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- Topley’s Top Ten – July 23nd, 2019
Topley’s Top Ten – July 23nd, 2019
Matt Topley
July 23, 2019
1.Bank of America Now Has A Larger Market Cap than the 6 Largest European Banks Combined.
The result: Six leading European banks— UBS (UBS), CreditSuisse Group (CS), Barclays (BCS), BNPParibas (BNP.France), SociétéGénérale(GLE.France), and DeutscheBank (DB) now have a combined market value of around $200billion, less than that of Bank of America (BAC)alone.
5 Year Chart BAC +100% vs.EUFN (Euro financials) -22%
2.Follow up to Yesterday’s Private Equity Comments…Blackstone Assets Under Management Rose 24% to $545 Billion.
The industry leader, the BlackstoneGroup (BX), is enjoying enormous inflows as assets undermanagement rose 24%, to $545 billion, in the second quarter from the quarter ayear earlier. But sustaining high returns is tougher.
Why Stocks Are Still the BestInvestment, Even After a 10-Year Run–Andrew Bary
Putting the Equity Back Into Private Equity
Private-equityfirms are spending more of their own cash to win deals as soaring purchaseprices push debt markets to the limit
Equity ChecksPrivate-equity firmsare putting more of their own cash into buyouts.Average equity contribution inU.S. buyoutsSource: Covenant Review
By Matt WirzUpdated July 15, 2019 5:36 pm ET
Risingstock valuations are forcing private-equity firms to contribute more cash totheir leveraged buyouts. That is likely to drag down performance in the longterm even as pensions and other investors increasingly turn to private equityto boost returns.
Private-equityfirms contributed 52% to the purchase prices of companies they bought in thesecond quarter of the year, according to data from research firm CovenantReview, a unit of Fitch Solutions, up from 45% in the first quarter. Thatcompares to an average of 47% and marks the highest quarterly figure sinceCovenant Review began tracking the data in January 2017.
“It’sbecause of the high stock prices today,” said Covenant Review’s CEO, SteveMiller. Private-equity buyers need to put up more cash to win the deals theywant because “lenders are only willing to go so far,” he said.
Private-equityfunds buy companies with a combination of cash they raise from outsideinvestors and money they get their acquisition targets to borrow by issuingso-called leverage loans and junk bonds. The more borrowed money, or leverage,goes into a deal, the higher the average return on the cash. But the stickerprices of recent deals are exceeding debt-market capacity.
Lendersdon’t typically provide debt to target companies in excess of six timesearnings before interest, taxes, depreciation and amortization, or Ebitda, andalmost 40% of U.S. leveraged buyouts last year raised debt that was seven timesEbitda, according to research by consulting firm Bain & Co. With debt marketsalready pushing their upper limit, buyout firms have to put in more of theirown cash to hit currently elevated asking prices.
Leonard Green &Partners and Ares Management Corp. , forexample, announced in June their purchase of health-care company Press GaneyAssociates. The deal involves $1.7 billion of debt—roughly 7.5 times Ebitda—and$2.6 billion of equity, which represents 60% of the total purchase price,according to data from Covenant Review affiliate LevFin Insights.
Thatwill likely translate to lower average returns in the next five years or so forprivate-equity firms as they sell off the companies they buy under currentconditions.
Private-equityfunds raised from 2011 to 2015 delivered median returns of 16%-21%, accordingto data provider Preqin Ltd. but about 30% of the investors the data firmpolled in 2018 said they expect their private-equity portfolios to performworse in 2019 than in 2018. That compares to 20% polled in 2017 who said theyexpected performance to deteriorate.
“Pensionfunds are turning more to private equity to boost their returns but there’s areal question about whether that thesis holds,” Mr. Miller said.
U.S.government bond yields fell Monday with the yield on the benchmark 10-yearTreasury note settling at 2.092% from 2.106% Friday amid reports that Chinesegrowth slowed in the second quarter. Yields fall as bond prices rise.
TheWSJ Dollar Index, which measures the U.S. currency against 16 others, rose lessthan 0.1% to 89.97.
Write to Matt Wirz at [email protected]
Copyright©2019 Dow Jones & Company, Inc. All Rights Reserved.87990cbe856818d5eddac44c7b1cdeb8
Appeared in theJuly 16, 2019, print edition as ‘Funding Shifts for Leveraged Buyouts.’
3.As Tech Dominates and Value Continues to Lag….Warren Buffett Having Tough Year.
Berkshire flat vs. QQQ +24%
4.Gold Miners +55% From 2018 Lows.
GDX Gold Miners ETF
5.Small Cap Energy Names Break to New Lows
6.Honk Kong Protests Turn Violent…Market Well Below Highs.
