Vanguard Group, the second largest asset manager after BlackRock with $6.3 trillion in assets under management, reported Tuesday that it voted on 168,000 proxies in fiscal year 2020, and engaged with almost 800 companies, down slightly from the year before.

Vanguard has also named John Galloway, who joined Vanguard in 2017, to be global head of its investor stewardship program, succeeding Glenn Booraem. Booraem, who headed the group for two decades, will continue on as an adviser, helping Vanguard deal with future regulatory and other changes it expects in corporate governance, according to a statement from Tim Buckley, chairman and CEO.  

Historically, Vanguard, one of the largest passive managers, has been criticized for not being an active voter of its shares. But the asset manager, like BlackRock and State Street Global Advisors, has been steadily ramping up its governance efforts in recent years.

This year, corporate...

Banks were barred from directly raising hedge funds and private capital funds after the financial crisis. With some of those rules set to be relaxed on October 1 — including restrictions pertaining to venture capital and private debt — large banks are likely to jump on the opportunity to freely raise private capital funds, according to PitchBook analysts.

In a note published Tuesday, the data firm’s analysts explored the potential impacts of new revisions to the 2014 Volcker Rule, which will allow banks to invest in direct lending funds and venture funds as both a limited partner and a general partner.

“We do not see a need for additional large-scale VC funds in the market but believe the revisions will embolden large banks to raise new vehicles,” PitchBook analysts James Gelfer, Dylan Cox, and Hilary Wiek wrote in the note.

[II Deep Dive: Fed’s Proposed Volcker Rule Changes May Benefit VC Firms]

The original Volcker Rule had also...

The other day, a colleague and I made $2.5 million. We were paid for doing the right thing, which doesn’t happen often in our neighborhood. Wall Street rarely rewards integrity. 

A career as a financial analyst isn’t particularly sexy. By and large, we’re not like the high-rolling traders and dealmakers who populate Hollywood scripts, drinking expensive Scotch at swanky downtown bars. We’re the men and women who pore through voluminous amounts of publicly available information and apply complex financial models to assess a company’s strengths and weaknesses. We look at organizations the way a physician examines a patient, who reports symptoms and relies on him or her for a diagnosis. 

Unlike doctors, for a host of complex reasons, we typically stop short of the cure. 

We analysts regularly spot irregularities that ignite curiosity. Most often, there are perfectly good explanations for an incongruity. But not...

Does the size factor actually work? The answer, according to quantitative researchers at Robeco: Not really.

The size factor, discovered in 1981, is based on the finding that small firms have higher risk-adjusted returns than large firms, according to a new paper from David Blitz, head of quant research at Robeco, and Matthias Hanauer, a member of the quant research team. Proponents of the factor argue that investors can earn a premium by tilting their portfolios toward small-cap stocks.

Just one problem: “The size premium has failed to materialize since its discovery almost forty years ago,” Blitz and Hanauer said in the paper.

In recent years, however, research has emerged suggesting that size factor actually does work, after controlling for other factors. AQR co-founder Cliff Asness and his colleagues published a paper in 2018 finding “a strong and distinct size premium” after accounting for the fact that small-cap stocks, on...

Bridgewater Associates has once again accused Wall Street Journal reporter Rob Copeland of having “distorted the facts” about the hedge fund firm.

This latest dispute is over a Journal article published on Thursday reporting that Bridgewater’s director of research Karen Karniol-Tambour had made a formal complaint with the hedge fund’s leadership “after learning that she has earned less than some male counterparts.” 

The story comes less than two months after the hedge fund’s former co-chief executive officer Eileen Murray filed a lawsuit alleging that Bridgewater withheld her deferred compensation after she disclosed their ongoing gender discrimination, unequal pay, and breach of contract dispute to the Financial Industry Regulatory Authority. Murray was recently tapped to become the chairperson of FINRA. 

Bridgewater and its founder Ray Dalio claimed Monday that Copeland’s reporting was “inaccurate” in posts on...

Mercer has hired Samantha Davidson from Goldman Sachs Group to lead is outsourced-chief investment officer (OCIO) business in the U.S. 

