This is market pulse by faster forward from
Northern Trust asset servicing. The podcast where experts
share their insights on current trends in the
markets.
My name is Nadia Ba. I'm the c
Coo at Northern Trust Hedge fund services.
I'm very fortunate to be here today with
Grant Johnson, Mark Capital Mark it's great Grant.
Thank you for joining me. Thanks, Nadia. And
I'm really excited because this is my first
time hosting this podcast. So Like to do
it with you. I'll looking forward to it
very much. Thank you. So Grant, very
exciting time in the markets in the last
month, a lot of activity, a lot of
things going on. Can you give us an
update on some of the trends that you're
seeing? We've actually had a pretty busy month
of July and and and back half of
June. So
I think the biggest trend right now is
a rotation that's been happening. We've talked about
this in the prior pod cast. You've got
a general rotation that we've been in for
roughly the past 15 years, which is rather
long
where growth has been favored over value
large cap over small, and, of course, Us
over non Us stocks. And you've seen that
rotation play out by and large since the
global financial crisis.
We've had the strongest inflow
in history in small caps is particularly I,
which is the Russell 2000 Etf.
We're seeing that position expressed both by buying
long I m,
but also in calls, buying calls. And that's
driven a lot right now by retail investors.
That's the other trend that I was follow
where the retail investors doing
because the retail investors control about 39 percent
of us equity market directly, and another roughly
15 percent and and active mutual funds. That
doesn't even include the Etfs, the passive ones
like I.
So they've got a lot of of impact
on the Us stop market, and we're seeing
this rotation where we've had really good,
you know, flows into small cap.
And the other interesting thing is the Mag
7 and and tech and comps have actually
had a a relatively weak period.
But it... What's buck the trend a lot
is that a crypto, Bitcoin in particular actually
performed well. And that's the first time that
I have seen really at least in 4
or 5 years.
The tech stocks in Mag 7 actually do
poorly and Bitcoin actually do well. It's normally
been... You've seen Bitcoin track pretty high.
The the trends that you see in and
tech, the higher risk names over the last
4 or 5 years. So I think it's
actually a... That is actually a good sign
to the market. Showing that there is some
differentiation and some selection going on by investors
right now. So that... That's probably the biggest
trend in the equity side. Can you talk
a little bit about why you think that
these retail investors are looking more at small
cap in this environment? Well, I think there's
a number of reasons for it. I think
firstly, if you buy a dollar right now,
the S and P 500.
You're getting about,
a 35 cents of that in the top
10 stocks. And actually the top 5, I
think represent 28 percent. So you're getting a
very concentrated
portfolio.
Despite those top 10 names being 35 percent
of the market, cap of the s S
and p 500,
they're are only about 23 or 24 percent
of the total earnings. So you're buying names
in the S and P 5 that are
fairly rich, rich valued.
I think the other side of if you
look at the earnings season right now, great
earnings growth right now,
but, you know, so far in the second
quarter, we're just into the earning season, but,
Eps is up about 10 percent in Us
and revenues up about 5.
And we're seeing earnings per share generally stronger
in Russell 2000
than we are in tech names. There's actually
been some fading of expectations of earnings of
tech names and also Ai names. So I
think a lot of folks are anticipating the
cycle, right? Everything's
eventually
goes through a cycle, and you do have
some mean rev. I think that's what going
on or starting to. The other element is,
from this small cap side, how much of
this is expectation of of, interest rates being
cut potentially as early as September. So... And
when interest rates are cut lower, you'd typically
see small caps perform better. Do you do
you think they're... Will will have an shortcut
cut in September. I think the likelihood. Yeah.
It's the... So the Fo meeting September eighteenth.
I mentioned that date in particular because 1
week prior in September eleventh,
is when the Cpi comes out for the
month of August. So the bureau of labor
you know, Cpi numbers are always coming out
to roughly 2 weeks into the following month,
which that they're reporting on. So the August
Cpi is gonna be reported in September eleventh.