Hong Kong protests: Night of violence shockscity after seventh week of mass marches
Updated1:52 PM ET, Mon July 22, 2019
Hong Kong(CNN)Hong Kong descended into scenes of chaos Sunday night, afterriot police fired tear gas and rubber bullets at protesters, and a mob armedwith batons attacked people in a metro station.
The unrest came after tens ofthousands took to the street for the seventh consecutive weekend amid anongoing political crisis over a now-suspended extradition bill.
Footage posted on social mediashowed a marauding gang of masked men, wearing white T-shirts, attacking peoplewearing black, the color of the protest, on the platform and inside traincarriages at Yuen Long MTR station, in the north of the city — an about anhour from where the day’s protest had taken place.
Forty-five people were hospitalizedfollowing the violence in Yuen Long, with one person in critical condition,according to Hong Kong’s Information Services Department. Five people remain inserious condition.
The incident has raised fears thatorganized crime gangs, who are known to operate in the outer areas of the city,are becoming involved in the political crisis. In a statement Monday, policesaid they would not tolerate “violent behavior” and were activelyfollowing up the two incidents “in order to bring the offenders tojustice.”
7.Hedge Fund Assets Hit Record in 2nd Quarter
Fees lowest, returns highest in adecade
Investors poured the most money ever into hedgefunds during the second quarter, surpassing a 2018 record, as returns soared.
Assets managed by hedge funds ballooned to $3.245trillion at June 30, exceeding their previous record of $3.244 trillion set inthe third quarter of 2018, Hedge Fund Research Inc. reported Friday. Year todate through June, assets grew by $142.5 billion, increasing by $63.7 billionin the second quarter and $78.8 billion in the first quarter.
Meanwhile, few investors were retrieving theirmoney from professional long-short asset managers. Net redemptions were nearlyflat at $4.8 billion, reflecting a significant slowdown from net $45 billiontaken back over the previous two quarters.
A robust market and strong performance magnetizedinvestors to the industry in the first half of 2019. The HFRI WeightedComposite Index, which measures hedge fund performance, rose 7.44% in the year’sfirst half, its highest first-half gain since 2009. The average hedge fundstill fell short of the S&P 500 index, which returned 17.2% for the sameperiod.
Gathering the most assets were the “largest andmost established funds,” HFR President Kenneth Heinz said. Firms managing morethan $5 billion experienced inflows, while firms managing less than $5 billionsaw outflows, HFRI found. It was the first time these firms had seen inflowssince the fourth quarter of 2017, as the investment picture brightened.
“Constructive, yet fluid developments in ongoingtrade negotiations, as well as expectations for lower US interest rates in thenear term have also contributed to an evolving macroeconomic outlook which hasresulted in record levels for U.S. equites, but also represents a forward riskfor valuations, especially with trillions of dollars of fixed incomeobligations trading with negative yields,” Heinz said. “Funds which areeffectively positioned for the complexities of this environment, maintainingtactical long and short exposures across not only hedge fund strategies, butalso across cryptocurrency and risk parity exposures, are likely to attractinstitutional investor capital throughout second-half 2019.”
In the second quarter, investors showed mostinterest in event-driven strategies focused on mergers and acquisitions andcorporate transactions, plowing $5.3 billion into the funds. Equity hedge fundcapital soared by $14.1 billion, led by strong performance gains and offset byoutflows of $5.5 billion. The funds ended the quarter with $931.1 billion incapital, making it the largest strategy.
Though flows in and out have been mixed, thehedge fund industry has been booming for some time. A year ago, it wascelebrating setting its new record for capital for its eighth consecutivequarter.
The same research group, HFRI, reported that newhedge fund launches increased in the first quarter as risk tolerance returnedto the market. But many have not been faring well, with liquidations exceedinglaunches for the third consecutive quarter, which followed a four-quarterstreak of net growth in the number of funds.
Meanwhile, hedge funds have reduced theirnotoriously high fees to their lowest since HFRI began keeping data in 2008.The average management fee declined by 2 basis points to 1.41%, and the averageincentive fee fell by 30 basis points to 16.6%. Hedge funds launching in thefirst quarter started out even lower for management fees at 1.19%, and chargedmore for incentive fees at 18.79%.
Read more here:
8.U.S. Vs. German Debt.
https://twitter.com/Schuldensuehner
9. It’s Taking Less Time to Close on a Mortgage in 2019
TENDAYI KAPFIDZEJune 25th, 2019
Key findings
The time to close in new purchase transactions has been steadilydeclining, from 74 days in 2017 to 51 days in 2018 and just 40 days thus far in2019.
For refinances, the decline has been less dramatic: from 55 daysin 2017 to 43 days in 2018 and just 38 days so far in 2019.
