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.
I'm the c Coo at Northern Trust Hedge
fund services.
I'm very fortunate to be here today with
graham at Johnson, Mark Capital Markets Group. Grant.
Thank you for joining me. Thanks, Nadia. And
I'm really excited because this is my first
time hosting this podcast. Some psych to do
it with you. I'm 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. You give us an update
on some of the trends that you're seeing?
Yeah. We've actually had a pretty busy month
of July and in 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 podcast. 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 raw till 2000 Etf. We're
seeing that position expressed both by buying long
I,
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 followed
where the retail investors are 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 and 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 in
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 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 the
Us and revenues is 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 eventually
goes through a cycle and do have some
mean rev version. I think that's what's going
on or starting to. The other element is
from the 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 typically
see small caps perform better.
Do you do you think there will well
have an interest rate 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 have phone 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 under 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 futures markets
expecting.
Most economists, including our own at Northern Trust
expect 2 cuts, 1 in September and 1
in in December about 50 basis points 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 and
the eleventh to September. I think the the
fed gonna have a hard time 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 I 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. Curious to
get your thoughts on that and and just
in general, you see Ai in the market.
And certainly, you mentioned some of the tech
acts
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
semi odd page report Coleman produced and they
have a number of folks that some interviewed
in it. But it's something that, it, 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 to pure
cost 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 6
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
place, you know, a 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 mark, 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. 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.
Couple of examples, Ce,
which is a company that uses Ai,
to help design drugs in the test,
do a kind of a theoretical test. That
stocks way off its highs,
you know, if you look at s, which
is a, uses Ai to help automate warehouses
as they... Are automating. I think all of
all of the Walmart
major distribution centers. That stocks also way off
its size and is trend down recently. So
the companies that are using Ai are not
doing as well as the 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. But we really
see that that impact.
Just kind of along the... And I know
this isn't a tech podcast, but
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
of the the flows and what we're seeing
there, Anything certainly for me. On the hedge
fund side and well reported that hedge funds
are starting to gain more interest into trading
commodity trading, and knowing the
what it takes to
to drive Ai from an energy perspective,
just the
obscene amount of energy that it takes to
run a single chat Jb 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 you know, Ai
is is here to stay and is the
future and 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 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 expanding, 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 in the interim immediate and even far
off into the future.
The... There's... 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 9
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 for a while. Even if
Ai doesn't come to fruition, the reality of
it is, we continue is a, you know,
is 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
and more of that,
over time. That's the be reality is that
as 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 even 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. And 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 as well as more sophisticated
institutional investors. Back to basics. That's right.
You mentioned interest rates. So we talked about
that a little bit.
Yours 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,
stop you know, didn't wanna move because they
had 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 is 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 consumer 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 are mortgage free.
Have no mortgage on.
So if you think about, okay, and if
you've got
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 1. 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 a little bit of,
decline in housing prices, I don't see anything
significant. But again, I think when the Fed
does start to pivot to a 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 to 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
over the last 20 years of declining in
low interest rates. That's been a topic. We've
talked about these podcasts. I don't absent
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 in or 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 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. If So I think that's
going to 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, so that I'm in right late
seventies,
that was a low of burst, and then
it's tinted back up 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're 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 a 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, reps as
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
klein 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 pie us. 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 very,
a little bit recently, but you know, investment
grade spreads are still a a little under
a hundred basis points right now, which 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
this because corporate balance sheets are actually really
clean and very strong. 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 what 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, Come retail
How retail investors invested right now. They are
about as long in Us equity markets is
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
we have 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 in 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
but long term
strength. And I think that's could play out
here at 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 a 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've 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 con... 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 before the election. So I think the
futures Vix mark got an 18 a little
little bit over an 18 estimate of what
Bi 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
options 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
as 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 risk that you're you're focused
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 and
ref financing, I shouldn't say ref,
really, pushing out the maturation of leverage loans
without ref financing them. Mh. So these these
these securities, whether they're 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 ended growth
and worse growth gonna continue.
And and geopolitical conflict is also raised a
lot in profile in terms of the risk.
So b aids, a global fund manager survey
that they just conducted last month.
For the first time in 3 years, high
inflation, our 2 years, high inflation was not
the number 1 risk that fund managers were
focused on if was global conflict.
We've also had 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 that lower end of the high
yield market. So right now, the ccc 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. 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 by, you know, the buy but and
ind
without really understanding what's going in the market.
So good good trends. That it, those are
where the gaps I think, right now, the
crack are gonna come from. And, of course,
we've talked a lot about fiscal spending. That's
not an issue it's gonna read itself up
overnight. That's probably a longer term concern. That's
why I really focus in on what's going
on with 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?
Yeah. 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 are starting to
get into buying
companies 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 how that's gonna
play out. I mean,
you know, private credit right now has been
a really good opportunity. A lot of... Because
of the weakness in the bank. So when
you used to go finance a a property,
banks prior to the,
pandemic would oftentimes give you 65 cents and
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 in 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, hedge funds and and the like,
and after managers and things that you're seeing
in that 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 ops,
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 actually
released and seen some investors buying into gold.
If you remember from the prior podcast and
some of the trends that we've seen in
Gold, 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. 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 last
15 years or less and we're right at
15 years. So from a timing standpoint, from
everything going on the market of the presidential
election. It 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. Is this gonna be the time
that you might see 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
hedge funds. 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 for 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
in and I say that with with a
little bit of a grain salt and that
we seem to play really well with complex
funds. So
obviously, we have clients are trade.
Short equity and what have you, but
we have trading in catastrophe swaps, and we
talked a lot about energy.
Really,
anything that you can think of, our clients
have probably dabble and or talked about,
think post Covid,
things have evolved a bit in the market
where
a lot of the established managers, large managers,
that's where 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 strong track record,
had incredible returns. The market's been strong,
and that's translated to a lot of growth.
What that has also led to they've a
lot of managers looking at how they can
deploy capital.
You can only get so big at at
some point. Right? And so, we've really seen
a trend in terms of multi manager platforms.
Across our clients and across the industry as
well where you have
large managers who are seeding other managers.
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 this interest
in the hedge fund industry to look at
a different type of investor base.
And so it has historically been institutional investors,
high 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 this point where from an investment perspective,
the complexity
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 it's kind of an
interesting time. How how did... Kind 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 kind of a transformation within the
markets.
So really looking at independence in terms of
trade management and trade processing,
looking at independent verification, things like striking an
nav and net asset value of the funds,
and it's evolved 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 worked obviously managing investor flows and
things of that nature.
But, you know, picking things up from when
the trade is done all the way through
to
seeing the book Closed, right at the end
of the period. But it made off completely
transformed the fund administration and
outsourcing,
within that space
lately. That makes sense when people had no
idea what their positions were and then they
were being accounted for
reconciled internally, it opens up to heal 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 going? And 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 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 process 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 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 at 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. 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 fun 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
today 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 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 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 of
get pulse by faster forward.