NEWSLETTER of August 11, 2023

The following content has been added at finexpert:

Amundi
ASSET CLASS RETURNS FORECASTS - Q3 2023
Optimism was definitely behind the respectable performance registered by risky assets in the last quarter. However, the economic backdrop does not look overly positive. On the price levels side, US headline inflation is receding, although the core measure - more important for monetary policy decisions - is proving to be stickier. The latest European and UK inflation numbers signal that price growth is cooling. From a strategic standpoint, high-quality fixed income assets, government bonds, and high-grade credit can deliver attractive returns. This quarter we consolidated our expectations over a 10-year horizon because of improved starting valuations. Equity returns are confirmed modest in the long-run, especially compared to historical norms. Expectations on EM Equity and Pacific ex-Japan Equity have improved, whereas Japan Equity is expected to underperform its peers, also considering risk adjusted returns. >more

KfW Research
DEMOGRAFISCHE ALTERUNG SETZT UNTERNEHMEN BEI NACHFOLGEN DOPPELT UNTER DRUCK
Demographic aging is putting companies under double pressure when it comes to succession: On the one hand, the number of owners ready to succeed is rising, while on the other hand, the number of potential successors is falling. Increased visibility of positive examples and better provision of information on financing options are starting points for counteracting this. >more

Man Group
Q3 HEDGE FUND STRATEGY OUTLOOK: UPGRADING DISTRESSED AND MERGER ARBITRAGE
The year 2023 continues to be one of uncertainty, which has led to muted returns from many hedge fund strategies during the first half. The weakness of the US banking system and the headwinds from the higher rate regime are at odds with the strong performance of risk assets during the first six months of the year. Forward paths from here remain difficult to discern, but within markets we believe there are more attractive risk/reward trade offs now than earlier in the year. >more

IfW Kiel
GERMAN REAL ESTATE INDEX Q2 2023: IMMOBILIENPREISE IN DEUTSCHLAND STABILISIEREN SICH
The downward trend in real estate prices in Germany came to a partial halt in the second quarter of 2023. Compared with the first quarter of 2023, many prices are even rising slightly again, although there is still a significant decline compared with the previous year and the highs. This is shown by the latest update of the German Real Estate Index (GREIX), a project of ECONtribute and IfW Kiel, which evaluates the actual sales prices of German real estate according to the latest scientific standards. >more

DIHK
DIHK-REPORT UNTERNEHMENSGRÜNDUNG 2023
Fewer and fewer people in Germany want to start a business. For 2022, the chambers of industry and commerce are once again reporting a decline in the number of information and advice sessions on setting up a new business. The number of talks fell by three percent compared to the previous year, reaching a low of 154,785 in the census conducted since 2002. >more

SPECIALIZATION IN PRIVATE EQUITY AND CORPORATE FINANCIAL DISTRESS
Benjamin Hammer, Robert Loos, Lukas Andreas Oswald, and Bernhard Schwetzler
2023
We investigate the impact of industry specialization of private equity firms on financial distress risk of portfolio companies using Altman’s Z-Score for a sample of 21045 firm-year observations. Difference-in-differences estimates suggest an increase in distress risk through private equity backing. The effect is stronger for specialist-backed firms than for generalist-backed firms relative to a carefully matched control group. However, specialist-backed firms can afford the increase in distress risk because they are less risky than generalist-backed firms before the buyout. Overall, our findings are consistent with the idea that greater idiosyncratic risk in specialized PE portfolios induces more risk-averse target selection. >more

LIMITED PARTNERS VERSUS UNLIMITED MACHINES; ARTIFICIAL INTELLIGENCE AND THE PERFORMANCE OF PRIVATE EQUITY FUNDS
Reiner Braun, Borja Fernández Tamayo, Florencio Lopez-de-Silanes, Ludovic Phalippou, and Natalia Sigrist
2023
As companies and investors globalize, we are increasingly faced with estimation questions about the risk associated with this globalization. When investors invest in China Mobile, Infosys or Vale, they may be rewarded with higher returns, but they are also exposed to additional risk. When Siemens and Apple push for growth in Asia and Latin America, they clearly are exposed to the political and economic turmoil that often characterize these markets. In practical terms, how, if at all, should we adjust for this additional risk? We will begin the paper with an overview of overall country risk, its sources and measures. We will continue with a discussion of sovereign default risk and examine sovereign ratings and credit default swaps (CDS) as measures of that risk. We will extend that discussion to look at country risk from the perspective of equity investors, by looking at equity risk premiums for different countries and consequences for valuation. In the fourth section, we argue that a company’s exposure to country risk should not be determined by where it is incorporated and traded. By that measure, neither Coca Cola nor Nestle are exposed to country risk. Exposure to country risk should come from a company’s operations, making country risk a critical component of the valuation of almost every large multinational corporation. In the final section, we will also look at how to move across currencies in valuation and capital budgeting, and how to avoid mismatching errors. >more