In 1988 the U.S. Department of Labor built a windowless, cinderblock room in the bowels of its limestone headquarters in Washington, designed for one purpose: to lock up journalists.

The room — which now sits silent and unoccupied — is minimalist and penal, with industrial-grade carpeting, government-issued chairs, rows of homogeneous computer workstations, a single door, and a metal detector outside. The one indulgence is a large, atomic clock on the wall, set to the military time of the U.S. Naval Observatory. 

“As I recall, it was always too hot or too cold in there,” says Carl Fillichio, who held senior roles in public affairs at the Labor Department for a combined 13 years under both the Clinton and Obama administrations. “It’s painted a horrible, nondescript beige. And on jobs day there is an armed guard outside. You know what it really looks like? It looks like the room where prisoners go to talk to their...

The Canada Pension Plan’s investment arm lost C$700 million betting on market volatility in the year ending March 31, primarily in the final months as stocks crashed worldwide.

CPPIB disclosed the substantial loss in its latest annual report.

This $700 million hit will be taken in stride internally, sources suggested. It’s a lot of money, even for a $409 billion portfolio, but may look relatively modest next to the losses incurred by other investors, including a Canadian pension peer. 

AIMCo — Alberta’s $119 billion public investment fund — lost at least $2.1 billion trading volatility earlier this year before pulling the plug on its program. Since Institutional Investor broke the story in April, Albertans have expressed mounting outrage while AIMCo became the subject of an external investigation into its losses. 

[II Deep Dive: ‘Amateurish’ Trades Blew Up AIMCo’s Volatility Program, Experts...

The U.S. Department of Labor has issued guidance that allows companies to include private equity in defined contribution plans through vehicles such as diversified target date funds.

Alternative investment managers Pantheon and Partners Group had asked the DOL in June 2018 for an information letter or other action that would allow plan sponsors to add private equity to the funds that have become default investment options for many 401(k) participants. Private equity firms have long argued that alternative investments will help diversify the portfolios of individual investors — a group that represents a huge new market for alternatives firms looking to expand.  

“The biggest hurdle has been the perceived risk of litigation from plan participants,” Doug Keller, head of private wealth at Pantheon, said in an interview with Institutional Investor. “There have been about 100 class-action lawsuits since 2015, some as simple as index funds...

GMO has shifted its stance on equities since mid-March, when the firm was willing to wade into plunging markets to buy stocks globally amid the coronavirus tumult.

U.S. and developed-market stocks have rallied too far from their 2020 low, according to Ben Inker, the head of GMO’s asset allocation team. The firm has reduced its equity exposure by shorting equity futures against the stocks it holds in those regions, while continuing to like its long bets in emerging markets, Inker said by phone. 

“Stocks in the U.S. and most of the developed markets look to us to be a pretty bad risk-reward tradeoff,” he said. “They’re already priced for the best outcome you could reasonably expect.”

That’s a change from late March, when stocks globally, apart from U.S. large cap, appeared cheap or priced at fair value, according to Inker. The equities market went on to produce in two months the types of returns GMO would expect to see over five to...

Ashish Shah, a fixed-income leader at Goldman Sachs Group, is keeping a positive view of markets as social unrest erupts across the U.S.

The intensifying protests over inequality may change the U.S. path for reopening its economy because social distancing measures are difficult to manage in the crowds, according to Shah. But they don’t derail his longer term view of markets as a debt investor, he said Tuesday in a phone interview. 

Shah sees the combination of Federal Reserve policies and government efforts to get the economy “back up and started” amid the coronavirus crisis as the primary drivers in markets.

“From a bigger picture, longer-term perspective, those are the two most important things that investors need to focus on,” said Shah. “Taking the long-term view is absolutely critical.”

Still, Shah expressed personal dismay at the systemic racism, which, along with the the death of George Floyd, sparked the widespread...

When investors use environmental, social, and governance factors to choose companies to invest in, they don’t outperform, research shows.  

But when ESG factors are combined with high employee satisfaction, shareholders reap the rewards, according to new academic research from Kyle Welch at George Washington University and Aaron Yoon at Northwestern University. 

Their paper, published Tuesday, shows that portfolios made up of companies with high ESG ratings and high employee satisfaction outperform firms with low ratings by 5.61 percent on an equal-weighted basis, and 5.83 percent on a value-weighted basis. 

