinking it could get turned on easily), are we switching gears to a different economic regime?
Are central banks behind the curve?
Will the trading strategies (and the use of ample leverage) of the past continue to work when yield structures are morphing, out of sync with each other, around the world?
Will risk assets more broadly start to misbehave in response to changes in the fixed income markets?
Some perspective:
Due diligence
The print edition headline for a New York Times article about the Elizabeth Holmes trial summed up one angle of her defense: “Investors Exposed As Anything But Diligent.” For example, someone investing on behalf of the DeVos family (which lost $100 million) “testified that she was scared Ms. Holmes would cut her firm out of the deal if they dug deeper into the details of Theranos’s business.” That’s not an isolated case. Access to a hot company or a famed manager often becomes more important than surfacing differential information, which is what due diligence should be all about.
In a posting about culture and brand positioning by asset managers, Joe Wiggins wrote, “It is so often vacuous nonsense — a superficial effort to manage perceptions. . . . There is often a yawning gulf between what a firm says about its culture and what it actually does.” Bridging that gap requires a different set of skills than most investment analysts hone.
Pensions
Mercer and CFA Institute have issued the Global Pension Index 2021. The report rates the adequacy, sustainability, and integrity of retirement systems around the world. There is a section on each country, providing a brief description of its system and the ratings the organizations give overall and in each category.
CEM Benchmarking released the latest version its annual update, “Asset Allocation and Fund Performance of Defined Benefit Pension Funds in the United States, 1998-2019.”
Sell-side rankings
Institutional Investor published a series of articles announcing its “All-America Research Team” and celebrating the fiftieth group to be recognized. The listing and its methodology have come in for criticism over the years and it is less of a big deal than it once was, as the superstar analyst culture has faded from its peak. Integrity Research Associates asks, “All-America Research Rankings: Are They Worth the Effort?”
Other reads
Phil Huber, “The Paper Trail.” These monthly pieces are thoughtfully curated, and cover a broad range of topics and sources. Here’s the latest.
Marc Rubinstein, “Prime Time in Crypto.” A short history of prime brokerage (including that Archegos kerfuffle earlier this year) and prospects for that activity for cryptocurrencies.
Charles Skorina, “Ultras from Venus, CIOs from Mars.” What some family offices want from a chief investment officer is much different than what other asset owners want. (And from asset managers and from advisory firms, etc.)
Citywire RIA, “CI says RIA consolidation is in ‘first or second inning’; plans more buys.” How much longer will the RIA rollup game last?
Goldman Sachs, “EM ex-China as a separate equity asset class.” Categorization always evolves, if slowly sometimes, and always matters; this strategy paper is full of interesting exhibits.
Frederik Gieschen, “The Reading Obsession.” Yes, Warren Buffett reads a lot, but that’s not all.
The Investment Ecosystem postings
Recent pieces cover the search for assets (T. Rowe Price edition), puzzling over asset owners paying extra for beta, the pull of performance, lessons from a famed hedge fund manager, and forces in the ecosystem.
Don’t forget to sign up for a plan if you haven’t already (the Founder subscription is only available through year end). Also check out the posting archives, to see the range of content during the first weeks of the site, and the due diligence course.
Quote
“Wisdom lies neither in fixity nor in change, but in the dialectic between the two.” — Octavio Paz.
Published: November 14, 2021
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