By Maiya Keidan and Carolyn Cohn
LONDON (Reuters) – Having complained for years about hedge funds’ high fees and lacklustre performance, insurance firms may be preparing to cut allocations to the sector after its poor performance during recent market upheaval left many of them nursing losses.
That would be a problem for hedge funds, as insurance companies are huge investors, managing around $20 trillion of assets globally.
It would also be a challenge for insurers, which have been hoping hedge funds would deliver market-beating returns to help them meet billions of dollars in pandemic-related payouts.
One of the primary objectives of hedge funds is to preserve clients’ capital during market downturns. But the industry mostly failed to do that in the first six months of 2020, losing an average of 3.5%, according to Hedge Fund Research (HFR).
An index fund tracking the S&P500 would have lost 3% in the same period.
(Graphic: Hedge fund annual returns – https://graphics.reuters.com/HEALTH-CORONAVIRUS/INSURANCE/xlbpgjloovq/chart.png)
For European insurers, the underperformance is a double blow, as they incur extra capital charges to hold investments classed as risky.
“The average hedge fund would not be a good investment,” said Urban Angehrn, chief investment officer at Zurich Insurance , which says a $120 million fall in hedge fund gains versus last year contributed to a drop in first-half profits.
Angehrn said there were exceptions but “in aggregate, unfortunately, (hedge funds) don’t do a very good job in creating extra performance.”
While Zurich earned a better-than-average 2.9% from its hedge funds between January and June, that was down from 9% in the same period a year earlier. It has around 1% of its $207 billion asset portfolio in hedge funds and Chief Financial Officer George Quinn told Reuters last month it did not plan a “significant shift” in allocations.
Overall, though, European insurers’ median hedge fund holdings have been falling, hitting 1.5% in September from 2% four years before, data from Preqin shows.
Less than a fifth of global insurers plan to add to hedge fund allocations in the event of persistent volatility over the next three to six months, a State Street survey showed in June, while Goldman Sachs Asset Management’s July survey found that even before the pandemic, insurance firms were cutting hedge fund investments.
“I don’t anticipate COVID leading to increased allocations to hedge funds,” said Gareth Haslip, global head of insurance strategy and analytics at JPMorgan Asset Management.
(Graphic: Insurers’ allocations to hedge funds [in %] – https://graphics.reuters.com/HEALTH-CORONAVIRUS/INSURERS/xegpbjogkpq/chart.png)
Most major insurers do not provide detail of their hedge fund exposure in earnings reports, but Dutch group Aegon told Reuters it had cut allocations to riskier assets by more than 20% as underperformance of hedge funds inflicted losses of $50 million in the first half of 2020.
“Given the current environment, we decided to somewhat de-risk our investment portfolio and have lowered our exposure to hedge funds and private equity to $1.482 million per June 30, from $1.830 million per December 31, 2019,” a spokesman said.
U.S. insurer AIG said earnings in its general insurance business suffered in the first quarter from a $588 million drop in net investment income, mainly due to hedge funds. AIG declined to comment on its allocations.
Bucking the trend, reinsurer Swiss Re’s hedge fund investments edged up to $355 million at June 30 from $352 million at the end of 2019. A spokesman declined to comment on future investment plans.
European insurers’ hedge fund allocations have room to fall as they are above global averages. It’s also costlier to hold hedge funds after Solvency II regulations introduced in 2016 required insurers to set aside more capital against riskier investments.
Those regulations have partly driven recent falls in hedge fund allocations, according to Andries Hoekema, global insurance sector head at HSBC Global Asset Management, but he noted holdings were down also in Asia, which hadn’t tightened rules.
“In Asia, we have some evidence of insurers replacing hedge fund exposure with private equity,” Hoekema said.
This was “driven partly by the more attractive returns of private equity and partly by the disappointing diversification properties of some hedge fund strategies in recent years,” he added.
($1 = 0.8545 euros)
(Reporting by Maiya Keidan and Carolyn Cohn in London, additional reporting by Toby Sterling in Amsterdam; editing by Sujata Rao and Mark Potter)
Defying expectations, global VC investment rose in Q3 – Wealth Professional
In 2020, VC-backed exit activity has so far surged to nearly US$250 billion; Q3 alone saw that activity reach US$155.7 billion as IPOs from Snowflake, JFrog, and Unity Software pushed through. That represents another quarter-on-quarter advance, coming right after the US$49.2-billion record in Q2 2020.
“After several quiet quarters, the IPO market for VC-backed companies rocketed into high gear in Q3’20, with a number of high-profile unicorns making successful exits,” said Conor Moore, Co-Leader, KPMG Private Enterprise Emerging Giants Network KPMG International. “Given the recent filings by several other unicorns, coupled with the explosion of SPAC transactions, Q4’20 looks on-track to continue the record-setting pace.”
While total investment is on an upswing, KPMG said VC deal activity extended its losing streak, dropping for the sixth straight quarter to reflect the lowest volume reported since Q4 2013. The number of global angel/seed-stage deals fell to 1,650, the lowest since Q4 2012; global early-stage deal volume (1,716) likewise descended to its deepest since Q2 2014.
Against the VC landscape’s transformation amid COVID-19, pharma and biotech proved to be hotbeds of VC investment in Q3 2020, led by a US$600-million raise by CureVac in Germany. By the end of the quarter, total year-to-date VC investment in the space had reached US$31 billion, comfortably above the US$27.1 billion it reported for all of 2019.
