British-Chinese bitcoin money launderer jailed for over 6 years

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Are Bonds Good for Income Investors?

Sara Silano: “Say yes to bonds” was one of the key calls in the Morningstar Investment Management’s outlook for this year. But are bonds good for income investors? Nicolo Bragazza, Associate Portfolio Manager at Morningstar Investment Management, joined us to share his insights.

Nicolo, welcome and thank you for accepting our invite.

Nicolo Bragazza: Thank you for having me. So, after the significant rise in yields over the last couple of years, bonds are now offering more attractive yields and therefore they can now play again multiple roles in investor portfolios from diversification to yields. Bonds represent the bulk of the portfolio of any income investor, as income is contractually predetermined and paid at predetermined days. And if those bonds are government bonds, the likelihood of being paid back is higher. However, as a general rule, investors need to remember that the higher the yield and the income, the higher the risk. And it’s very important to pay attention to valuation, especially in periods where credit spreads are particularly tight.

Silano: What will happen to investors in treasury bonds if the ECB cuts interest rates in June?

Bragazza: As a general rule, lower yields imply higher bond prices. And this is because future cash flows are discounted at the lower yield and therefore their value goes up. However, the extent to which a cut will move bond prices does not depend only on the size of the rate cut but also by how much that rate cut is already priced in by the market. As of today, it seems that the market is already pricing a rate cut and therefore the move is likely to be less pronounced than if you were to get a completely unexpected cut. That said, this cut is not certain and therefore you can expect to have some positive impact on bonds if the central bank goes ahead with the rate cut.

Silano: What are the best options for income investors in the fixed income space?

Bragazza: So, the first thing that an income investor should determine is its willingness and ability to bear risk. A low-risk income investor can think of a portfolio of government bonds as a good option to get some predetermined income with low risk of not being paid back. However, if an investor has more tolerance for risk, an income portfolio should also include some corporate bonds and high yield bonds

Ark Invest’s Cathie Wood says lower prices and rates will ‘activate coiled equities’

Cadence Advisory adds PE partner

Debt advisory firm Cadence Advisory has appointed Joe Wood as a partner to “support organic growth and enhance sponsor-backed transactions”. 

Prior to joining Cadence Advisory in February, Wood was a corporate finance analyst at Aurelius UK, where he helped source capital for new acquisitions and manage portfolio businesses across different sectors, completing £295m of debt transactions for UK-based companies, according to his LinkedIn profile. 

At Cadence Advisory, Wood focuses on asset-based finance and assists private equity-backed companies in sourcing, negotiating and optimising debt finance across the debt market, according to a press statement. 

Altcoin ETFs, stake houses, and tail risk in the crypto-circular economy

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Wall Street ponders what happens to booming private credit market when you-know-what hits the fan

Michael Arougheti, Ares Management Corporation Co-Founder, CEO & President Adam Jeffery | CNBC

The explosion of private credit has been met with a whole host of concerns, but among the louder ones more recently is that the industry has not experienced a downturn at scale. And therefore, what does that mean for borrowers when there’s some kind of crisis?

When asked about the migration of assets to the non-bank sector during JPMorgan’s Investor Day earlier this week, Chairman and CEO Jamie Dimon said, “we’ll compete. We’re going to be fine.” But he added that the “question they should be asking is, what does it mean for the United States of America?” 

“A lot of those folks who took private-credit loans will be stranded when [obscenity] hits the fan,” Dimon said. “Banks tend to work with the borrower and the middle-market loan in the crisis…in the mark-to-market world of private credit, they have to, as a fiduciary, book it at par.” 

In other words, he said, “private credit hasn’t dealt with high interest rates, hasn’t dealt with the recession, and it hasn’t dealt with high spreads.”

We don’t know how those workouts will…work. 

The next day, the CEO of one of the largest private-credit firms defended the industry and how it will act in times of stress. When asked on CNBC about Dimon’s recent comments, Ares Management CEO Michael Arougheti responded: “False.” 