The August 20 23
Cpi
ran at about a 33.7
percent clip. So it's a pretty high inflation
number
that's gonna roll off.
And if inflation comes in line with what
we've seen in recent Cpi reports, which right
now looks like will be for what we
see right now this recording in late July,
it looks like it'll probably still moderate that
2 and a half percent. If that's the
case I think they follow and see it's
gonna get this relatively benign Cpi print, September
eleventh. They release
their interest rate changes. On the eighteenth 1
week later, I think they're gonna be in
a bit of of pressure.
Also, if you look at the June data,
softening and slowing some So I think right
now, there's a pretty high expectation. The market
expects right now 3 cuts
in the... Over the rest of the year,
about 70 basis points is what the futures
market's expecting. Most economists including our own at
Northern Trust expect 2 cuts, 1 in September
and 1 in in December about 50 basis
points of cuts. I will probably go take
the under and that, than the over. But
if we have continued
data that indicates moderating growth, and we have
a relatively
benign Cpi
update the... In August that comes out in
the eleventh of September. I think the the
fed's gonna have a hard time not cutting
rates in September. So I think we're looking
at potential cut. And I think that could
also help this
rotation that we're potentially going to see into
small caps,
you know, into gold. We're still... We're seeing
some buying into gold, pick back up recently
as well. So Think that could be AAAA
bit of a pivot in the market. You
mentioned Ai.
Last week, Goldman came out with a report
around Ai and essentially,
stating that Ai man is is overblown
that it'll cost a lot more to implement
some of these Ai solutions with the cost
being where it is today. Then we'll benefit
that it's really not a good trade. Really
at the end of the day. I'm curious
to get your thoughts on that and and
just in general where you see Ai in
the market. And certainly, you mentioned some of
the tech textile
is what we saw with Nav nvidia in
the last couple of weeks in terms of
their stock price. Is that kind of relevant
to this Ai man,
kind of coming to head at this point.
What Goldman a great piece and I think
it's in the public domain. So if anyone
wants to look it up. There's a 30
sum page report, Coleman produced and they have
a number of folks some over interviewed in
it, but it's something that, you know, our
readers and and listeners can can, probably find
the Internet.
In a nutshell, their thesis is that
Ai is going to be a trillion dollar
investment, and there's no trillion dollar problems that
it solves right now, in essence. And I
think there's a lot of degree in truth
in that. We talked about the May podcast
just the pure cost in the energy that
it's gonna require.
And I don't know what type of solutions.
You, you know, if you're looking at it
using Ai to replace
you know, basic simple processes that you would
use low age for. That's not a great
investment to spend trillions of dollars in a
tech solution to replace
you know,
low wage workers who were, you know, doing
the processes manually. So
that's kind of the thesis now I still
think you're going to see a lot of
money being
put into the
infrastructure. And if you look at what's going
on in the stock market right now. There's
a difference between the Ai
infrastructure stocks like Nvidia is still very strong,
for example,
there's another 1 Pure storage, which has had
a nice run. They make flash storage devices,
Ai so fast. You can't use traditional hard
drive. If you have to use flash storage
for it.
If you... You know look at,
a ari to networks, for example that make
these switches that are far faster than say
what's even Cisco can produce. Those stocks are
still at or close to their all time
highs and are trading at rich multiples.
On the flip side, if you look at
the stocks of companies that are using
Ai, those stocks are not doing very well.
A couple of examples, Ce,
which is a company that uses Ai to
help design drugs in the test,
do kind of a theoretical test that stocks
way off its ties.
You know, if you look at s, which
is a, uses Ai to help automate warehouses,
they are automating. I think all all of
a Walmart
major distribution centers. That stocks also way off
its size and has trend down recently. So
the companies that are using Ai are not
doing as well. Ones that are building the
infrastructure. So I think you'll see that trade
continue a bit. When you see the stocks
like Cert and s,
start to do better that are using Ai.