Some of the decline can be attributed to lower mortgage volumes,as refinancings have been on a downward trend. But increased digitization isalso playing a major role.
Closing times vary based on the characteristics of the mortgagetype and borrower. Having a higher credit score can knock a few daysoff: Purchase borrowers with scores above 760 averaged 38 days in 2019 comparedwith 45 days for those below 720. Refinancings did not show much variationby credit score.
Loan-to-value ratios below 80% had shorter closing times forrefinances, at 37 days compared with 42 days on mortgages with a ratio above95% in 2019.
Loan amounts also affect closing times, with lower amounts,perhaps surprisingly, taking the most time. Loans under $150,000 averaged 47days compared with 39 days for those above the conforming limit ($484,350 in2019). Why? Higher loan amounts are typically being made to more credit-worthyborrowers. Lower-priced homes may be in some form of distress or have some typeof damage; lenders thus may require more extensive appraisals to betterestimate the home’s value and this adds time to the process.
Found at Abnormal Returns Blog www.abnormalreturns.com
10.This Is the Most in-Demand Skill of the Future
Thefuture of work belongs to those who possess emotional and social skills. Here’swhy.
By Ryan JenkinsMillennialand Generation Z speaker and generations expert@theRyanJenks
When artificial intelligence (AI) can diagnosea patient’s condition with greater accuracy than a human doctor, what becomesof doctors?
Thisis a question I present to my audiences when they ask me, “What skills will Gen-Z need in the future?”
Inthe AI-abundant world of tomorrow, where technology will do much of the heavylifting, a doctor’s ability to deliver compassion and empathy to a patient willbecome much more valuable. While the technical hard skills of doctors willremain important, their emotional intelligence will take on new significance.
TheIndustrial Revolution required muscle from its workers. The Information Agetraded muscle for mental capacity, which explains the rise of “knowledgeworkers.” The future will require workers to be emotionally intelligent.
Emotionalintelligence is the capacity to be aware of, control, and express one’semotions, and to handle interpersonal relationships judiciously andempathetically.
Asthe world fills with more sophisticated AI and ubiquitous technology,human skills–compassion, empathy, etc.–will define the competitive edge ofworkers and entire organizations. So those interested in thriving in ahigh-tech world must put renewed prioritization on emotional intelligence andsoft skills.
ADVERTISING
Softskills represent the top three missing skills of job applicants, according tothe Society of Human ResourceManagement’s (SHRM) “2019 State of the Workplace.”
The top six missing skills in job applicants are:
Problem-solving, critical thinking, innovation, and creativity(37 percent)
Ability to deal withcomplexity and ambiguity (32 percent)
Communication (31percent)
Trade skills(carpentry, plumbing, welding, machining, etc.) (31 percent)
Data analysis / datascience (20 percent)
Science / engineering/ medical (18 percent)
Thesignificance of developing and applying social and emotional skills is growing.Soft skills are twice as predictive of a student’sacademic achievement as home environment and demographics, and30-40 percent of jobs in growth industries require softskills. Additionally, 57 percent of leaderssaysoft skills are more important than hard skills.
Arecent Wall Street Journal article, “Wanted: Employees Who Can ShakeHands, Make Small Talk,” explained the importance of social andemotional skills this way:
“Newjobs, meaning those not killed off by automation, require substantially moresocial skills than the manufacturing and factory jobs that once powered theeconomy. Robots still can’t be friendly, make small talk and calm disgruntledcustomers, which offers opportunity for people. Turns out a lot of them aren’tvery good at it, either. Bank of America has developed a national trainingprogram to help its employees show empathy. Tellers don’t deposit paychecks orhandle withdrawal slips anymore, given the dominance of online banking.”
Employersaren’t looking for the same level of deep knowledge and technical skill as theydid in the past. In fact, 90 percent of employers say they are opento accepting non-traditional candidates that do not hold four-year collegedegrees. And they are more open to hiring candidates with a recognizedcertification (66 percent), complete certificate (66 percent), an online degreefrom a massive, open online course (MOOC) (47 percent) or a digital badge (24percent).
AtIBM, as many as one-third of U.S. employees lacka traditional four-year degree. And according to César A. Marrero, CEOof Xentient Technology, “Today we are looking more at students with atwo-year degree to hire, because they have the baseline knowledge we need andcan further expand their skills with our specialized in-house training.”
Inaddition, 40 percent of employers believeartificial intelligence will help fill the skills gap.
Theprevalence of AI will only make social and emotional skills more necessary andvaluable because they are the skills robots can’t automate. In today’s fastworld, hard skills have a short shelf life, but strengthening the social andemotional skills of your workforce will never go out of style, and softskills are more transferable across careers and industries.
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