“We’ve been investing in the private markets for 30 years; A loan is a loan whether it’s held on a bank balance sheet or held in a private-credit fund,” Arougheti said. “[Ares has] invested $150 billion into the private-credit market since we founded the firm, and we had a loss rate of one basis point. So everything that we’ve seen over the last 30 years would indicate that the risk people are trying to argue exists in our market just isn’t true.” 

Stock chart icon Ares Management (ARES), 1 year

Ares’ Executive Chairman Tony Ressler, sitting next to Arougheti in the CNBC interview, said the growth in private credit will “actually reduce systemic risk.” 

“These assets are going onto the balance sheets of companies that are not highly levered and that do not finance themselves with short-term liabilities or customer deposits,” Ressler said. 

Private credit default rates

In January, the Federal Reserve looked at default rates in private credit

CNBC

US institutional investors embracing multi-asset credit strategies

Institutional investors in the US are increasingly turning to multi-asset credit strategies to capture alpha amid rising market volatility, according to a report by Pensions & Investments. 

Gregory Calnon, Partner and Co-Head of Public Investing at Goldman Sachs Asset Management, said: “The theme that we’re seeing is an acceptance of blurred lines with respect to investment management agreements.”  

He noted that this increased flexibility of investment management agreements was allowing portfolio managers to capitalise on short-term opportunities. 

Volatility in US rate cut expectations has driven shifts between high-yield bonds and bank loans, with Karin Anderson, Director, Credit Manager Research at Willis Towers Watson, observing a pivot towards high-yield bonds late last year, only to switch to bank loans this year as inflation data shifted rate cut expectations. 

Institutional investors face challenges in the form of “rebalancing separate high yield, bank loan and emerging market debt allocations overseen by different managers”, P&I reported. In response, the $104.2bn Massachusetts Pension Reserves Investment Management’s board recently approved $2bn in allocations to multi-asset credit strategies, to be funded mostly by existing allocations in high-yield bonds and bank loans. 

Jeremiah Lane, Partner at KKR and Portfolio Manager of its multi-asset credit strategy, observed that institutions like MPRIM were now more aware “that their decision-making process is long and there’s a lot of value to be had if you can move more quickly” in light of volatility brought on by the pandemic and 2022 Fed rate hikes. 

Mark McKeown, Managing Principal and Head of Fixed Income Research at Meketa Investment Group noted that changes in how US companies issue credit — moving beyond high-yield bonds to include bank loans and private credit — have contributed to the volatility that is drawing in institutional investors, with this diversification in turn creating more opportunities for skilled managers. He added that more companies were consulting with large buy-side asset managers instead of traditional sell-side banks when choosing credit. 

Earlier this month, Boston-based MPRIM’s investment committee recommended approximately $2bn in allocations to multi-asset credit managers: $600m to HPS Investment Partners; $500m to KKR’s diversified multi-asset credit strategy; $400m to Shenkman Capital Management; $300m to Anchorage Capital Advisors; and $200m to KKR’s relatively concentrated global credit opportunities fund. 

If approved, the fund’s allocations to high-yield bonds (1.5%) and bank loans (2%) will shift to multi-asset credit (2%), reducing the former two’s

Stocks making the biggest moves premarket: Ross Stores, Intuit, Workday, Guardant Health and more

FCA chair Alder: Private markets valuation at risk of ‘inherent conflicts’

Speaking at the Bloomberg Buy-side Forum, Alder acknowledged that regulators need to consider the tools and data they require in order to oversee the activities of non-bank financial intermediation (NBFI) and the private markets in which many participate. “NBFI regulation should be a global effort to improve the data needed to enable regulators to spot risks in these markets and supervise them credibly,” he said. LTAFs are only part of the private markets solution for wealth managers Alder argued that given the size and rapid growth of private markets – which reached $12.8trn AUM i…

Cryptofinance: into the ether

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