Wall Street Bonuses Are Shrinking This Year

“Hedge funds performed well in 2020,” says the alternative assets intelligence firm Preqin.

With returns of 16.63% across all asset classes, hedge fund returns were ahead of the S&P 500 PR Index, which closed the year at 16.26%, according to the 2021 Preqin Global Hedge Fund Report. It was the asset class’ highest annual return since 2009.

Preqin said the best performing strategy was equities, with a 19.64% return. Credit strategies provided the lowest returns at 5.24%.

In addition to a strong upside, Preqin said, “Hedge funds also offered downside protection through lower levels of volatility over 2020 compared with the public markets.”

Accounts under management grew by 6% over 2019 to $3.87 trillion as of the end of November. Though modest, it was a significant turnaround from the first two quarters of the year when investors fled the sector for the lower cost and more passive UCITS (Undertakings Collective Investment in Transferable Securities) and ETFs (exchange traded funds).

“The direction of flow reversed in the third quarter,” Preqin says, “Suggesting an increasing investor preference for active management over tracking.”

As cautious as investors themselves, hedge fund professionals launched significantly fewer new funds. Liquidations exceeded new funds by 758 to 740 for “only the second year on record,” said Preqin. The previous time that happened was in 2019.

Still, Preqin listed 18,303 funds at the close of 2020, just behind the record of 18,391 recorded in 2018.

The report identifies what it describes as five “megatrends,” themes that will continue to shape the hedge fund industry:

1. ESG – Typically described as social investing, ESG considers environmental, social, and governance issues in deciding on investment. Preqin says ESG “has moved into the mainstream and is a key consideration” for investors and fund managers.
2. Capital consolidation – “Established managers are taking a growing share of capital raised across all alternative asset classes.”
3. Diversification — Since 2016, investors’ primary reason for allocating to hedge funds has been diversification, says Preqin. That will continue, predicts the report, as “investors are more focused on low correlation than returns.”
4. Customized solutions – The shift away from fund products can offer lower fees and allow investors and managers to take part in opportunities more equally.
5. Rising allocation to alternatives – “Investors are increasing their alternatives allocations to produce better risk-adjusted returns and protect the downside.”

Preqin’s head of research insights David Lowery says, “After nine consecutive quarters of outflows, Q3 2020 marked the first quarter of net inflows, bringing much-needed optimism to the hedge fund industry. Established managers are taking a growing share of capital raised across all alternative asset classes, but investors are seemingly aware of the benefits of investing in first-time funds and are taking advantage of the large supply.”

Photo by Chris Liverani on Unsplash

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Thought to be endangered by the twin threats of mobile banking and the COVID-19 pandemic, bank branches it turns out, still have plenty of life left.

The Financial Brand reports that an FDIC report released at the end of September showed a net decline of 1,463 bank branches between July 1, 2019 and June 30, 2020. That’s about 12% higher than last year, but not the tsunami some analysts were predicting. Banks closed 2,642 branches while opening 1,179.

Zeroing in on just the pandemic months from March through August this year, the Office of the Comptroller of the Currency received notice of 893 branch closings. For the same period in 2019, 967 notifications were submitted.

However, the trend is clearly headed down, if slowly. Over the last 10 years, the banking sector averaged 1,861 closures and 982 new branch openings annually. In 2011 there were about 90,000 bank branches. As of the end of June 2020, there were just over 80,000.

Because of regulatory requirements, “It’s hard to close a branch,” Richard Walker of Deloitte Consulting told Forbes. But that’s not the only reason, he added, “Banks still view branches as a critical part of their footprint.”

So do consumers, including those who have embraced mobile banking for the first time during the COVID lockdown. Research by the Simon-Kucher & Partners consulting firm reported in the ABA’s BankingJournal found 54% of customers would open an account only at a branch. A majority would visit a branch to open a business account and 69% said they’d go to a branch for a mortgage, despite the availability of online mortgage lenders.

That survey also found customers willing to walk or drive longer distances to do business in a bank branch.

Still, 42% of customers say even after business returns to normal they expect they won’t be visiting branches as much.

Mindful of the trend toward online banking and the need to compete with the fintechs, bank executives are looking to transform branches as places that are mostly transactional to focus more on meeting customer financial needs. “I think there’s a goal for branches turning into more advice centers than transaction centers as they were in the past,” Bruce Van Saun, chair and CEO of Citizens Financial Group told Forbes.

That might just be a winning formula. In another, recent Simon-Kucher & Partners survey, consumers said a bank’s reputation, insured accounts and the bonus offered for opening an account are their top three reasons for choosing a bank. But next are “features that make saving engaging and fun” and how the bank values their loyalty.

Photo by Floriane Vita on Unsplash

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