Davidson, who worked in Goldman’s asset and wealth management division for more than 17 years, will be responsible for managing and expanding Mercer’s client relationships within its U.S. OCIO division, the consulting firm said Monday. Based in New York, Davidson will report to the U.S. leader of Mercer’s wealth business Chris Mahoney.

Mercer, which oversees more than $300 billion in OCIO assets globally, sees the Covid-19 pandemic as a potential boost for business. 

“In these uncertain times, many organizations need to focus on the core responsibilities of running their businesses,” Mahoney said in the statement. “We partner with clients who want to outsource their investment decisions and operations, saving them time, improving governance, and reacting nimbly to rapidly changing...

Even though U.S. stocks are behaving like government stimulus will go on forever and Covid-19 will vanish shortly, emerging markets are giving investors a taste of what could happen when the world ultimately normalizes.

One notable trend is that value stocks in emerging markets have finally stabilized. Value stocks have underperformed for years, setting off a frenzied debate on whether or not the investing style still works.

“It seems that emerging markets are behaving defensively. Low vol is doing well and value stocks are not declining. Perhaps this is because emerging markets don't expect a big stimulus to artificially keep them going through a second Covid wave and therefore have to rely on normal market dynamics,” wrote Damian Handzy, Style Analytics’ head of research and chief commercial officer, in the firm’s most recent analysis of factor performance. 

[II Deep Dive: Are the Covid Crash Deals Over?]

In the paper...

Bank of America Corp. has begun using artificial intelligence to predict the likelihood of companies defaulting on loans.

“Today we present our inaugural work on applying the latest machine learning tools to analyzing the credit risk,” Bank of America credit strategists Oleg Melentyev and Eric Yu and head of predictive analytics Toby Wade said in a research note Friday. They have started using natural language processing to digest earnings-calls transcripts in order to estimate companies’ probability of default over the next 12 months. 

In expanding their default model with the help of AI, the credit strategists seek to detect language used by chief executive officers and chief financial officers that signals a company’s high likelihood of default. Phrases that link to defaulting include cost cutting, asset sales, and cash burn, they said. 

Natural language processing has pointed to “more significant credit stresses” in...

Echo Street Capital Management has called it quits as a hedge fund — despite maintaining a strong track record and investor interest — according to informed sources and a client letter obtained by Institutional Investor.

The firm is shutting down its roughly $2 billion equity market-neutral hedge fund and plans to return 90 to 95 percent of investors’ capital by the end of September. 

“This was very unexpected and out of left field,” an institutional allocator and category specialist said. “The hedge fund has an excellent track record,” despite about 15 percent losses in March and being down 10 percent year-to-date, per the allocator. 

Typically, hedge funds liquidate, go out of business, or euphemistically “transition to a family office” after underperformance begets clients pulling money and prevents the firm from raising new capital. (Their goodbye letters rarely say so, however.)

[II Deep Dive: Asset Managers’ BS...

After short seller Hindenburg Research issued a scathing report on electric truck maker Nikola, the stock fell 10 percent. Now Citron Research, another short seller, has said it will pay half of Hindenburg’s legal costs, even as the beleaguered company denies the allegations in a statement posted on its web site.

Mark Thompson, chief investment officer at BP America, is retiring after 37 years of managing investments for the oil company and its predecessor Amoco, Institutional Investor has learned.

Thompson has served as CIO since 2015, when he took over the role from his long-time colleague Greg Williamson. He currently oversees about $22 billion in retirement, foundation, and other assets for BP. The company has not named a successor.

Thompson joined Amoco in 1980, after earning his MBA from Washington University in St. Louis. He moved into the Chicago-based oil company’s pension investment group three years later — and never left.

“Mark Thompson has been an invaluable part of BP’s (and heritage company Amoco’s) pension and foundation management, corporate finance, and HR benefits teams for over 35 years,” Williamson told Institutional Investor by email. “Mark has done it all well: investment allocation, portfolio construction, strategy...

Asset manager MKP Capital Management has placed a 70 percent probability on a Covid-19 vaccine being approved in 2020, with a smaller chance of that happening before the U.S. presidential election. 

MKP Capital, an alternative asset manager focused on global macro and fixed-income relative value strategies, sees a 40 percent chance that a vaccine will approved before the election on November 3, according to a report from the firm dated September 9. 

