The new FX Swap Workflow solution aims to allow mutual clients of Tradeweb and FXall to buy or sell an EM bond via the Request-for-Quote (RFQ) or Request-for-Market (RFM) protocols on Tradeweb and then seamlessly hedge the local currency risk by executing an FX swap trade via direct connectivity to FXall. FX Swap clients will able to request prices from multiple dealers simultaneously on both legs of the transaction, and also to benefit from existing straight-through-processing (STP) channels, leading to greater automation and time-saving efficiencies. 

“Facilitating the connection of our EM bond marketplace with FXall’s liquidity pool provides buy-side traders with access to enhanced and efficient local currency EM trading workflows,” says Enrico Bruni, Head of Europe and Asia Business, Tradeweb. “Clients trading EM products can now take advantage of markets that are increasingly interlinked, while also benefitting from seamless execution and STP. This latest innovation underpins our commitment to creating solutions that cater to the needs of our EM clients, and help them move risk more efficiently.” 

“We are excited to provide our customers with an enhanced multi-asset integrated workflow, replacing what used to be either a voice-based process or a sequence of workflows split between different trading desks,” says Neill Penney, Group Head of FX, LSEG. “Greater collaboration between LSEG and Tradeweb has enabled us to offer our mutual clients an effective solution in FX Swap Workflow, with all the inherent advantages of electronic trading and our world-class liquidity pools.” 

Morgan Stanley has acted as the liquidity provider for the first transaction using Tradeweb’s FX Swap Workflow solution. Commenting on the transaction, Volkan Dikmen, Managing Director at Morgan Stanley, says: “We are supportive of new initiatives that help markets evolve and become more streamlined, so we are proud to provide liquidity for the first-ever trade bringing together EM bond and FX swap markets.” 

Tradeweb aims to offer global EM cross-product execution with comprehensive solutions across both bond and derivatives markets. Product scope includes EM IRS, CNY IRS via Swap Connect, hard and local currency bonds, portfolio trading for EM hard currency, EM credit derivatives, and CNY cash bonds via Bond Connect and CIBM Direct. More than 50 liquidity providers are currently supporting hard currency Asia, CEEMEA and LATAM bonds, many of which are also sending pre-trade streams and axes to facilitate smart dealer selection. Clients are able to trade EM bonds across 21 local currencies, with 11 more in the pipeline. 

Other findings include:

• Deal activity: By the end of Q2 2023, venture capital deal-making has trended downward for the sixth successive quarter with 4,485 deals completed, while aggregate deal value reached USD63.2 billion. The lower numbers are largely being driven by a sharp decline in consumer discretionary and healthcare deals. In terms of deal value, information technology has dragged down the total deal value.
• Exit trends: The number of exits and aggregate exit value are 30.6 per cent and 33.0 per cent lower than their five-year quarterly average, at 419 and USD52.9 billion, respectively, by Q2 2023. Exit pricing for assets has not been as high as in 2021, but if public markets continue to improve, more exit activity should occur in the second half of the year.
• Fundraising: Fundraising remains tough for fund managers looking to raise capital. The number of funds closing has been on a downward trend over the past six quarters, albeit with a slight uptick in the fourth quarter of 2022. Aggregate capital raised has followed a similar trend, with 219 funds raising USD26.1 billion by the end of Q2 2023. Investors remain pessimistic, but continue to deploy capital, although less than in the recent past.
• Funds in market: The significant overhang of funds in market trying to raise capital is affecting how long funds are spending on the road, with the overall time spent raising capital increasing since 2020. This is especially highlighted by the fact that seven per cent of funds took six months or fewer to close in the first half of 2023. This is in stark contrast with 2020, when 38 per cent of funds closed after a maximum of six months on the road.

Michael Patterson, Senior Associate, Research Insights, at Preqin says: “It has been a challenging time for venture capital firms looking to raise new funds. This trend looks to continue as investors have been more discerning with whom they are allocating capital to. Adding to this, the weak exit environment has dimmed appetite for late-stage strategies.”

