Wall Street Banks Trim Ties to China, Institutions Dump Stocks and the Fed Hints at a Rate Hike Pause in this Week's Edition...
Take a Lap Around the Industry
UBS Faces $17B Blow as Credit Suisse Rescue Backfires, Raises Concerns Over Rushed Due Diligence (CNBC)
Barclays Bullish on Macau: Casino Stocks Surge on Optimistic Outlook (Yahoo)
Shell Reportedly Considers Selling French Floating Wind Power Unit, Eolfi (Bloomberg)
OpenAI CEO Sam Altman Calls for Safety Standards for AI Systems (WSJ)
Wall Street Giants Confront Harsh Realities in China's Financial Market
The dreams of Wall Street's major banks to capitalize on China's $60 trillion market are fading as geopolitical complexities and President Xi Jinping's security-focused approach disrupt their expansion plans. Goldman Sachs and Morgan Stanley have scaled back their ambitions and profit goals due to the changing business landscape. Facing a more challenging environment, the banks are reconsidering their strategies, resulting in job cuts and revisions of long-term projections. Factors hindering their success include stricter listing regulations, reduced overseas investments, declining advisory fee opportunities, heightened scrutiny on data security and waning interest from U.S. firms in prioritizing China. A more harmonious US-China relationship would be beneficial for creating a favorable business climate, but such a scenario appears unlikely in the near future.
"Wall Street banks should have factored in geopolitical risks a long time ago...Over the next five years, the best case scenario for them is that China reverses direction and goes back to real open-door policy and market reforms, revitalizing the business environment. This is an extremely unlikely scenario but not impossible."
Chen Zhiwu, University of Hong Kong Business School
Private Funding Pulse Check
Healthcare logistics and support provider, Wellthy, has successfully secured $25M in their Venture round, with participation from Bellevue, WA-based family office, Cercano Management
Cornerstone Partners Family Office has invested in a $1.8M Seed funding round in Sticky, a "no-code" operating platform that allows for faster project development
Synco, a real-time messaging platform for property management teams, has garnered $5.5M in investment in a recent Seed round, with the participation of Harrison LeFrak's Family Office
Blue Haven Initiative has participated in a $55M strategic private equity investment in M-KOPA, a fintech platform that provides digital financial services to underbanked consumers
Investor Sentiment Turns Sour on U.S. Stocks, Contrarians Spot Opportunity
Investor sentiment towards U.S. stocks has soured as fund managers cut their stockholdings due to concerns over the banking sector, inflation, interest rates and a slowing economy. Institutional and individual investors have withdrawn billions from stocks and moved to cash equivalents. However, some see this negativity as an opportunity, following the contrarian wisdom of Warren Buffett's advice to "be greedy when others are fearful." The market has stagnated recently, with upcoming economic data and earnings reports sure to provide a clearer picture. The potential for rate cuts by the Federal Reserve and available sidelined money may provide a floor for any market decline, enticing investors to re-enter. Hedge funds have bucked the trend of the broader class of institutions and have increased their stock exposure.
"The technicals and the sentiment side of the equation to us are just way offsides...Not only does that limit the downside, but if you get any more positive news, that could easily squeeze the market higher."
Jack Janasiewicz, Natixis Investment Managers
Rate Hike Cycle Reaches Inflection Point: How Many More Moves Does the Fed Have?
The Federal Reserve's interest rate hikes may have reached their peak as policymakers take a more cautious approach in 2023. After a series of rapid increases last year, the Fed has been raising rates at a slower pace this year, with the benchmark rate now at 5-5.25%, the highest in nearly 16 years. The possibility of future rate hikes is shrouded in uncertainty, with concerns about the stability of the economy arising from recent bank failures and an unclear economic outlook. Many of the Fed officials seem to be split, with some believing that rates may have peaked, while others are not so certain. The path of the Fed Funds Rate in the coming months hinges on a range of factors, including inflation trends, employment figures, and the potential ripple effects of regional bank failures on the wider economy. Jerome Powell has previously stated that future rate decisions will be made on a meeting-by-meeting basis.
"In pushing the benchmark fed funds rate above 5 percent for the first time since 2007, the Federal Reserve is underscoring their commitment to getting inflation under control and restoring price stability."
Greg McBride, Bankrate
Institutional Family Offices Remain Bullish on Risk Assets, Per Goldman Sachs Report
Goldman Sachs has released its 2023 Family Office Investment Insight Report, revealing significant changes in investment strategy among institutional family offices. The report indicates a shift away from cash holdings as family offices adopt a "risk-on" approach, increasing allocations to public and private equities while adding fixed income exposure for higher rate opportunities. The survey gathered responses from 166 family offices with a net worth of at least $500M, 72% of which had a net worth of at least $1B. The report revealed family offices continue to maintain significant allocations to risk assets, including 28% in public market equities and 26% in private equity. Sectors of overweight allocations included information technology and healthcare. A substantial proportion of family offices plan to increase allocations to public market equities, private equity, fixed income, private credit, private real estate and infrastructure. Additionally, interest in cryptocurrencies has waned due to market volatility and regulation uncertainty.
"With the flexibility to invest across the risk spectrum, family offices have maintained a largely consistent approach to more aggressive allocations as they seek superior returns...Planned risk-on allocations tell us they see strong opportunities to capture added alpha. This patient, strategic, long-term orientation is often an advantage in managing and preserving generational wealth."
Heffernan Financial Services has expanded its presence in Arizona with the acquisition of Ascendant Financial Solutions (Cision)
Pinnacle Asociates Ltd has announced its purchase of Investment Management of Virginia LLC, an RIA managing approximately $580M in assets (Yahoo)
Savant Wealth Management has finalized the acquisition of Lancaster, PA-based RIA, Domani Wealth, who oversaw $1.53B in assets (FAIQ)
Written by:
Andrew Popp | Sr. Research Associate
FINTRX delivers an industry-leading suite of private wealth data and research solutions to the alternative investment space and private capital markets. Engineered to help clients identify and access family office and RIA capital intuitively, the FINTRX platform ensures accurate and updated data and research on 850,000+ private wealth records globally. To subscribe to our newsletter and see previous versions click below.