“The big question I had in mind was how do you generate alpha from ESG?” Yoon told Institutional Investor by phone Tuesday.  

According to Yoon, the research he has done has not shown that ESG measures alone improve returns. High employee satisfaction, however, improves annual shareholder returns...

Around the world, businesses are beginning to reopen from the coronavirus pandemic. But asset owners and investment managers won’t be returning to normal anytime soon, according to the latest II Fear Index.

Institutional investors participating in the weekly poll broadly indicated they would continue to stay home for at least the next month, with just 15 percent planning to return to the office in June. However, a majority believed they would be back at their workplace by fall: Thirty percent said day-to-day office work would resume in July or August, while another 30 percent predicted it would happen in September or October.

There was less consensus on the subject of in-person meetings. While the highest proportion — 31 percent — indicated they would begin meeting with clients or asset managers in September or October, another 28 percent anticipated that they would not have any face-to-face meetings until 2021. 

BlackRock’s exchange-traded funds were a massive target of the Federal Reserve’s unprecedented intervention in corporate bond markets, according to research from ETFGI.

The Fed bought $1.58 billion in investment-grade and high-yield ETFs from May 12 to May 19, with BlackRock’s iShares funds representing 48 percent of the $1.307 billion market value at the end of that period, ETFGI said in a May 30 report. The iShares iBoxx $ Investment Grade Corporate Bond ETF, which trades under the ticker LQD, was the biggest beneficiary based on the number of shares purchased and their market value.

BlackRock, which is running three debt-buying programs for the government, is waiving investment advisory fees for iShares funds it buys on behalf of the Fed, ETFGI said in its report.

“BlackRock is acting as a fiduciary to the Federal Reserve Bank of New York,” a spokesperson for the asset manager said Monday in an emailed statement. “As such, BlackRock...

During the worst of the market chaos in March, some credit hedge funds suspended redemptions because they didn’t know what their holdings were worth and the prices of fixed income exchange-traded funds were out of whack with the net asset value of their underlying bonds. 

The prices for stocks, which trade on an exchange, are available in real-time. But bonds still trade over-the-counter, meaning a dealer and an investor negotiate a price, whether on a screen of over the phone. As a result, there is no central place to go for bond prices. Bond mutual funds, for example, use what are called evaluated prices from third parties such as ICE Data Services. ICE has analysts and algorithms gathering and assessing multiple sources of information scattered throughout the market to provide evaluated bond prices to investors, asset managers, dealers, and others. 

In March and April, as markets cratered and transactions ground to a halt, that...

Investors yanked $335 billion out of U.S. mutual funds in March as the coronavirus pandemic infected the country’s economy. As markets began to recover in April, only some of the largest asset managers were successful in regaining investors, according to Cerulli Associates.

“While equity markets rebounded in April, posting their best month since the 1970s, the top-10 managers continued to bleed assets, losing a combined $14 billion,” the consulting firm said in a new report analyzing U.S. fund flows.

The worst hit — on an absolute basis — was Vanguard, the largest U.S. mutual fund manager with $3.8 trillion in assets as of April. The indexing giant recorded $4.6 billion of outflows from its mutual funds in April, according to the report, which cited Morningstar data.

Invesco faced similarly steep redemptions, with net outflows of $4.5 billion. With total U.S. mutual fund assets of $270.4 billion as of April, Invesco had the worst...

Among the gilded denizens of Silicon Valley, it’s known as the “Who cares? rant.”

It began when Chamath Palihapitiya argued, in a CNBC interview on April 9, that “zombie companies” like airlines did not deserve a bailout from the U.S. government, despite a global pandemic that had shut down business — and travel — the world over. 

Then he took aim squarely at the men (and they are almost entirely men) running the hedge funds he blames for the corporate world’s inability to weather a crisis in the first place.

“The people that get wiped out are the speculators that own the unsecured tranches of debt or the folks that own the equity,” he stressed, unmuted insistence rising in his voice. “And by the way, those are the rules of the game. That’s right. Because these are the people who purport to be the most sophisticated investors in the world. They deserve to get wiped out.”

Palihapitiya continued. “Who are we talking about?...

Among the gilded denizens of Silicon Valley, it’s known as the “Who cares? rant.”

It began when Chamath Palihapitiya argued, in a CNBC interview on April 9, that “zombie companies” like airlines did not deserve a bailout from the U.S. government, despite a global pandemic that had shut down business — and travel — the world over. 

