NEWSLETTER of May 9, 2025

The following content has been added at finexpert:

KfW Research
GERMAN VENTURE CAPITAL BAROMETER Q1 2025
After a slight dip in the business climate at the end of 2024, this was at least partially offset at the start of 2025. In the first quarter of 2025, the business climate indicator for the German VC market rose slightly by 2.0 points. At -2.1 balance points, the indicator remains just below its historical average, which is indicated by a value of zero. By contrast, business expectations fell slightly at the start of the year. The increased skepticism about future business development is likely due to the current high level of macroeconomic uncertainty, which has been caused in particular by US economic and trade policy since the start of the year. >more

KfW Research
GERMAN PRIVATE EQUITY BAROMETER Q1 2025
Fortunately, the decline in sentiment on the German private equity market did not continue at the start of 2025. After a noticeable cooling of the business climate in some cases during the previous three quarters, the business climate index gained 3.2 points again in the first quarter of 2025. The business climate remains at a low level of -37.3 balance points. The coming quarters will have to show whether the downturn has bottomed out. The increased uncertainty on the capital markets at the end of the quarter will also pose a challenge for the German private equity market over the remainder of the year. >more

Hamilton Lane
HAS THE GOLDEN AGE OF PRIVATE CREDIT LOST ITS SHINE?
Amidst an evolving market backdrop, some investors are debating whether the golden age of private credit may be changing. We believe it will continue, and the data suggests that private credit has reason to continue delivering its consistency of performance and attractive yields in a higher-for-longer rate environment. Despite three rate cuts in 2024, private credit investors are well-positioned to experience higher yields for longer, which suggests the golden age has room to run and investors have not missed the opportunity. Where this is most evident is in the forward SOFR curve, which is U.S. private credit’s typical reference rate. Looking ahead, private credit investors are poised to benefit from 200 - 300 basis points (bps) of enhanced floating yield, relative to the decade preceding 2022’s rising interest rate environment. >more

Kiel Institute for the World Economy
HANDELS- UND WÄHRUNGSKRIEGE – LEHREN AUS DER GESCHICHTE
Explaining President Trump’s “Liberation-day” tariffs on April 2nd, 2025, Stephen Miran, President Trump’s chairman of the council of economic advisors suggested that countries accept the U.S. tariffs without retaliation to come to a fair “burden sharing”(Miran: 2025). History shows that this assumption is wrong: using a detailed data set of bilateral trade flows constructed for the interwar period, this column shows that in fact the US faced substantial and widespread retaliation from trade partners in response to the U.S. Tariff Act of 1930 (i.e., the Smoot-Hawley Tariff). U.S. exports to retaliating countries fell by as much as 33%, with U.S. trade partners specifically targeting high-end, branded consumer products, such as U.S. autos. The drop in trade contributed to the Great Depression, which in turn triggered a large currency war: between 1929 and 1936, 70 countries devalued their currencies relative to gold. We show that trade was further reduced by more than 21% following devaluation. >more

AI AND PERCEPTION BIASES IN INVESTMENTS: AN EXPERIMENTAL STUDY
Anastassia Fedyk, Ali Kakhbod, Peiyao Li, and Ulrike Malmendier
2025
AI has the potential to broaden access to investment advice. But can it replicate the investment preferences and rationales of investors that have been historically underrepresented? We ask 1,272 human and 1,350 AI respondents to rate stocks, bonds, and cash investments. First, default AI-generated responses overrepresent the preferences of young high-income individuals. However, algorithmic bias disappears with demographically seeded prompts. Second, AI-generated free-form responses closely capture human rationales: risk and return, financial knowledge, and past experiences. Third, AI can help identify where a lack of financial knowledge induces uncertainty about investment, as shown in our textual analysis of transitivity violations. >more

INVESTOR ACTIVISM AND THE GREEN TRANSITION
Sebastian Gryglewicz, Simon Mayer, and Erwan Morellec
2025
We develop a model of impact activism in which activist investors contribute to a firm's green transition through engagement. Two intertwined free-rider problems imply that activists have limited or negative impact in equilibrium. First, an internal free-rider problem, where insiders and activists free-ride on each others' transition-related efforts, can render activism ineffective or even counter-productive. Second, an external free-rider problem, where activism-driven gains are reflected in the stock price and accrue to passive investors, prevents activists from investing or tilts investments towards firms that can transition without activist engagement. Carbon taxation strengthens these mechanisms. Sustainability preferences help overcome them. >more