The week in investor relations: BlackRock heading to Florida, diversity in the S&P 500 and retail investors missing out on active outperformance
– The Wall Street Journal (paywall) reported that BlackRock, the world’s largest money management company, is opening a satellite office in South Florida to accommodate a top executive and dozens of other employees, joining a ‘migration of financial firms’ to the state. Rick Rieder, BlackRock’s head of fixed income who oversees roughly $1.7 tn in assets, or about 20 percent of the firm’s total assets, reportedly owns a home in Palm Beach County and is expected to work out of the new West Palm Beach office space when he is in Florida, said the paper, citing ‘people familiar with the matter’. Around 35 other BlackRock employees are expected to start working there early next year, according to BlackRock.
– CNN reported that, for the first time, every company listed on the S&P 500 has at least one racially or ethnically diverse director. Roughly 11 percent of S&P boards were non-diverse in 2020. Monday also marked an important deadline for all Nasdaq-listed companies: they must complete a board diversity matrix that includes the total number of company board members and how those board members self-identify regarding gender, race, ethnicity and LGBTQ+ status. The results will be made public through annual meeting proxy statements or on company websites.
Starting in August 2023, companies trading on the exchange must have at least two diverse board members or explain why they are not meeting this diversity objective.
‘Disclosing this information to investors empowers shareholders to support companies that embody their ideals and pull investments from those that don’t,’ said Rep Carolyn Maloney, D-New York, who chairs the House Committee on Oversight and Reform, in a statement praising the move. ‘Beyond making moral and common sense, increased diversity also makes financial sense. Studies have repeatedly found that companies with more diverse leadership are better positioned to succeed.’
– According to the Financial Times (paywall), retail investors are missing out on active funds’ outperformance of passive funds because they pay higher fees than institutional investors. New research cited by the paper shows that different fee levels mean fund share classes that are accessible to institutional investors have outperformed passives, but retail investors’ share classes have underperformed, a group of four Dutch researchers has found. The research paper, Fund Selection: Sense and Sensibility, is the result of analysis of the performance of Luxembourg and Ireland-based UCITS equity and fixed-income funds between 2008 and 2020.
Actively managed funds’ performance, both gross and net of costs, was compared with passive funds and index benchmarks, with results weighted by funds’ assets to reflect where most client money was held, noted the paper.
– CityWire reported that Ruffer Investment Company used July’s rally to reduce direct equity exposure. Manager Duncan MacInnes argued that the equity rebound was based on markets pricing in the abandonment of monetary tightening by the Fed, with interest futures pricing in a likely central bank interest rate cut by early next year. But he sees this outcome as unlikely in the short term given that inflation is continuing to rise faster than the policy interest rate, said the publication.
It quoted MacInnes as saying: ‘We have been through numerous ‘unprecedented’ events in the last few years. But it would be truly unprecedented to slow the economy sufficiently to bring down the highest inflation rate for 40 years with an after-inflation policy rate that never goes positive. This bear market is not over, and we believe we are entering its most dangerous phase.’
– According to the WSJ, broad new data on wages earned by college graduates who received federal student aid shows a pay gap emerging between men and women soon after they join the workforce, even among those who received the same degree from the same school.
The data, which covers roughly 1.7 mn graduates, shows that median pay for men exceeded that for women three years after graduation in nearly 75 percent of roughly 11,300 undergraduate and graduate degree programs at around 2,000 universities. In almost half of the programs, male graduates’ median earnings topped women’s by 10 percent or more, a WSJ analysis of data from 2015 and 2016 graduates shows.
For example, men who received undergraduate accounting degrees from Georgetown University earned a median $155,000 three years after graduation, a 55 percent premium over their female classmates, the analysis shows.
– Proposed SEC rules on special purpose acquisition companies (Spacs) could force almost half of the Spacs still searching for a merger partner into liquidation, according to a new report from SPACInsider, according to Institutional Investor. Those Spacs account for $80.6 bn in capital that is now held in trust, but which would be returned to investors. The publication says that under the SEC’s proposal, a Spac would need to announce a deal within 18 months from the date of its IPO and close within 24 months in order to avoid falling under the Investment Company Act of 1940.
‘As investment companies, Spacs’ activities would be severely restricted and subject to very burdensome compliance requirements,’ wrote Kristi Marvin, founder of SPACInsider and author of the report.
– The FT reported that the UK’s electricity generators will face pressure from ministers to invest their ‘extraordinary profits’ in new green energy projects, rather than paying out the windfall to shareholders. Some have made huge profits from surging electricity prices that have risen in line with the soaring cost of gas, even if the power they produce comes from renewables or nuclear energy. Chancellor Nadhim Zahawi is reportedly ‘keeping alive’ the prospect of hitting electricity generators with a new windfall tax if they do not invest their profits in renewable energy schemes.
– Hedge funds would have to start giving the government significantly more information about their investment strategies under a proposal from the SEC to better keep tabs on risks to the financial system, said Bloomberg (paywall). The news agency said expansion of confidential filings that big managers must file quarterly with the SEC ‘would mark one of the biggest increases in regulation for the private fund industry in a decade’, describing the effort as ‘the latest move by Biden administration regulators to clamp down on a relatively opaque corner of finance’ they say can have major impacts on markets. In January, the SEC took a step toward requiring large hedge funds and private equity firms to report major losses and redemptions more quickly. The regulator is also considering ways to make fees more transparent.
– In other SEC news, the agency has proposed new rules aimed at preventing conflicts of interest in management and governance of clearing houses, Reuters (paywall) reported. Under the SEC’s proposal, registered clearing houses would have to disclose more details on board composition, independent directors and nominating and risk-management committees, among other details.
‘I think these rules would help to build more transparent and reliable clearing houses,’ said SEC chair Gary Gensler in a statement. ‘This in turn would help ensure our markets are more resilient, protecting investors and building trust in our markets.’ The SEC’s plan would require clearing houses to identify, mitigate or eliminate conflicts of interest involving directors or senior managers, and to document such actions.
– The International Sustainability Standards Board (ISSB) reported that it has received more than 1,300 comment letters on its two proposed sustainability disclosure standards. The ISSB said it received more than 600 responses to its draft climate disclosure standard and close to 700 responses to its draft general requirements disclosure standard. During the 120-day comment period, ISSB representatives participated in more than 400 outreach events, engaging with thousands of stakeholders globally.
Comments came from a range of stakeholder groups including academics, accountancy bodies and audit firms, investors, preparers, public interest bodies, regulators and standard-setters. ‘I am encouraged by the number of comments we have received on our proposals,’ said Emmanuel Faber, chair of the ISSB. ‘Global solutions require collective action and the feedback we have received provides a critical grounding on which to build sustainability disclosure standards that provide a global baseline for the capital markets.’
– More than 150 pieces of legislation related to blockchain, decentralized finance, cryptocurrencies, digital or virtual currencies and other digital assets have been introduced since the start of the most recent Congress, reported Markets Media, adding that these pieces of regulation would need to be more aligned if they pass, according to Moody’s Investors Service. The ratings agency said in a report that a clear regulatory and supervisory framework with the potential to prevent fraudulent activity and provide clear guidance to allow companies to innovate would be credit positive because it would protect consumers and ensure the industry does not become a source of financial instability, while allowing for any potential benefits from the crypto industry to be realized.