Key report facts:

• Fundraising: Despite just USD4.5 billion in capital being secured by funds reaching their final close by the end of Q1 2023, or 16 per cent of the quarterly average since 2016, a similarly slow pace has continued into Q2 2023 which also saw USD4.5 billion secured. However, Preqin interim data shows some welcome signals of a resurgence in infrastructure fundraising. Based on fundraising for interim and final closes in the quarter, USD32.3 billion has been secured, a rate similar to the quarterly average of USD33.7 billion since 2016.
• Funds in market: The slow fundraising market is contributing to a backing up of funds in market. While aggregate capital targeted rose sharply amid the frenzied fundraising of 2022, up 56 per cent to USD342 billion by January 2023, it continued to surge by 43 per cent in the first six months of 2023. Preqin analysts believe managers are keen to secure investor capital, while a disconnect between investors’ commitment intentions and managers’ keenness to raise capital has emerged.
• Performance: Infrastructure assets performed well to the end of 2022, buoyed by confidence around the asset class following the impressive fundraising that year. Unrealised value increased by 24 per cent by the end of 2022, against an 11 per cent increase in dry powder, bringing uncommitted capital’s share of assets under management (AUM) to a new low of 27 per cent.

Alex Murray, VP, Head of Real Assets, Research Insights, at Preqin says:“The optimism in infrastructure from the first half of 2022, that underpinned a doubling of fundraising pace, makes the current fundraising slowdown all the more stark. Having said this, when delving deeper into interim closings, Preqin’s depth of fundraising coverage provides a leading indicator that investors are returning to the asset class. Where the deals market will head remains less certain – if real estate has set a precedent for infrastructure, managers with dry powder may do well hold out for better value assets in future quarters.”

Prior to that, he was a founder of World Golf Group, the precedent for LIV Golf. Harrison has also held senior positions with Standard Life UK as Investment Director, Global Financial Institutions and with Capital Group as Managing Director, Global Financial Institutions.

Harrison’s appointment comes in the wake of Fundpath’s completion of a GBP4 million late seed funding round with growth capital partner Fuel Ventures. The investment in Fundpath is one of Fuel’s largest commitments to date, allowing Fundpath to extend the breadth and depth of its systems and proprietary data, to invest in new technologies, and recruit more people.

Harrison is among four key appointments today announced by the firm:

·       Flora Scott joins Fundpath as Chief Marketing Officer, having consulted for the organisation over the last two years. Previously Scott headed Communications & Marketing at asset manager Redwheel.

·       Jim Way joins as Senior Relationship Manager. He brings 24 years of sales experience in asset management, having most recently been with Invesco.

·       Stephen Capon joins the company as Senior Relationship Manager, having spent the last 20 years working with investment funds and solutions at Ninety One Asset Management.

Co-Founder & CEO, Jamie Hinchliffe comments: “We simply use the power of real time, accurate and whole of industry data to share information across the whole fund distribution ecosystem to enable more targeted, more effective communication between the buyers and sellers of funds.

“This is a critical period in our evolution as we develop the Fundpath offering and capability, and it is vital that we can invest in the very best people. With his deep experience on the frontline with Standard Life and Capital Group, Adam understands only too well the disconnect which exists between asset and wealth managers. We are grateful to our funding partner Fuel Ventures, without whom we would not be able to invest in building the team with such confidence.”

Commenting on the significant market opportunity and his new role, Harrison says: “From my earliest engagement with the team, I could see the enormous potential of the Fundpath model, and the way in which it improves the flow of information and democratises data. Fundpath presents a new way of thinking about fund distribution, using the power of data to better serve clients. It’s a very powerful tool, and I am excited about the efficiencies we are bringing to our wealth management partners and asset management clients alike – and the Company’s ambitious development plans.”

Nearly half (47 per cent) of professional investors questioned (pension funds, family offices, insurers and wealth managers) by MPG across Switzerland, Germany, Italy, the UK and the US expect allocations to real estate to increase dramatically over the next three years while 45 per cent believe allocations to life settlements will see major growth.

MPG’s research with wealth managers and institutional investors who are collectively responsible for GBP258 billion assets under management shows hedge funds will also see dramatic increases in allocations with 44 per cent forecasting major shifts in allocations.