I think that's when you know the Ai
is starting to solve some real problems as
opposed to make, you know, mundane and administrative
processes more efficient, and that's gonna be the
big payoff in Ai. Goldman point was generally,
that's probably 10 years off before we really
see that that impact.
Just kind of along the... And I know
this isn't a tech podcast, but we'll talk
a little bit about just coming off of
Ai
and commodity trading. And I think it was
in the May or June podcast. You talked
a little bit about trading and energy and
kind of the the flows when we're seeing
there. And I think certainly for me, on
the hedge fund side and well reported that
hedge funds are starting to gain more interest
into energy trading, commodity trading.
And knowing the
what it takes to
to drive Ai from an energy perspective, of
just the
obscene amount of energy that it takes to
run a single chat G query, for example.
I think, in that that in that podcast,
you mentioned that the interest could be because
the trades are cheap.
Do you think it's coming back to the
trade being cheap? Or do you think it
is really this belief in that, you know,
Ai is is here to stay and is
the future in kind of investing in that
underlying energy
that's needed to drive the industry. It... So
I think it's it's both. I think energy
is very cheap right now. There hasn't been
a lot of of, of investment into energy.
Into our, you know, distribution of electricity and
even into the generation of it, and I
also don't believe that the average person, and
we talked about this in May. So of
anyone that missed that podcast can go back
and kind of understand some of the
the the hurdles that you were going to
face and spending, expanding
energy distribution as well as,
production. It's a it's a 2 pronged problem.
So that's a big issue that we have
to, you know, solve for. And I think
there's a lot of money be made in
that and the intermediate and even far off
into the future.
The... There and there's other new technologies that
are continuing to evolve too that we're starting
to see some of our clients
look at, like, the ability to produce
energy with natural gas and essentially 0 emissions.
There's a new initiative now. I just read
about where people are actually looking to mine
a hydrogen trapped in the in the earth
and using hydrogen is energy source as well,
for example. So lot of things that are
happening there that I think are interesting. This
just haven't been invested it in for a
while. Even if Ai doesn't come to fruition,
the reality of it is, we continue is
a, you know, as a society to use
more and more electricity.
And there's no expectation that that's going to
go down. We've had a period where it's
moderated through efficiency gains for the last 10
to 15 years, which is why we've become
complacent. In both production, distribution of energy and
electricity. But you're gonna see I think more
more of that over time. That's the reality
is that is technology
evolves
we end up using more energy not less,
even if even if efficiency gains are are
made
through and through. We've actually continued to use
more energy. So I think there's a don't
do a play there Is relatively inexpensive. If
you look at energy stocks, they are, well
outside of, I think 2 standard deviation in
terms of how cheap they are relative to
the market
in historic. So
I think that's still playing out. And actually
recently, I've seen some of the hedge fund
clients that we represent kind of buying a
little bit more into energy even recently. And
even getting back to to some of our
retail investors. Again, I was really keep close
on these retail investors free aforementioned reasons. We're
starting to see them in 1 of the
big buys that we saw retail investors in
the last quarter was utilities. So you're starting
to see some of that even play out
in in retail investors as well as more
sophisticated
institutional investors. Back Basics. It's right.
You mentioned interest rates, so we talked about
that a little bit.
Curious on your thoughts just in terms of
a rate cut and the impact that that
might have on the housing market.
So the housing markets at a bit of
a,
intersection right now between where we're coming out
of sort of a, a slower period and
the second half of the Covid pandemic where
you you had a lot of folks when
interest rates started to to be raised in
late 20 22,
stopped you know, didn't wanna move because they
had of a a great mortgage already locked
in where they were living. Right now,
as we record this podcast, active listings were
up 18 percent year over year,
pending sales are down 6 percent year over
year.
And then according to Red fin overall buyer
demand they're seeing down about 15 percent year
over year.