Then he took aim squarely at the men (and they are almost entirely men) running the hedge funds he blames for the corporate world’s inability to weather a crisis in the first place.

“The people that get wiped out are the speculators that own the unsecured tranches of debt or the folks that own the equity,” he stressed, unmuted insistence rising in his voice. “And by the way, those are the rules of the game. That’s right. Because these are the people who purport to be the most sophisticated investors in the world. They deserve to get wiped out.”

Palihapitiya continued. “Who are we talking about?...

Among the gilded denizens of Silicon Valley, it’s known as the “Who cares? rant.”

It began when Chamath Palihapitiya argued, in a CNBC interview on April 9, that “zombie companies” like airlines did not deserve a bailout from the U.S. government, despite a global pandemic that had shut down business — and travel — the world over. 

Then he took aim squarely at the men (and they are almost entirely men) running the hedge funds he blames for the corporate world’s inability to weather a crisis in the first place.

“The people that get wiped out are the speculators that own the unsecured tranches of debt or the folks that own the equity,” he stressed, unmuted insistence rising in his voice. “And by the way, those are the rules of the game. That’s right. Because these are the people who purport to be the most sophisticated investors in the world. They deserve to get wiped out.”

Palihapitiya continued. “Who are we talking about?...

Among the gilded denizens of Silicon Valley, it’s known as the “Who cares? rant.”

It began when Chamath Palihapitiya argued, in a CNBC interview on April 9, that “zombie companies” like airlines did not deserve a bailout from the U.S. government, despite a global pandemic that had shut down business — and travel — the world over. 

Then he took aim squarely at the men (and they are almost entirely men) running the hedge funds he blames for the corporate world’s inability to weather a crisis in the first place.

“The people that get wiped out are the speculators that own the unsecured tranches of debt or the folks that own the equity,” he stressed, unmuted insistence rising in his voice. “And by the way, those are the rules of the game. That’s right. Because these are the people who purport to be the most sophisticated investors in the world. They deserve to get wiped out.”

Palihapitiya continued. “Who are we talking about?...

Asset managers seeking an edge in the uncertainty of the pandemic might do well to turn to natural language processing the way firms including American Century Investments do — and avoid the task of digesting massive volumes of research, according to text analytics company FinText.

In a recent paper looking at the ways finance firms uses the machine learning application, FinText said American Century tries to detect deception in management language during companies’ quarterly-earnings calls. Its sentiment model checks for omission of important disclosures, spin, obfuscation, and blame.

Firms such as Barings Asset Management, State Street Corp., and Deutsche Bank are also using natural language processing, according to the paper. The technology removes “text-related grunt work, allowing employees to focus on higher-value tasks,” FinText said in the paper.

Barings researchers have developed a system that helps digest media content,...

Emerging market hedge funds started the first quarter on a high note, with total capital invested hitting a new peak. Then the coronavirus pandemic arrived. 

According to new data from Hedge Fund Research, the volatility that fueled market declines in March and gains in April has resulted in year-to-date negative returns for emerging market hedge funds.  

“Coronavirus-driven pandemic volatility, which began in early 2020, accelerated and expanded through April to encompass not only regional emerging market equity and fixed income markets, but also commodity and currency markets, including volatile cryptocurrency markets,” Ken Heinz, president of HFR, said in a statement. 

HFR’s data shows that emerging market hedge funds began the year with a record $248.3 billion under management. “As financial markets volatility spiked and investor risk tolerance posted a historic decline,” total capital fell to roughly $232...

Family offices stepped up borrowing against their private equity investments in the first quarter, moves made to increase their cash in the coronavirus crisis, according to UBS Group. 

Demand for financing that uses private equity funds and co-investments as collateral rose as family offices sought to defend their portfolios in the market turmoil, Chris Baxter, the U.S. head of fund financing and investment at UBS, said in a phone interview. The loans typically ranged from $50 million to $250 million but some were significantly larger, he said. 

UBS’s family office clients are large and behave like institutional investors, managing assets ranging from $500 million to billions of dollars. They moved more quickly in the pandemic to increase their cash cushions compared with the 2008 financial crisis, partly because they have expanded their professional staffs since then, according to Baxter.  

Some family offices took...

When will the Covid-19 pandemic end? What’s going to happen to the economy? Investors have a lot of questions about the future — but no one, according to Howard Marks, has the answers.