The study found less support for commodities and high-yield bonds. Around a third (33 per cent) predict dramatic increases in allocations to commodities while 28 per cent believe high-yield bonds will see dramatic growth in allocations.

The research for MPG finds 10 per cent of professional investors do not know which asset classes will see dramatic increases in allocations.

Jeremy Leach, Chief Executive Officer of Managing Partners Group comments: “The alternatives sector is growing rapidly with assets under management (2) expected to expand to USD23.2 trillion by 2026 amid increased interest from retail investors and HNW individuals. That is driving increased allocations to separate asset classes with real estate, life settlements and hedge funds set to be the biggest winners over the next three years.”

Green bond proceeds can only be used for sustainable objectives, for example, supporting climate-related or environmental projects such as renewable energy, clean transportation, or sustainable water management. 

While the parent index already excludes controversial weapons and thermal coal, the new index considers investors’ sustainability preferences, applying broader exclusions of conventional weapons, civilian firearms, tobacco, alcohol, oil sands, and Arctic oil. The index also excludes issuers with an MSCI ESG rating below BBB or an MSCI ESG Controversy score of zero; furthermore, it filters out bonds with maturities over 10 years and applies a three per cent issuer cap to improve diversification.

The new ETF is aligned with Article 8 of the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Clemens Reuter, Global Head of ETF & Index Fund Client Coverage at UBS Asset Management comments: “Investors are increasingly seeking innovative solutions to help meet a range of climate and sustainability needs. This ETF enables investors to gain global exposure to green bonds with environmental benefits – while also considering the ESG profile of the underlying issuers.”

The UBS (Lux) Fund Solutions – Global Green Bond ESG 1–10 UCITS ETF is available unhedged in USD as well as in a EUR hedged version. It is passively managed and listed across key European exchanges, including Xetra, Borsa Italiana, and SIX Swiss Exchange.

Key findings from the survey include:

• The top reason cited globally in support of launching a CBDC was to accelerate payments and transfers (58 per cent).
• 48 per cent of global respondents and 55 per cent of UK respondents would use a CBDC in some capacity if it was offered.
• Globally, a majority (55 per cent) believe that CBDCs can coexist with private cryptocurrencies, with 61 per cent of UK respondents believing the same.
• 58 per cent of global respondents agree that private money will always be inferior in quality and security to government money.

The CFA Institute Global Survey on Central Bank Digital Currencies found that only 46 per cent in the UK (and 42 per cent globally) believed that central banks should launch CBDCs, with respondents citing several concerns about their application. Among UK respondents who opposed launching a CBDC, the top reason cited was a belief that their introduction does not currently address a compelling need (49 per cent) – something that UK policymakers themselves have raised – followed by the view that other innovations are already improving payment mechanisms without the need for a CBDC (35 per cent) and concern over data privacy risks (33 per cent). Just 15 per cent of UK respondents said they had a strong understanding of CBDCs.

The survey gathered responses from over 4,000 investment professionals globally to explore the possible implications for capital markets and investment practitioners if central banks develop and launch digital versions of physical currencies.

Though support for the creation of a CBDC in the UK stood at less than half (46 per cent), respondents were even more sceptical in other developed markets, such as the US (31 per cent) and Canada (38 per cent).  Those in emerging markets, such as China (70 per cent) and India (66 per cent), were much more likely to be in favour, possibly a result of the belief that CBDCs would significantly accelerate payments and create a cash-like form of payment.

Comparing these markets underlines the divergence in attitudes across regions – 61 per cent of respondents from emerging markets favour a CBDC versus 37 per cent of those in developed markets.

Olivier Fines, CFA, Head, EMEA Advocacy, CFA Institute comments: “Although the likes of Bank of England have requested stakeholders’ views through various consultations and focus groups, much remains unknown about the public’s understanding of, interest in, and demand for CBDCs.

“The results illustrate a general feeling of scepticism which continues to dominate perceptions, and central banks and governments will need to run a significant education program with consumers prior and during the launch of a digital currency. Acceptance by end-users will be critical for any CBDC, but this is far from guaranteed even in those markets which are more receptive to digital money, particularly if it fails to live up to its perceived benefits.”