On the flip side, I saw a survey
done by... I think it was the university
of Michigan a consumers survey.
And this blew my mind, 30 percent right
now of of households
currently have a house that's worth over 500000
dollars, and 40 percent of mortgages or 40
percent of homes right now, our mortgage free.
Have no mortgage On.
So if you think about, okay, and if
you've got a, you know, a home right
now that you're looking to sell and move
out of interest rates, mortgage rates are still
in the upper sixes,
and it's gonna be pretty expensive to upgrade
that home, move into a new. If rates
start to come down, I think you're going
to get a little bit more selling activity.
I think that's gonna put, a bit of
a lid on housing prices, you might see
a little bit of, decline in housing prices.
I know anything significant. But again, I think
when the Fed does start to pivot to
interest rate decreases, you're going to see a
number of rotations happen. And I think 1
of them is some life back into the
housing market is is a homeowners and households
right now that have decided not to move
because they don't know where to move. They
don't know what interest rates to. They're going
up paying. Might consider it more. The bigger
issue in my mind is so many folks
are still anchored
to a period that we've all come to
know last 20 years of declining in low
interest rates. That's been a topic. We've talked
about these podcasts. I don't absent in a
massive recession. Don't see that happening again in
the foreseeable future. And so I also think
some of this is the more time that
comes and interest rates don't get down to
3 and a half percent again or more
mortgage rates don't get that low again. You're
also as people just wait they're gonna end
up getting tired and go ahead and pull
the trigger on a on a on a
home sale. The other element to this is
some of the homes you are seeing being
built are actually slightly smaller in square footage
in space, and there's a bit of a
vault you're seeing in cities kind of around
the country with these mega mansions. I think
you're going to see homes built that are
kind of more modern and sized than what
we've seen in the past. And that's also
a reflection of energy prices. I mean, again,
we talked about the may podcast,
electricity prices in the Us have essentially doubled
in the last, I think it was 10
or 12 years. And you're gonna can probably
see that continue to go up as we
invest back into it. So the cost of
heating and cooling and maintaining a home that's
you know, much larger is gonna be much
higher. Do you think that the aging population
and baby boomers have anything to do with
the size of houses as well? Looking to
downsize? Possibly,
That said, there's actually a little bit... If
you look at demographics in the Us right
now, there's a little bit of a spike
right now in the early thirties from some
of the millennials who were looking to get
out and buy homes. So I think that's
going to or starting to have kids. So
I think you might see some offset there.
You've kinda worked through the, you know, the
Gen x. So if you look at the
the age bracket,
that I'm in right late seventies, that was
a low of burst, and then it's tended
back up in the eighties, and of course,
into the nineties, there was a pickup. Those
those
you know, that that demographic is now at
a point where they're having a family and
they're having children. And I think that's going
to pick up some of the selling for
baby boomers.
The big question is what size a home
and what
geographic locations do they wanna buy in relative
to where the baby boomers are selling. And
I do think you were going to see
certain areas of the country that are going
to
either benefit or or not from those types
of trends. Would be remiss not to bring
up the elections.
I think that the market has generally been
pricing for
a Trump win, the selection season, whether or
not that happens, who knows.
But with Biden, opting out over this past
weekend of of the race. Wanna get your
thoughts just in terms of where we are
and where we might be going.
In terms of the the democratic nominee,
and what that might mean for the markets.
So, yeah, fascinating time right now. Right? We...
We've got Biden stepping down from, from running
as the nominee,
all sorts of,
questions
and and potential
unknown still... Right? It's already been a pretty
wild season, for variety of reasons good and
bad.
In election years, there are generally 4 trends
that happen as it relates to capital Markets.
Typically from July to November Vix, right is
a measure of of implied volatility goes up
by 25 percent.
Usually, you see
investment grade spread widened before the election and
then tighten after you tend to see equity
selling
before the election and then equity buying after
the election. And you oftentimes see some folks
parking money in and money funds and cash
and treasuries.