In his most recent client memo, the Oaktree Capital chairman addressed the current state of uncertainty and what he described as the “futility of forecasting,” arguing that not even expertise in a given field necessarily equips a person to predict what will happen. 

It’s an argument the credit investor has made before, including in his last missive to clients in early May. In this newest letter, released publicly on Thursday, Marks explained that forecasting is impossible because the future is path-dependent — in other words, whatever happens between now and then can affect the ultimate outcome.

“Not only how will the virus behave, morph, travel, react to warm weather and infect, but also how fast will we reopen the economy, how will people behave...

Northern Trust will connect its operations, servicing, and data products to BlackRock’s flagship Aladdin platform, the Chicago-based firm announced Thursday.

For BlackRock, this is the latest in a string of partnership announcements: Earlier this year, the firm announced it will work with BNP Paribas on a similar servicing deal. BlackRock also announced a new partnership with Microsoft to offer Aladdin on the technology company’s cloud platform.  

Aladdin, short for Asset Liability and Debt and Derivative Investment Network, is a software tool that’s widely used by institutional investors to keep track of their portfolios. Northern Trust is another industry heavyweight, with $10.9 trillion in assets under custody or administration, and $1.1 trillion in assets under management as of March 31.   

The partnership connects Northern Trust’s fund accounting and administration, asset servicing, and risk and IT...

Venture capital, like other alternative asset classes, is often viewed by institutional investors as a way to diversify their portfolios and achieve returns that are uncorrelated to public markets. But venture capital activity may not actually be so uncorrelated to stocks — at least in the earliest stages, according to a new working paper from the National Bureau of Economic Research.

In the first two months after the Covid-19 pandemic struck the U.S., early-stage venture capital activity dropped by 38 percent relative to the previous four months, reported the paper’s authors Sabrina Howell (New York University), Josh Lerner (Harvard University), Ramana Nanda (Harvard), and Richard Townsend (University of California, San Diego).

This sharp drop is not unique to the current crisis: deal volume, capital invested, and deal size have historically declined “substantially” during recessions, they said. This is in contrast with later-stage venture...

Asset managers that run traditional stock and bond funds suffered far less than many investors in the first quarter.

The median revenue at traditional publicly traded asset managers declined 6.7 percent in the first quarter of 2020, according to an analysis by Casey Quirk, the asset management strategy consultant that is part of Deloitte. The Standard & Poor’s 500 stock index fell almost 20 percent in the first quarter as economies around the world shut down in response to the coronavirus. 

Amid the shutdown, asset managers shelled out less to keep their businesses going. Operating expenses fell 3.9 percent, according to Casey Quirk, which analyzed 19 firms with approximately $16 trillion assets under management.

Investors also stayed put. Net flows declined less than 1 percent, with retail investors representing most of the outflows, according to the consultant. Operating margins declined 1.9 percent for the median...

After a contentious two months, hedge fund founder Nicolai Tangen has signed an employment contract with the Norges Bank Investment Board that aims to ensure distance between his personal assets and his work at the sovereign wealth fund.  

Norges Bank, which manages 11.5 trillion kroner (US$1.1 trillion), announced in late March that it had hired Tangen to replace Yngve Slyngstad as its chief executive officer. In October Slyngstad announced his intention to step down after 12 years in the role.   

But soon after the bank announced Tangen's appointment, a Norwegian news site, VG, raised questions about the circumstances of his hiring and the separation between his personal assets and the public fund. Since then, Norges Bank and its supervisory council have been working to manage the fallout from those questions.   

Norges Bank’s executive board met Wednesday to discuss Tangen’s employment, and on...

Ares Management, a private equity firm based in Los Angeles, purchased the stock of a portfolio company without sufficiently documenting inquiries surrounding material nonpublic information, according the Securities and Exchange Commission.

An Ares employee sat on the board of the company while participating in trading decisions tied to it, the SEC said in a May 26 statement. The securities regulator found the firm violated compliance policies as it “failed to account for the special circumstances presented by having an employee serve on the portfolio company’s board.”

Ares agreed to pay $1 million to settle the SEC’s charges, without admitting to or denying the findings that the securities regulator laid out in its order. 

“Investment advisers and private equity firms that place employees on the boards of public companies bear heightened risks that they will obtain nonpublic material information through their representative...