“BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion.”
Imagine a world in which two asset managers call the shots, in which their wealth exceeds current U.S. GDP and where almost every hedge fund, government and retiree is a customer. It’s closer than you think. BlackRock Inc. and Vanguard Group — already the world’s largest money managers — are less than a decade from managing a total of $20 trillion, according to Bloomberg News calculations. Amassing that sum will likely upend the asset management industry, intensify their ownership of the largest U.S. companies and test the twin pillars of market efficiency and corporate governance.
Vanguard is poised to parlay its $4.7 trillion of assets into more than $10 trillion by 2023, while BlackRock may hit that mark two years later, up from almost $6 trillion today, according to Bloomberg News projections based on the companies’ most recent five-year average annual growth rates in assets. Those gains in part reflect a bull market in stocks that’s driven assets into investment products and may not continue.
The argument goes like this: The number of indexes now outstrips U.S. stocks, with the eruption of passive funds driving demand for securities within these benchmarks, rather than for the broader universe of stocks and bonds. That could inflate or depress the price of these securities versus similar un-indexed assets, which may create bubbles and volatile price movements. Another concern is that without the prospect of being part of an index, fewer small or mid-sized companies have an incentive to go public, according to Larry Tabb, founder of Tabb Group LLC, a New York-based firm that analyzes the structure of financial markets. That’s because their stock risks underperforming without the inclusion in an index or an ETF, he said. Benchmarks are governed by rules or a methodology for selection and some require that a security has a certain size or liquidity for inclusion.
We’re not near a tipping point yet. Roughly 37 percent of assets in U.S.-domiciled equity funds are managed passively, up from 19 percent in 2009, according to Savita Subramanian at Bank of America Corp. By contrast, in Japan, nearly 70 percent of domestically focused equity funds are passively managed, suggesting the U.S. can stomach more indexing before market efficiency suffers.
“Spain Catalonia: Four top separatists to stay in jail.”
Two senior figures in the sacked Catalan separatist government must stay in jail but six others can go free, a Spanish supreme court judge has ruled. The six set to leave Spanish jails must post bail of €100,000 (£88,000; $120,000) each. Two top activists must also remain in jail.
The separatists were remanded in custody last month. Catalan ex-President Carles Puigdemont fled to Belgium. All are accused of sedition. Spain feared the others could flee too.
The ruling came a day before the start of campaigning for the 21 December Catalan regional election. The judge in Madrid ruled that Mr Puigdemont’s deputy Oriol Junqueras and Catalan ex-Interior Minister Joaquim Forn must stay in jail, along with grassroots separatist leaders Jordi Sanchez and Jordi Cuixart. The eight politicians are accused of rebellion and sedition over the region’s illegal declaration of independence in October.
Mr Puigdemont and four other ex-ministers also appeared in court in Brussels on Monday. Spain wants them to be extradited, and a lawyer for Mr Puigdemont tweeted that a Belgian judge would decide on 14 December. After the Catalan independence referendum and declaration of a «republic», Spain imposed direct rule on the region and called early elections there.
“Hidden peril awaits China’s banks as property binge fuels mortgage fraud frenzy.”
Gravity-defying property prices in China have spawned widespread home-loan fraud as buyers fear missing out on what seems like a sure bet. Real estate agents, valuation companies and banks themselves are party to the scam. A Reuters examination, including a review of court records, shows that across China, unqualified borrowers use fake documents to secure mortgages, while loans deceptively obtained for other purposes are funnelled into property. These frauds are often committed with the consent and encouragement of other parties to the transactions, including lending brokers, property agents, valuation companies and the banks themselves. And these alleged crimes are rarely punished.
While property prices in China continue to rise, mortgage fraud remains largely a hidden danger, much as subprime loans in the United States remained mostly out of sight ahead of the 2008 global financial crisis. The fear is that in a property correction, fraudulent mortgages would unravel, accelerating a collapse of housing prices in the world’s second biggest economy. This, in turn, would imperil China’s debt-laden financial system.
So far, China’s new home-owning class has yet to experience a sustained downturn in housing values. Official data showed prices grew 12.4 percent in 2016, the fastest rate since 2011. A report tracking home price trends by the Chinese Academy of Social Sciences, a state think tank, showed prices in 33 major cities soared 42 percent in 2016. Private estimates and anecdotal evidence suggest prices in most big Chinese cities actually doubled or tripled since late 2015.
“Hedge Funds Prepare to Trade Against Bitcoin.”
A bitcoin big short is building.
The planned introduction of bitcoin futures contracts at CME Group Inc., Cboe Global Markets Inc. and Nasdaq Inc. will make it much easier to bet on a decline. Hedge funds, which have largely stayed on the sidelines, are waiting for the Chicago Mercantile Exchange’s futures market to open for a fresh opportunity to bet against the cryptocurrency, according to more than a half dozen people trading the assets.
“The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish,” said Craig Pirrong, a business professor at the University of Houston. “Having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality.”
Bitcoin has gained millions of percent since it started trading in 2010. An investment of $1 at the beginning would now be valued at more than $1.4 million. A dollar invested in the S&P 500 stock index for the same period would now be worth less than $4 including reinvested dividends.
Some see the bitcoin market as “one of the greatest shorting opportunities ever,” said Lou Kerner, a partner at Flight VC who invests in the cryptocurrency. “You have a lot of zealotry, and a lot of people, including me, who think it’s the greatest thing to ever happen in the history of mankind. You have a lot of people who think it’s a bubble and a Ponzi scheme. It turns out both of them can’t be right.”
Investors could get stung like those who bet against the internet bubble in the late 1990s, said Aaron Brown, a former managing director at AQR Capital Management who invests in the cryptocurrency. “People who shorted the internet in 1998 were right, but they went broke before they could collect any winnings,” Brown said. “One of the problems with it, if you believe it’s a bubble or a Ponzi scheme or whatever, it can go on for a long time.”