This year, you have seen Vix essentially decline
up until last week, we had a pop,
but it's already coming back down today. So
Vix is not
materially higher really. And, you know, as we
record this podcast. I think it's 15 right
now. So relatively benign and low. Some of
that's the 0 days to expiry
options that have kind of suppressed vix, but
it's still relatively low and we haven't seen
that pickup. Ig spreads have actually tightened since
the beginning of the year, although they have
widened and very,
a little bit recently, But, you know, investment
grade spreads are still a little under a
hundred basis points right now So it's very
tight. So we're not seeing that
play out at all. And again, we talked
about the last podcast. I think some of
that's because balance sheets are actually really clean
and very strong. Our corporate earnings are very
strong right now as we talked about.
There's been massive,
buying of equities. So that has really booked
the trend of years
prior,
and and I'll be curious to see if
that continues.
So you know, and there... We have seen
money flowing into money funds. So of what
you would normally expect in an election year,
not surprisingly, we're not seeing those trends play
out this year.
And if we if I look forward. So
from an outlook standpoint, going into the back
half of the summer into into the fall,
I think there's a few things to to
keep in mind. I do expect there to
be some moderation of of equity buying. I
think it's just gonna be
inevitable.
If you look at some of the trends
right now that I'm following in the market.
1 of the biggest is, again, C metro
retail investors, How retail investors invested right now.
They are
about as long in Us equity markets it's
historically they have ever been. And when that
happens, you typically see
short term bad sign. Right? That usually means
there's some correction. There's gonna be a little
bit of a sell off long term. It's
actually a good sign.
That's 1. 2, the relative strength of the
S and P 500 over every time period
I could look at monthly, quarterly yearly. It's
very, very strong. And I actually went back
and looked at what does that mean historically.
So when we have strong relative strength and
be a very strong market. So the first
half of the of the year, I think
the s and p 500 is up over
14 percent. So if you look at the
S and p 500, Whenever it's up over
10 percent and the first half of a
year.
1 month later, it's about a 50 50,
whether it's up or down from there.
And then 6 months later, it's higher 83
percent of the time. So very good sign,
long term, very bad sign short term. So
as I think about the election and what's
going on right now, I go. Alright. We've
got a lot of unknowns, a lot of
risk. Right? There's a several different trends here
that I'm following indicate some short term softening.
A but long term,
strength. And I think that could play out
here over the back half of the summer.
And remember from about,
you know,
independence day weekend and until the end of
August and really up until Labor day. It's
usually the quiet period of not just the
Us markets but global markets. It doesn't take
a lot of selling or buying to have
a material impact, you know, small impacts in
a low vol and a low volume environment
can have relatively profound impacts on the actual
price direction. So I'd be very cautious here
over the next 2 months
because we have had such high strength in
the markets. And we have these retail investors
are very heavily invested. We have a lot
of unknowns in the market. A lot of
things that are going on
that that are both concerning but also don't
really have much of a conclusion that we
can predict right now. And I think the
market's going to reflect that. I think people
are gonna back out a little to the
election period. The last thing I'll mentioned the
election is the options market is still predicting
much higher volatility in October right for the
election. So I think the future futures Vix
mark got an 18... A little bit over
an 18 estimate of what Vix is gonna
be come October. So
that'll be interesting to see. But that said,
there's not a lot of hedging going in
right now.
I'm surprised we haven't seen a lot of
option selling, right, either
selling calls or puts, which is considered to
be more of a low vol strategy.
And you can right now, you can hedge
a portfolio is is cheap.
Is you probably ever can historically.
I will say very recently we have had
a few of our clients start to think
about hedging,
but still very, very minor,
you know, risk management at this point, most
people are still very bullish in the direction
of the market. I got... I think part
of that's just the earnings that we're seeing
very strong earnings. Do you have any any
pricing concerns or risks that you're you're focus
on right now?