Scepticism on CBDCs’ ability to improve financial stability and inclusion

Greater financial stability and inclusion are frequently cited as potential benefits of a CBDC; however, the report found a lack of consensus on whether a CBDC would enhance either.

Less than a third (32 per cent) of global respondents believe a CBDC would enhance financial stability and a similar proportion (34 per cent) felt one would likely improve financial inclusion of under-served economic sectors or populations.

Those in the UK are particularly doubtful that a CBDC would be able to deliver on these two aspects, despite the BoE highlighting these two benefits in their proposal for a digital pound. Fewer than 4 in 10 (38 per cent) believe that a CBDC would improve financial stability and even fewer (31 per cent) think a CBDC likely would improve financial inclusion.

The survey also revealed that those in emerging markets had a stronger belief in the stability benefits of CBDCs than those in developed markets (50 per cent vs 28 per cent) and a more positive view on their impact on financial inclusion (55 per cent vs 28 per cent).

In his speech, the Chancellor, Jeremy Hunt, confirmed the Treasury’s intention to adopt the recommendations from Rachel Kent’s Investment Research Review.

 One of the key recommendations aims to allow the buy side to rebundle research and execution. The review stipulates that regardless of whether the research is bundled or unbundled, there still needs to be transparency to end investors regarding research budgets, accompanied by efforts by the buy side to benchmark research pricing and communicate payment policies, amongst other transparency guidelines.

The review outlines that buy side firms that use investment research should:

Allocate the costs of research fairly between their clients, having regard to the obligation on regulated firms to treat their customers fairly;

Have a structure for the allocation of payments between the different research providers – such as Commission Sharing Agreements;

Establish and implement a formal policy regarding their approach to investment research and how it is paid for;

Periodically undertake benchmarking or price discovery in relation to the research that the firm uses.

Carrodus says: “MiFID II’s Research Payment Account (RPA) structure, which was mandatory if asset managers wanted to continue to pass on research costs to clients in Europe, was too onerous from the perspective of all the largest buy side firms and many of the smaller ones. These latest recommendations seek to keep the transparency ethos from that RPA structure alive, while jettisoning anything that would make asset managers see rebundling as not operationally workable.”

  But for these changes to have any effect at all, the FCA’s final detailed rules, which are expected to be in place by the end of H2 2024, will have to successfully walk a tightrope, he says. The rules must ensure enough transparency in order to sell this transition to end investors, while also removing enough of the existing regulatory burden, to tempt asset managers into reworking their now-established MiFID II processes and infrastructure.

Carrodus adds: “Even if the FCA achieves a perfect balance between transparency and workability, the real hurdle is still a commercial one – asset managers need to convince the end investor that it’s in their best interests to bear these costs once again. How pension funds and other asset owners respond to that pitch is the only question that matters. It’s clear that currently asset managers are not keen to open up a discussion about fees in a tough economic and investment climate. These changes from the Treasury may need to wait for a bull market before anyone feels tempted to have a try.”

  The market will welcome the flexibility to fund and pay for research in whichever way is most appropriate, but asset managers will wait to see how this narrative plays out before they open up any potentially painful conversations about fees with clients, he says.

Carrodus also comments: “A bull market in the future could encourage investors to focus on robust performance numbers and focus less on some returning costs. Without that backdrop, convincing asset owners will be a tough sell, especially in the short term. The research industry will welcome regulators getting out of the way in terms of how research is bought and sold, but in the end it will be the commercial discussions that will decide whether the market can rebundle in practice. This review’s retention of transparency, recommending periodic benchmarking, price discovery, disclosure of aggregate research costs etc., recognises that asset managers would need a water-tight case before they even begin this conversation.”

The timings across the UK and the EU will matter as well. By the end of H2 2024 the new UK rules should be in place alongside the new EU Listing Act, which could be finalised by year end 2023, with each country’s regulators beginning to implement them in 2024. The EU Listing Act will almost certainly include rebundling language, and if both the UK and EU’s sets of rules are complementary then that may indeed spur the buy side to make some changes, perhaps in time for 2025 budgets.