“It is now MKP’s strong base case that we will have at least one successful vaccine by the end of the year,” the firm said in the report. “A major question mark remains around whether a vaccine will be available ahead of this date and potentially provide a boost to President Trump’s campaign.”

Stocks and bonds were initially rocked by the Covid-19 pandemic this year, tanking during the first quarter before the Federal Reserve stepped in with a series of emergency measures. While...

According to Ray Dalio, the coronavirus pandemic was a blow to the system. But in his view, Covid-19 isn’t the biggest game changer.   

Instead, the Bridgewater Associates founder said Thursday that he sees the convergence of monetary policy, social and economic gaps, and the rise of China as forces that could change the world.  

Dalio shared his views on these changes — and how history informs them — Thursday at a digital event held by the Economic Club of New York.  

“It was the shock,” Dalio said of the pandemic. He added that history has shown that these shocks — whether they’re natural disasters, pandemics, or other calamities — become stress tests for a country’s health, financial and otherwise.   

But when the pandemic recedes, Dalio said he believes that these issues will remain.   

“How do you pay the bills?” he asked. “Are we going to be at each other’s throats? And...

It’s been a tough year for executives across Europe, the Middle East, and Asia — especially for those in the healthcare sector.

“To be completely honest, throughout the past six months most decisions have been exceptionally challenging,” said Dr. Ahmed Ezzeldin Mahmoud Abdelaal, chief executive of Cleopatra Hospitals Group, which operates six hospitals in the Cairo area in Egypt. In May, Dr. Ezzeldin was at the helm when the group converted two of its facilities into Covid-19 treatment and isolation centers.

“The transition had to take place in a very short time frame and there was no room for error,” said Dr. Ezzeldin, who has been voted the No. 2 healthcare CEO in Institutional Investor’s 2020 Emerging EMEA Executive Team.

First place in the healthcare sector went to MLP Care chief executive Muharrem Usta, who leads Turkey’s largest healthcare provider. Usta said the safety of his staff was a top priority at MLP, which has 30...

U.S. debt issuance reached a record of nearly $3 trillion for the second quarter, with $947 billion expected for the third quarter.U.S. debt-to-GDP is set to rise 20 percentage points by the end of the 2020 fiscal year, with the Treasury’s focus on issuing long-term debt at current low interest rates

Hedge fund managers are feeling... great.

The vast majority of managers surveyed in a new report by global consulting firm KPMG and the Alternative Investment Management Association feel they have adapted well to the post-Covid-19 world and are confident they can perform and grow their businesses — so much so that nearly 60 percent of firms have either hired new talent or have started looking to hire new talent since the pandemic began. 

"March was a difficult month, but the drawdown has been managed very well by most hedge funds,” said Tom Kehoe, global head of research and communications for AIMA, in an interview. (Data tracker Hedge Fund Research reported that the average hedge fund has gained 15 percent over the past five months.) “They were very quickly able to come out of that drawdown and look to see if they can hire, where some other industries might have been challenged during this time.”

[II Deep Dive: Pandemic Makes...

The U.S. election is looming over investment portfolios, with the majority of individual investors planning to make changes based on their belief that presidents influence the stock market, according to a Hartford Funds Management Group survey.

Sixty-two percent of investors said they expect to shift their assets within 12 months after the presidential election, while 45 percent of those surveyed planned do so in the run-up to the early November event. Hartford probed 872 investors with at least $100,000 in investible assets between August 5 and August 9, finding that client relationships are at stake in political leanings. 

While fund managers may see asset flows accelerate post-election based on investors’ expectations for how stocks will perform under the next president, those market fears are probably unfounded, according to Brian Kraus, head of investment consulting at Hartford Funds. But be careful addressing such concerns with...

The California Public Employees’ Retirement System is preparing for next week’s public board meetings, the first since chief investment officer Ben Meng resigned.   

Meng’s resignation — and the events leading up to it — have raised questions about transparency and organizational structures at the $409 billion pension fund. From September 14 through 16, CalPERS will hold seven meetings, only one of which will be closed to the public.

Some of the agenda items aim to manage the fallout from Meng’s resignation and future employees’ potential conflicts of interest.  