A few of them. So
1, there's still a lot of amend and
extend of
both
commercial real estate, as well as leveraged loans.
Last month in June was a record and
in ref financing, I shouldn't say ref financing,
really pushing out the maturation of leverage loans
without ref financing them. Mh. So these these
these securities, whether the commercial real estate or
leverage loans or what have you, they are
not able to, you know, refinance them in
a traditional way. And so essentially, the the
lenders and the borrowers
have come to the table, numerous times and
had to you know,
return the the paper without a proper ref
financing. So that's a that's a concern. So
we're still not seeing normality.
In some of these, fixed income markets outside
of, corporate corporate credit.
The other interesting thing is we've had a
real pivot.
Away from,
higher inflation, which used to be the concern
the last 2 years and really into growth
and worse growth gonna continue.
And and geopolitical conflict is also raised a
lot in profile in terms of the risk.
So b of a's, a global fund manager
survey that they just conducted last month for
the first time in 3 years, high inflation
or 2 years, high inflation, was not the
number 1 risk that fund managers were focused
on. It was global conflict.
We've also the most bankruptcies, corporate wide.
In the Us. And so I think 20
11 for the first half of the year.
So we're talking the most bankruptcy since the,
you know, kind of the aftermath of the
global financial crisis.
That said, I do wanna bi kate here,
the higher quality issuers very strong. So if
I look at the investment grade universe,
we're seeing very strong investment grade issuance. We're
seeing strong demand. Actually longer dated tenor are
actually doing the best. They have the best
demand in the new issue market,
where we have concerns and where their risk
is on the lower end of the high
yield market. So right now, the triple c
credit relative to b. Right? Not that far
in terms of of credit profile
differentiation both considered high yield junk bonds.
That's the widest spread that those have been
in and gosh at least 5 or 6
years since I've been watching those. So there's
you know, some concern on the lower end
of, you know, smaller and and lower end
of the credit side, you But again, I
think these are healthy signs for the market.
Right? The fact that there's
differentiation going on here
is a good sign. People aren't just hitting
the buy you know, the buy button
ind intermittently
without really understanding what's going in the market.
So good good trends.
That's it. Those are where the gaps. I
think, right now, the cracks are gonna come
from. And, of course, we've talked a lot
about desk spending. That's not an issue that's
gonna rear self up overnight. That's probably a
longer term concern. That's why I would really
focus in on what's going on with the
lower credit profile.
Smaller and more regional Us banks, which, by
the way are also seeing worsening liquidity ratios
relative to the bigger banks too. Do you
see private markets playing a role?
Private markets are tricky right now,
there is...
If you actually look at private equity, this
is interesting private.
Equity multiples right now are getting close to
what we see in the pry in the
public market.
I mentioned the podcast last time around some
of the private equity firms starting to get
into buying
companies at relatively high multiples where you may
not be getting quite the, you know, the
the same return that you that you might.
But it's hard to say that's gonna play
out. I mean,
you know, private credit right now has been
a really good opportunity. A lot of the...
Because of the weakness in the banks. So
when used to go finance a a property,
banks prior to the,
pandemic would oftentimes give you 65 cents in
the dollar
in terms of a loan, now you hard
pressed to get more than 50 cents and
the dollar. So coming up with that 15
percent you know, between the equities side and
and the in the borrowing of the or
the credit side is where a lot of
private capital investors are are stepping in, and
we're seeing a lot of interest there. So
It'll be... It'll be curious to see how
that all plays out. I I think there's
more opportunities right now on private credit than
there is private equity. So, Grant, you've talked
a lot about retail investors,
institutional investor the things that you're seeing. Can
you talk a little bit more about any
of your other clients, touch funds and and
the like,
and asset managers and things that you're seeing
in space? Yeah. So firstly, we are still
seeing a lot of interest in listed options
trading that continues to pick up,
especially to to
express long views. So our options business is
continuing to grow, and we're still seeing a
lot
of activity there. So that's 1 area.