Carrodus concludes: “There will be questions from pension funds and other investors on why this all makes sense, and what precise assurances and transparency can be expected, to verify that their money is being spent wisely. Thankfully research valuation processes have become much more robust since MiFID II came into force, and could paradoxically be a key component in helping the buy side make their case to investors for eventual rebundling.”

 Liz Field, the Chief Executive of PIMFA the trade association for wealth management, investment services and the personal investment and financial advice industry, also comments: “We welcome the Government’s efforts to make the UK more competitive and attractive to investors, and it is right that the Chancellor looks to build on the successful role of the City to ensure it remains one of the leading global financial centres while removing unnecessary regulations that have no relevance for UK financial markets.

“As the Chancellor rightly acknowledges, the UK has one of the largest retail investment markets in the world, and it is right that these Mansion House reforms are focused on ensuring that British people will gain most from greater investment in growing UK businesses in retirement. PIMFA looks forward to working with the Government on how best this can be achieved.”

Tegs Harding, trustee director and head of sustainability at Independent Governance Group (IGG), has also commented on the Mansion House reforms and DWP pensions consultations, saying: “Today is a time to stand back and acknowledge the ambition behind the Mansion House reforms and the wave of DWP consultations that have followed. We also need to dive into the detail.

“It is energising to see the Chancellor and Pensions Minister getting to grips with measures which put member outcomes front and centre. Done properly, the combined effect of increasing the take-up of CDC schemes, solving the small pots issue and ensuring trustees’ investment decisions support a sustainable future economy can have a transformative impact on members’ pensions.

“Industry has some significant challenges to work through, but there is no denying the prize on the horizon is a pensions system that will be better equipped to deliver for individuals and the UK as a whole. Personally, I can’t wait to crack on.”

Chris Smith, Investment Manager UK Equities, Jupiter Asset Management, also commented on the Chancellor’s speech, saying: “As a UK fund manager with significant investments in UK PLC, it goes without saying that we are extremely keen to see the UK’s entrepreneurs, economy and its corporations thrive globally. That said, it is unrealistic to expect the reforms announced to make a meaningful difference to growth or investment in the UK in the short term and there is still a lot of questions to answer.

“How are ‘UK growth assets’ defined? What does a ‘voluntary expression of intent’ mean? What will be the liquidity, valuation, cost differences and implications to pension fund members being asked to invest in unlisted assets? Is there enough in the way of high quality, unlisted investment opportunities in the UK for an additional GBP75 billion of investment? What evidence suggests that unlisted assets will deliver higher, risk adjusted after fee returns and therefore justifies a higher allocation in pension portfolios?

“It is crucial that the pension compact remains voluntary both in letter and in spirit. Fundamentally, pension fund trustees have a fiduciary duty to carefully and thoughtfully maximise the risk adjusted returns for their members, and trustees should be making these important investment decisions independently without interference from politics.”

The report finds decreases in management fees but increases in other costs, including ‘ad-hoc’ asset manager charges and fund servicing, while the challenges of non-transparency and non-comparability remain widespread across many cost components and asset classes, with many investors dissatisfied.  

Since the Global Financial Crisis, investors have benefited from cost-compressing factors including low interest rates, downward pressure on asset management fees, and improved cost transparency facilitated by regulation, industry initiatives and more, according to the report. However, significant cost-additive pressures are now emerging.  

In a rising cost climate, with high-interest rates, increased pressure for ESG compliance, and continuing market volatility, investors are pressured to achieve better ‘value for money’ in many areas without compromising on strategic goals. Run between 14th June and 21st June, this snap poll report aims to provide additional clarity on the views of the investor community during this demanding time.    

Like-for-like expenses  

The report finds that, on a like-for-like basis, 34 per cent of investors reported an increase in fund servicing costs over the past three years. The low size of these costs, relative to fund management fees, makes this increase more feasible. Regarding management fees, 46 per cent say these fees have declined, however, nearly one in four have experienced an increase in ad-hoc expenses. ESG-related costs, and how to charge for them, are widely cited pressure points amongst investors. Further, some investors have observed higher ‘market impact’ costs following a period of market volatility and periodic fixed-income liquidity constraints.   

