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NEWSLETTER of February 11, 2022

The following content has been added at finexpert:

Tutorials QoD25

Questions of doubt in corporate valuation QoD#25: Again – Wat is the impact of inflation on corporate value? Part I: A simple model

Bernhard Schwetzler
This video is discussing some common errors when introducing inflation into corporate valuation models by a simple example. (February 11, 2022).  >more

Studies > Performance

The decarbonization of the global economy poses major challenges for companies. At the same time, ESG (Environment, Social, Governance) criteria are becoming increasingly important - not only, but also for investors. Executives are challenged to steer the transformation more in the direction of sustainability and (nevertheless) achieve the returns investors are looking for. Investors, too, must contribute to reconciling sustainability and return requirements. The "PwC Global Investor ESG Survey 2021" reveals this tension. For the study, the auditing and consulting firm PwC surveyed 325 asset managers and analysts from investment companies, investment banks and brokerage firms worldwide in September 2021. >more

Studies > Performance

The underrepresentation of women on boards remains a key area of focus for organizations globally, but overall progress remains slow, and for women in leadership positions, even slower. The Deloitte Global Boardroom Program’s Seventh Edition of the Women in the boardroom: A global perspective report includes updates from 72 countries on gender diversity in the boardroom, exploring insights on the political, social, and legislative trends behind these numbers. While these private and public sector efforts demonstrate steps toward achieving parity, the pace of collective progress needs to pick up. >more

Studies > M & A

Bain & Company
Disruptive change in many areas of the economy is driving the global M&A business. Even high valuations are not preventing companies from making acquisitions to speed up their digital transformation, for example. Low interest rates are also making it easier for strategic buyers and financial investors to make acquisition decisions. And the renaissance of special purpose acquisition companies (SPACs) has further fueled the boom. Accordingly, global M&A volume increased significantly in 2021, reaching a new high of USD 5.9 trillion. In 2019, before the outbreak of the Corona pandemic, only $4.0 trillion had been recorded (Figure). In its "Global M&A Report 2022," the international management consultancy Bain & Company analyzes global merger and acquisition activity and highlights the success factors in a challenging environment. >more

Studies > Alternative Investments

PGIM Real Estate
As worrying new COVID-19 variants emerge, the pandemic is still far from over, while concerns about higher inflation and rising market interest rates persist. Nevertheless, the backdrop for real estate markets in 2022 is one of transition to a new phase of recovery and expansion. Leading indicators are pointing upward, and even though the gap between the best- and worst-performing parts of the market remains wide, most sectors and regions are set for sustained or improved investment performance in the year ahead. But that renewed optimism raises a new challenge for investors: deploying capital that has been raised. City office, apartment and retail markets that suffered during the pandemic are starting to come back into favor, and capital is increasingly finding its way into higher-returning operational assets, wherein returns are linked to long-term trends such as digital transformation, aging populations and environmental sustainability. >more

Research Papers > Risk Management

Henry Neville, Teun Draaisma, Ben Funnell, Campbell R. Harvey, and Otto Van Hemert
Over the past three decades, a sustained surge in inflation has been absent in developed markets. As a result, investors face the challenge of having limited experience and no recent data to guide the repositioning of their portfolios in the face of heighted inflation risk. We provide some insight by analyzing both passive and active strategies across a variety of asset classes for the U.S., U.K., and Japan over the past 95 years. Unexpected inflation is bad news for traditional assets, such as bonds and equities, with local inflation having the greatest effect. Commodities have positive returns during inflation surges but there is considerable variation within the commodity complex. Among the dynamic strategies, we find that trend-following provides the most reliable protection during important inflation shocks. Active equity factor strategies also provide some degree of hedging ability. We also provide analysis of alternative asset classes such as fine art and discuss the economic rationale for including cryptocurrencies as part of a strategy to protect against inflation. >more

Research Papers > Alternative Investments

Will Gornall, and Ilya A. Strebulaev
This paper develops the first option pricing model of venture capital-backed companies and their security values that incorporates the dilutive future financing rounds prevalent in the industry. Applying our model to 19,000 companies raising 37,000 rounds shows that preferred contractual features make the most recently issued preferred shares worth on average 56% more than common shares. While future rounds have a negligible impact on most securities, they significantly impair the value of securities with high liquidation multiples or seniority. Counterintuitively, future “investor-friendly” rounds transfer value from current investors to founders and other common shareholders, significantly reducing the value of many preferred protections. Our model-implied valuations predict exit values, price changes, and outcomes. Modeled security values are consistent with prices reported by specialized intermediaries but suggest dramatic underreporting of common share values for tax purposes. >more

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