“While overall VC investment has remained surprisingly resilient given the number of diverse challenges being faced around the globe, the extended decline in funding for early stage companies causes some concern,” said Kevin Smith, co-leader, KPMG Private Enterprise Emerging Giants Network, KPMG International.
Digital Technology Supercluster makes $10 million investment, rounding out $60 million COVID-19 program – BetaKit
The Digital Technology Supercluster has made $10.7 million in follow-on investments to five projects under its COVID-19 stream, rounding out the Supercluster’s $60 million budget for the pandemic-focused program.
Bill Tam said these latest follow-on investments are a testament to the Supercluster model.
The COVID-19 program was created at the beginning of the pandemic to invest in digital solutions that protect the Canadian economy as well as public health. The creation of the program followed a decision in March from the federal government to refocus some of the Superclusters in order to help in the fight against the pandemic.
The COVID program’s $60 million came from the Digital Technology Supercluster’s $153 million budget.
The $10.7 million in follow-on investments come as a recent report from the parliamentary budget officer found that the Superclusters were far behind on their spending goals as of March 6. The report found the federal government’s five Superclusters had dolled out just $30 million instead of the $104 million they had been projected to spend by that time.
Bill Tam, co-founder and chief operating officer of the Digital Technology Supercluster, emphasized that the reporting conducted by the parliamentary budget officer did not capture the Supercluster’s momentum since March.
Tam claimed that, since March, the Digital Technology Supercluster has already completed its entire year’s worth of investments.
According to targets the Supercluster shared with BetaKit, the Supercluster was set to have about $170 million deployed by both itself and private sector partners, into 40 to 45 projects.
As of October 21, the Supercluster and its private sector partners have invested a collective $223 million in 67 projects since the inception of the initiative, according to the Supercluster’s annual report. Tam said he expects the Supercluster will have fully invested its $153 million budget by March 2021.
“I think the grand experiment of the Supercluster model is working,” Tam said, noting that the Supercluster’s ability to double down on these collaborations presents an opportunity to change the shape of Canada’s innovation economy.
The five projects that received the cumulative $10.7 million have previously received financial support from the Supercluster under its COVID-19 program as “feasibility studies.”
“Our follow on investment thesis is really about being able to double down.”
Tam told BetaKit the feasibility studies allowed the project organizers to determine whether a technology or innovative idea is appropriate for a large-scale project with the intention of developing an application for co-investment.
“We have feasibility assessment vehicles in order for these teams to actually have a sandbox with which to collaborate on initiatives,” Tam said. “Our follow on investment thesis is really about being able to double down.”
The projects receiving follow-on funding include:
COVID Cloud: $3.18 million
Originally called Beacon, this project is developing a digital technology platform to help track how SARS-CoV-2 is evolving over time and across specific geographic regions. The project’s initial investment from the Supercluster totalled $250,000.
Lifesaver: $2.85 million
This project aims to fill COVID-19 information gaps by consolidating and harmonizing vast arrays of data. Lifesaver’s initial investment from the Supercluster totalled $250,000.
Raven2: $1.62 million
Raven2 extends the scope of the team’s original work by finding new, safe COVID-19 therapeutics that could be sold commercially in Canada and worldwide. The project’s initial investment from the Supercluster was $250,000.
Scaling Safe Food Delivery for Canadians
This project will see startup Food-X Technologies develop an e-grocery solution that aims to help retailers offer online grocery sales at scale. The project’s initial investment from the Supercluster totalled $250,000.
Screen O/S: $450,000
This project is focused on improving COVID-19 screening for the education sector and film industry after a successful two-month assessment of their on-the-spot screening technology. The project’s initial investment from the Supercluster was $87,000.
Tam said although the program’s COVID-19 budget has been fully deployed, there is still an opportunity for follow-on investment from the Supercluster’s broader $153 million budget. All projects that receive investments from the Supercluster are able to receive follow-on funding, including those not part of the COVID-19 program.
Image source Unsplash. Photo by Christina @ wocintechchat.com.
Amazon announces $100 million logistics investment in Mexico – TheChronicleHerald.ca
By Daina Beth Solomon
MEXICO CITY (Reuters) – Amazon.com Inc said on Thursday it has invested $100 million in opening new warehouses in Mexico, including its first shipping centers outside the populous capital area, in a bid to offer faster deliveries.
The new sites include two so-called fulfillment centers – one near the northern city of Monterrey and another near the central city of Guadalajara – as well as a support building in the State of Mexico, just outside Mexico City.
Amazon also opened 12 delivery stations, bringing its total to 27 across the country, it said.
“The construction of a solid infrastructure network allows the company to stay closer than ever to clients, and thanks to that, it’s possible to offer fast deliveries,” Amazon said in a statement.
Monterrey and Guadalajara are the two biggest metropolitan zones of the country after the sprawling Mexico City area.
The new facilities represent 69,000 square meters (742,710 sq ft) altogether and create 1,500 direct and indirect jobs, Amazon said.
Amazon in total now runs five fulfillment centers, two support buildings and two classification centers in Mexico, where it launched its marketplace in 2015.
Enrique Alfaro, the governor of Jalisco state that is home to Guadalajara, said the new local warehouse would help more small and medium sized businesses ship their products faster and at lower costs.
Amazon is also striving to make inroads in Brazil, where it recently opened its fifth and biggest fulfillment center in the country, with 100,000 square meters (1,076,391 sq ft).
In both countries, which are the biggest economies in Latin America, Amazon is vying with local rivals for shopper loyalty, despite its ranking as the world’s biggest online retailer.
(Reporting by Daina Beth Solomon; Editing by Amy Caren Daniel)
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