Cost transparency  

The report finds a high level of dissatisfaction with transparency across transaction costs for asset owners, with only 27 per cent of investors happy with the transparency of market impact costs and 45 per cent for trading/brokerage expenses. In contrast, 83 per cent of investors are satisfied with the transparency of management fees, illustrating stronger adhesion to variable market impact costs.  

Cost comparability   

Looking at transaction costs, the report finds that 14 per cent of investors are happy with the comparability of market impact costs and 24 per cent with trading/brokerage expenses. This dissatisfaction is also seen across management and performance fees, with 37 per cent and 48 per cent of investors dissatisfied with these respective costs.  

Cost by asset class  

Two thirds of investors are broadly satisfied with both the transparency and comparability of costs in fixed income, versus just 16 per cent in private markets and 18 per cent in liquid alternatives. Lack of transparency is a particularly significant problem in private markets, with 44 per cent of investors not satisfied with the current level of cost transparency.   

Duncan Higgs, Managing Director and Head of Portfolio Solutions at bfinance, says: “Although we’ve seen some investors making major strides on the subject of cost management, this report really illustrates how far the investment industry still has to go before it reaches high standards of ‘cost transparency’ and ‘cost comparability’ in the eyes of asset owners. This subject will likely come under greater scrutiny now that costs in many areas are rising – particularly in fees for fund servicing (custody, audit, legal) and various ‘ad hoc’ charges passed on by asset managers to their clients outside of the management fees. We still see real scope for investors to improve value for money, without compromising on strategic goals, in areas such as transaction cost analysis.”  

Kathryn Saklatvala, Head of Investment Content at bfinance and report co-author, says: “We are very grateful to all of the senior investors who took the time to share their insights on cost management and cost transparency in the current market – this ‘quick poll’ had a remarkable level of participation over just a few days. The data and anecdotal comments throughout this report really illustrate the extent to which investors are now facing cost-additive pressures. This is a real contrast versus the previous decade, when low interest rates, downward pressure on management fees and improved (though still imperfect!) transparency helped considerably to reduce like-for-like costs for investors.” 

Key takeaways include:

• Utilities will control the pace of decarbonisation. Eliminating carbon emissions will require huge investments in utility infrastructure to support renewable energy, electric vehicle charging, and building electrification
• Reducing fossil fuel power generation is the first step in decarbonisation. In the US, Morningstar projects anticipates thatclean energy, including nuclear, will grow to 65 per cent of total power generation by 2030, up from 40 per cent today. This is more bullish than some forecasts. The Biden administration and others are aiming for 100 per cent by 2040, but report finds that goal faces too many technical and economic hurdles.
• Decarbonising transportation and retail energy use will increase electricity demand. Morningstar forecast 1.4 per cent annual electricity demand growth during the next 10 years in the US, an acceleration from the last 15 years. This includes 1 per cent annual core electricity demand growth plus 40 basis points of new growth from EV charging, data centers, and other electrification.
• Oil companies’ energy transition strategies balance stakeholders’ competing interests. Facing greater pressure, European firms have set more ambitious 2050 net-zero targets. As a result, they are investing greater amounts in low-carbon projects, particularly renewable power, than American peers. In contrast, US firms Exxon and Chevron are keeping investments primarily in their legacy hydrocarbon businesses and in low-carbon areas that decarbonize their existing operations.
• Morningstar forecasts battery EV adoption will reach 40 per cent globally by 2030, up from 10 per cent in 2022. This will result in around 40 million auto EVs sold in 2030, up from 7.8 million in 2022. As EVs reach cost and functional parity with internal combustion engines, they will move from niche luxury vehicles to mainstream consumers, resulting in rapidly growing adoption starting in the second half of this decade.
• Lithium will be one of the largest beneficiaries of the clean energy transition. Lithium is the key energy storage component in batteries used in EVs and energy storage systems, which are large batteries built to accompany renewable energy. Rising EV sales and increased ESS batteries should drive lithium demand to more than triple to 2.5 million metric tons by 2030.