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Bloomberg Markets Magazine

Bloomberg Markets Magazine June/July 2018

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Bloomberg Finance LP
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in this issue

2 min

For the past decade, many European banks have endured one overhaul after another as they’ve adapted to the new post-crisis math. Yet France’s BNP Paribas, the euro zone’s biggest bank, has sidestepped the drama and is now primed for expansion, as Edward Robinson, a senior writer in London, and Fabio Benedetti Valentini, a banking reporter in Paris, explain in “The Grown-Up” (p. 64). They interviewed the bank’s chief executive officer, Jean-Laurent Bonnafé, and his senior management team. “The mantra inside this institution is to take things slow and steady,” Robinson says. “Now we’ll see if it can seize the moment and become Europe’s banking champion.” The private equity industry has become synonymous with larger-than-life personalities such as Stephen Schwarzman, Henry Kravis, and David Rubenstein. Last year, Carlyle Group became the first…

6 min
is it time to worry about risk parity?

MARKET CRASH WITH NO OBVIOUS CULPRIT? Struggling to identify systemic risks? Unforeseen asset rotation? Blame risk parity. You won’t be the only one to do so. The portfolio strategy made famous by Ray Dalio has ballooned in popularity over the past two decades to an estimated $175 billion of assets. Check out Bridgewater Associates LP’s account of developing the company’s All Weather strategy, and you’ll see the attraction. By identifying “timeless and universal” laws of investing, namely that markets tend to go up and that diversification mitigates risk, risk parity can provide equivalent returns with lower risk than a traditional 60-40 portfolio. In essence, the idea of risk parity comes out of the observation that assets with lower risk tend to produce lower returns. If you could dial up and…

8 min
in treasuries we trust

U.S. TREASURIES provide the closest thing on the planet to the risk-free rate of return, a crucial element in financial theory used to value a wide swath of global assets. After all, they make up the largest and most liquid bond market, the dollar is the reserve currency of the world, and top ratings from most major credit agencies signal virtually no risk of a default. Lately, though, the trend among many Wall Street practitioners is to outdo one another with grandiose statements about how much risk is actually embedded within the $14.9 trillion Treasury market. By their logic, after years of rock-bottom interest rates as the global economy recovered from the post-crisis recession, rates are destined to head higher—and in a hurry. The most common shorthand for this doomsday scenario:…

1 min
battery power

THE KEY TO more than 500 million electric cars is buried under this plain. The Atacama salt flat is in northern Chile, home to the world’s largest proven reserves of lithium. The element is one of the main components in the batteries that power emission-free vehicles such as Tesla Inc.’s Model S. Chile is said to have 7.5 million tons of lithium, according to the U.S. Geological Survey. This is enough to make half a billion battery packs for the Model S, Bloomberg New Energy Finance estimates. Sociedad Química y Minera de Chile SA, or SQM, produces about 48,000 tons of lithium carbonate a year from its operations in the salt flat, which is about 2,300 meters (7,500 feet) above sea level. The company pumps brine into ponds, where it evaporates under…

5 min
think passive is easy? managing this etf is like solving a $55 billion rubik’s cube

I F YOU THINK running a passive bond fund is a formulaic task that a robot could do, think again. When your underlying index is filled with thousands of fixed-income securities, tracking it isn’t exactly a simple task. The crux of the problem: It’s essentially impossible to own every note and bond in the benchmark. If you therefore use a selection of its constituents to replicate the benchmark, you have to continually tweak the characteristics of your optimized portfolio to home in on the performance of the underlying index. BlackRock Inc.’s Jasmita Mohan and Karen Uyehara know all about it. The two women, who sit next to each other at BlackRock’s San Francisco office, have for the past four years run the world’s biggest bond exchange-traded fund: BlackRock’s $55 billion iShares Core U.S.…

5 min
is it better to have a team or a single manager overseeing your fund?

WHAT’S THE IDEAL NUMBER of portfolio managers for an investment fund? Whether you’re a proponent of a single-manager model or prefer shared responsibility, there’s a saying to support your view: “Two heads are better than one.” “Too many cooks spoil the broth.” Indeed, there are good arguments in favor of both approaches. A single manager can be more decisive and ensure thematic consistency throughout a portfolio, albeit without the moderating influence of a second set of eyes. A fund management team offers the benefit of diverse viewpoints and increased bandwidth, perhaps with the risk of leaving money on the table when key issues require consensus. Which approach works better over time? That depends on how we frame the issue. The world’s largest pools of capital are all managed by teams, which arguably…