Pre-Open Data
Key Data for the Week
- Thursday – US – Initial Jobless Claims ticked higher last week to 744,000 for the week ending 3 April, as hiring slowed following a surge in March.
- Thursday – EUR – Producer Price Index grew 0.5% in February as the annual rate rose from 0.4% in January, to 1.5% in February.
- Friday – US – Producer Price Index
Australian Market
The Australian sharemarket lifted 1.0% yesterday, as the local index briefly passed 7,000 for the first time since before the pandemic. All sectors closed higher with Materials the best performer; mining heavyweights BHP, Fortescue Metals and Rio Tinto all added between 2.2% and 2.6%.
The Financials sector also outperformed as the big four banks all closed higher; Westpac lifted 1.3% and Commonwealth Bank rose 0.7%, while ANZ and NAB both added 1.1%. Macquarie Group rose 1.3%, while fund managers Magellan Financial Group and Australian Ethical Investment added 2.3% and 2.1% respectively.
The REITs sector lifted over 1.0% as Centuria Industrial added 2.1%, Stockland Corporation gained 1.6% and Dexus added 0.9%.
Auckland International Airport and Sydney Airport fell 0.7% and 0.8% respectively to ease from recent strength, while Telstra added 1.2% to close at its highest price for 2021.
The Australian futures market points to relatively flat open today.
Overseas Markets
European sharemarkets rose on Thursday, with the broad based STOXX Europe 600 up 0.6%. Vestas Wind Systems added 2.4% after the company announced it will carry out a 1:5 share split.
US sharemarkets also closed higher overnight, with the Information Technology sector the best performer; Alphabet, Amazon, Apple and Microsoft all added between 0.6% and 1.9%. Online retailer Shopify and cybersecurity company CrowdStrike both outperformed, up 5.5% and 4.9% respectively.
By the close of trade, the Dow Jones rose 0.2%, the S&P 500 added 0.4% and the NASDAQ lifted 1.0%.
CNIS Perspective
Over the past week, Wall Street witnessed the implosion of a family office, the US$10 billion fund called Archegos Capital Management. After a number of highly leveraged investments started to drop, the fund managed by an industry veteran Bill Hwang, is purported to have personally lost US$8 billion in 10 days, while two global lenders, Credit Suisse and Nomura, have also reported billion-dollar losses.
While these numbers are big, longer-term effects may send ripples through a much larger sum of money, the family office industry. Family offices are privately held companies that manage assets for the extremely wealthy (>US$100 million in investable assets), with the goal of preserving wealth through generations. The source of the funds can be from generational wealth or uber-successful entrepreneurs. The industry’s growth has been enormous with 7,000 family offices globally, up ~40% between 2017 and 2019, with an estimated US$6 trillion in assets under management across all the offices, at an average of US$1.6 billion per office. This equates to nearly two times the size of the hedge fund industry.
While hedge funds, endowments, and pensions are accountable to outside money, family offices in the US are able to stay a secretive affair. The industry is very lightly regulated, with market pundits of the belief that current disclosure requirements are totally insufficient with the annual cost of filing a mere US$28.50. While most family offices employ conservative financial strategies to preserve wealth, Archegos had a peak portfolio value of >US$100 billion, boosted by bank leverage. Even though Hwang admitted to securities fraud in 2012, leading investment banks were happy to have his business.
In the aftermath of the GFC, the US 2010 Dodd-Frank Act tightened financial regulation so that investment banks could not provide the same amounts of dangerous leverage to investments that almost brought the whole industry undone. Post-Archegos, the industry may see new rules for family offices, banking services, and the specific financial product used in Hwang’s trades, total return swaps.
Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.
Disclaimer
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