NEWSLETTER of November 25, 2022

The following content has been added at finexpert:

KfW Research
DEUTSCHE UNTERNEHMEN INVESTIEREN RUND 55 MRD. EUR IN DEN KLIMASCHUTZ – NOCH ZU WENIG FÜR DAS ZIEL DER KLIMANEUTRALITÄT
German companies invest around EUR 55 billion in climate protection - still too little to achieve the goal of climate neutrality. Companies in Germany invested around EUR 55 billion in climate protection in 2021. However, more than doubling the annual investment volume is needed to achieve the German goal of climate neutrality in 2045. This is shown by the KfW Climate Barometer 2022, which for the first time surveys climate protection investments for the entire corporate sector in Germany and provides insights into the attitudes and activities of companies around the implementation of the energy transition. The results also show that every second company in Germany has anchored the topic of climate protection at least partially in its corporate strategy. However, concrete greenhouse gas reduction targets and knowledge of their own carbon footprint have so far been the exception among the broad business community. Larger companies are leading the way here. >more

Lombard Odier
THE CORPORATE BOND IS BACK
Corporate bonds are a combination of risks – namely interest-rate risk and credit risk. These two have historically diversified each other, reflecting the role of central banks as a countercyclical force supporting the economy with rate cuts and quantitative easing. However, 2022 has been the first year in recent history in which a significant rate drawdown has coincided with a credit drawdown – an environment which we believe won’t last much longer. >more

BCG
THE 2022 M&A REPORT: DEALMAKING REMAINS ACTIVE AS DARK CLOUDS FORM
Dealmakers face the most challenging environment for M&A since the financial crisis of 2008–2009. Soaring inflation, rising interest rates, and a looming recession have put an end to the buying spree that followed the lifting of COVID-19 lockdowns. Although corporate and financial acquirers are exercising greater caution in their pursuit of targets, they have not closed shop. Indeed, the level of M&A activity in 2022 is in line with recent pre-pandemic levels, despite slowing down relative to 2021’s frenzied pace and trending lower throughout the year. Looking ahead, savvy buyers and sellers will continue to use M&A to create value even in unfavorable conditions. As we previously discussed, downturns can be a good time for deal hunting. In addition to the traditional motivations, sustainability is gaining importance as a reason to acquire or divest businesses. >more

Montana Capital Partners
ANNUAL INVESTOR SURVEY – THE ROLE OF PRIVATE EQUITY IN VOLATILE TIMES: HOW LEADING INVESTORS RESPOND TO THE NEW MARKET ENVIRONMENT
The results of mcp’s 10th Annual Investor Survey – The Role of Private Equity in Volatile Times: How Leading Investors Respond to the New Market Environment— show that investor allocations to private equity have surged in 2022, primarily due to the strong performance of the asset class and a robust fundraising environment. The report captures the views of private equity investors around the world – providing insights into their investment strategy and preferences in the current market environment where public market valuations have sharply decreased, inflation has risen dramatically and Russia declared war on Ukraine. >more

DURATION-BASED VALUATION OF CORPORATE BONDS
Jules H. van Binsbergen, and Michael Schwert
2022
We decompose corporate bond and equity index returns into duration-matched government bond returns and the excess returns over this duration-matched counterfactual, which we term duration-adjusted returns. Our decomposition leads to markedly different return patterns and asset pricing implications compared to previously used excess return definitions (i.e., returns in excess of Treasury bills). In particular, we find that investment-grade bonds earn a small credit risk premium, comparable in magnitude to the convenience yield, and that duration adjustment resolves the CAPM's failure to price corporate bonds. These findings highlight the importance of adjusting for non-stationary interest rate environments in asset pricing tests. >more

CATERING AND RETURN MANIPULATION IN PRIVATE EQUITY
Blake Jackson, David C. Ling, and Andy Naranjo
2022
We provide evidence that private equity (PE) fund managers manipulate returns to cater to their investors. Using a large dataset of PE real estate funds, we show that PE fund managers overstate returns if they oversee a larger share of their investors' assets, and doing so has a more significant impact on investors' reported returns. Additional cross-sectional results are inconsistent with models in which investors punish or are deceived by manipulations. In contrast, our results highlight an underlying tension in PE performance: the "phony happiness” that some PE investors receive from overstated and smoothed interim returns due to agency frictions within their organizations. >more