And as I mentioned, even amongst institutional investors
being able to play
the the, Russell 2000 trade,
the last couple weeks has been has been
done a lot through the expression of Op.
So we're still seeing a lot of options
volume
that takes that's that's going on there.
Gold an interesting 1
very recently for the first time we've action
of these seen some investors buying into gold.
If you remember from the prior podcast and
some of the trends that we've seen in
Most of the gold buying has been by
big Central banks. We haven't seen a lot
of investors in the Us really invest in
gold.
And that's starting to change. In particular, I'm
seeing some hedge funds start to express positions
in gold. I think kind of anticipation of
interest rates going up when interest rates rise.
You normally see gold do well. Seeing the
pause we saw in gold pricing
in June was because China is not buying
as much or hasn't been. I'll be curious
to see how that that trend changes. The
other thing that we are starting to see
in the hedge fund space is we are
starting to see a little bit of a
pivot out of some of the tech names.
And again, that's why I'm starting to really
pay attention to the rotation that may be
happening here because these trends tend to last.
15 years or less and we're right it
15 years. So from a timing standpoint, from
everything going on the mark of the presidential
election, the the pivot out of this low
interest rate environment into a higher 1, but,
you know, possibly with some interest rates coming
down a little bit. You're starting to wonder
okay. This gonna be the time that you
might see a small caps emerge, non Us,
which look at earnings even in developed markets
outside the Us, very, very strong and emerging
markets are starting to catch back up very
few exceptions to that.
So I think that's what's going to happen
it. And then I think from the the
hedge fund side as well,
probably a little bit less equity exposure that
than I've seen.
But I'd love to ask you a couple
of questions while we have a few more
minutes here Okay. And your background been working
a lot with our hedge fund clients, and
and we've built a big business,
you know, with our fund admin business supporting
a hedge funds here. I'd love to hear
a little bit about what we do for
hedge funds on the on the hedge fund
administration side of things. Maybe if you could
give some context.
There, And then my follow question of that
as well will be what trends you have
seen over that time. Sure.
So
us, hedge fund administration is really middle office
services, back office services. So we pick up
after our clients trade and kind of see
things all the way. Through.
Very fortunate,
and and I say that with with a
little bit of a grain of salt and
that we seem to play really well with
complex funds. So obviously, we have clients that
trade
short equity and what have you, but,
we have trading in catastrophe swap. Ops, and
we talked a lot about energy,
really,
anything that you can think of, Our clients
have probably dabble in talked about.
Think post Covid, things have evolved a bit
in the market where a lot of the
established managers, large managers that we're seeing a
lot of capital flows come in, and that
continues to be the case. Institutional investors are
really looking at. Those managers for their a
strong track record. They've had incredible returns. The
market's been strong,
and that's translated to a lot of growth.
What that has also led to is a
lot of managers looking at how they can
deploy capital.
You can only get so big at some
point. Right? And so, we've really seen a
trend in terms of multi manager platform forms,
across clients and across the industry as well
where you have
large managers who are seeding other managers, forms
And I think that trend continue. Sometimes those
managers are in house. Sometimes they're outside, but
it's really been an effective way to kind
of deploy that that capital that that wants
to be put to work.
The other thing we're seeing and you talked
a lot about retail investors is Is this
interest in the hedge fund industry to look
at a different type of investor base. And
so it has historically been institutional investors,
height... Net worth right, but really looking at
some of these more
wealth channels looking at, where maybe they can
plug in to retail networks in a different
way than has been done historically.
And in my 25 years in in the
hedge fund space. I think that we're really
at the this point where from an investment
perspective, the complexity,
the volumes are getting to incredible levels that
that we never would have seen, right, when
I started my career in this industry. But
then certainly looking at where you can kind
of put capital to work and bring capital
into these funds that that may not have
existed in the past?