Early in August, complaints against Meng’s personal financial disclosures arose: first via a Naked Capitalism blog, and then via an anonymous complaint to the enforcement division of California’s Fair Political Practices Commission. Meng quickly resigned, but board members are seeking clarity on how this happened and how CalPERS will move...

Well-connected hedge fund managers are likely sharing their best ideas — and their networks are benefiting.

A new study from the University of Hawaii at M?noa adds to a growing body of research suggesting that hedge fund managers exchange information with their networks, including new investments and trade ideas. Author and business school professor Harold D. Spilker III found that the portfolios of connected managers overlap by as much as 50 percent more than the average hedge funds. The amount of overlap was highest for managers with the strongest connections, suggesting that the shared trades came from social ties and not just similar investment philosophies, according to the study.

This information sharing seems to be beneficial for the hedge funds involved: When Spilker constructed value-weighted portfolios based on the overlapping holdings of managers who worked at the same firm at the same time, those portfolios delivered alpha of 1.11...

Maybe it’s business. Maybe they really believe China’s official growth story. 

Whatever the motivation, many bankers and asset managers remain strikingly mum or optimistic on China in the face of grave signals about the country’s financial stability, according to former Federal Reserve official Niall Coffey. 

“From my perspective, China’s GDP data are fabricated. They have to be,” said Coffey, now CEO of macro research firm Avoca Global Advisors. “It is concerning that this occurs — and is widely discussed behind closed doors in the finance industry — but few professionals are willing to discuss it in public.”

Avoca recently published a detailed paper undermining the veracity of China’s official economic data, the stability of its financial systems, and U.S. investment advisors’ legal footing for not ringing the alarm, should they suspect chicanery. 

The paper attracted substantial feedback — and much of it through...

Heading into the pandemic, institutional investors in Texas were expecting their private equity portfolios to produce double digit gains exceeding the stock market, according to a recent paper published by the Journal of Applied Corporate Finance.

Tom Tull, chief investment officer of the Employees Retirement System of Texas, remarked during a private equity conference at the University of Texas in mid-February that the state pension fund anticipated annual returns of more than 10 percent from private equity over the next two decades, surpassing expected public equity returns of seven percent to eight percent. 

Texas Teachers Retirement System similarly was assuming a 10.5 percent return from private equity, Shelby Wanstrath, the co-head of private equity funds at Texas Teachers, said at the same event in Austin. But Memorial Hermann Health System had seen a lot of new private equity funds and none were proposing returns as low as 9...

With the unprecedented rise in global debt, Fidelity Investments is urging investors to rethink many of the long-held assumptions underpinning how they allocate money to different investments.

“The inexorable trend of rising debt/GDP ratios is becoming the single biggest risk factor in investment portfolios,” according to new research to be published later this week by Fidelity Investments. “This has important implications for plan governance and strategic asset allocation.”

Total global debt rose from 138 percent of GDP in 1980 to 243 percent in 2018, according to Fidelity. Sovereign debt more than doubled during the period, and the pandemic has only added to those numbers. Debt will upend strategic allocation, which drives 85 to 90 percent of an investor’s results, the firm argued. 

“However, deciding what will drive your strategic allocation is extraordinarily complicated,” said Vadim Zlotnikov, president of Fidelity...

Daniel Kamensky, the founder of distressed debt hedge fund Marble Ridge Capital, was arrested and charged with fraud, extortion, and obstruction of justice in connection with the bankruptcy proceedings of retailer Neiman Marcus, the U.S. Department of Justice announced Thursday. 

Kamensky, a member of the retailer’s unsecured creditors’ committee, had earlier landed in hot water over his alleged attempts to suppress a rival bid for Neiman Marcus’s MyTheresa e-commerce business so that Marble Ridge could buy the asset at a lower price, according to a preliminary report submitted as part of the bankruptcy proceedings by the U.S. Department of Justice’s Office of the United States Trustee. Kamensky then attempted to persuade the rival bidder to cover up the scheme, according to an announcement from the DoJ’s Southern District of New York. 

“As alleged, Daniel Kamensky disregarded his fiduciary responsibility to unsecured creditors of...