It's this kind of an interesting time. How
how did how did the made off situation?
Change things too when you had a hedge
fund that had clearly,
you know, misled investors.
How do that change things for hedge funds
And how do that change things in your
world? We'll assume all of our listeners are
of the age of where they remember.
Situation.
It completely changed things. So,
investors very much expected independence
and demanded it. And so for us, that
really opened up our business
to a complete
complete change and kind of a transformation within
the markets. So really looking at independence in
terms of trade management and food processing,
looking at independent verification, things like striking an
nav, net asset value of the funds.
And it's evolved food from there, to not
just be kind of that check the box
and what you need to do, but also
looking at where managers can focus on generating
alpha, generating those returns,
and where maybe they're just not best suited
in doing certain things in house. So kind
of went from a must do to now,
it like to do because you have providers
that can do things in a more effective
and scalable way. So it's really evolved and
change where we're supporting clients in terms of
regulatory filings we're obviously managing investor flows and
things of that nature.
But, you know, picking things up, when the
trade is done all the way through to
seeing the books closed, right at the end
of the period. But it made off completely
transformed the fund administration and
outsourcing,
within that space
completely. That makes sense when people had no
idea what their positions were and then they
were being accounted for reconciled internally. It opens
up the ability for abuse. 1 more question
for you. Where
where do you
expect hedge funds to evolve. What are we
doing at Northern to to support that evolution?
Where's the where is the industry headed?
We
really pride ourselves within hedge fund services on
looking at not just what our clients have
done historically, but where are they go it,
what are they doing?
We have a platform, very fortunate to have
a platform that was built to support 1
of the largest hedge funds in the world
and has now kind of grown and expanded
from there. Like to support multiple clients that
are on the platform, but it... The intent
is that it's fit for purpose across these
different products so not kind of bolt on
different pieces of software and what have you,
not processing stub trades and things of that
nature. It's really important for us to have
a fully
mapped out trade, for example, it really starts
there and kinda seeing it from there. So
I would say just from an evolution perspective,
it's looking at where we can continue to
do that.
Most recently, we've worked to build out a
lot more in the energy space in the
commodity space, where
trading, you know, was not as heavy as
it was
at 1 point, and and we're seeing that
renewed interest.
And then different products that our clients might
be trading. So really looking how we can
support that holistically.
And ultimately, just making sure that we're positioned
for success to continue to be an extension
of our clients business at And at the
end of the day, that they're partnering with
the right person that can do that. And
we're very fortunate to have his broad network
at northern and where, as our clients fund
dom missiles have... Expanded into different international
regions as their fund complexity has changed as
they've expanded their trading products
that we've been able to kind of grow
with them and expand our capabilities with them.
Well, that's interesting. I appreciate those insights and
hedge funds. Thanks, and thanks for doing this
paid with me. Thank you. Anything else that
you wanna touch on before we close? No.
I mean, I I think I think, you
know, the next couple of months or something
I just encourage investors to really keep a
close eye out with everything going on. We
talked about. There's a lot of signs that
we could have some potential weakness over the
next couple of months, but I'm pretty optimistic
when we get the the election behind us,
you know, I think whichever president gets elected,
they're gonna be... Fiscal stimulating the economy for
better or worse in the long term,
but I think the next couple of months
are ones that I would encourage our listeners,
and viewers just to be cautious on and
to be really careful. There's not a lot
of volume in the market at the back
half of the summer, so it's not gonna
take a a lot of shifts to to
have some big impact on the market, and
we're seeing some signs that this recent rally
is maybe a little long in the tooth.
But again, I still don't see anything that
I would be overly concerning right now, but
you definitely wanna be prudent through the, next
few months. Great. Thank you, Grant. Thanks, Nadia.
And as always, thank you to our listeners,
and we'll see you on the next edition
of market post. By faster forward.
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