Asset managers grappling with interest rate uncertainty

Asset managers across the US are balancing short-term challenges such as a “higher-for-longer” rate environment while maintaining a focus on longer-term objectives, including GenAI deployment, according to the findings from KPMG’s Asset Management Industry Pulse survey. The survey features insights from more than 120 industry executives, who provide their views on some of the key concerns and strategic initiatives within their industry.

Most respondents (63%) anticipate the Fed will start cutting rates in the second half of 2024, while 37% believe it will wait until 2025 or later. A September rate cut seems increasingly likely with the economy showing resilience but signs of a labour market slowdown in early August.

Asset managers cite the availability of capital as their top risk, with 48% marking it as their primary concern, up from 40% previously. Interest rate uncertainty is also significant, ranking second at 37%. Respondents expect private debt (43%) and private equity (35%) to remain the top asset classes for ROI over the next three years, mirroring the previous survey results. The hybrid work model remains dominant in response to the pandemic, with 75% of organisations adopting this approach, an increase from 67% previously adopting the hybrid model.

Despite the buzz around GenAI, asset managers are proceeding cautiously. Some 40% are in the conceptual phase, 25% are developing capabilities, and nearly a third haven’t started. Less than 5% have a clear strategy. The primary barriers to AI adoption are data integrity risks (60%) and lack of awareness and training (53%), highlighting critical areas that need addressing for more effective AI implementation.

“Despite the FOMC’s decision to hold rates steady in July, the prevailing expectation is for rate cuts to occur later this year,” said KPMG Senior Economist, Yelena Maleyev. “The Fed remains focused on achieving a soft landing - balancing price stability with full employment. Our survey reflects this sentiment, with 63% of asset managers anticipating rate cuts in the latter half of 2024. However, given recent signs of a slowdown in the labour market, the likelihood of a rate cut in September seems increasingly probable. For the asset management industry, these anticipated changes in monetary policy could present both challenges and opportunities, as investors adjust strategies to align with shifting economic conditions.”

 

Sweden’s economic recovery draws closer

The Swedish economy remains weak, but the recovery is near, and in 2025, growth will pick up speed, according to the Swedbank Economic Outlook. Inflation is below the target of 2%, and as a result, the Riksbank will need to increase both the speed and frequency of policy rate cuts. Fiscal policy will also shift, taking a more expansive turn in the coming years.

“The driving forces for the Swedish economy are shifting,” commented Mattias Persson, Group Chief Economist, Swedbank. “Household incomes are now rising faster than prices, which is strengthening household purchasing power. We expect high consumption growth from the beginning of next year when interest rates have fallen further, and unemployment is no longer increasing. However, we expect both exports and investments to grow more slowly this year and next.”

Swedish inflation fell below 2% during the summer and will remain close to the target for the next two years. 

“We expect the Riksbank to lower the policy rate at its three remaining meetings in 2024, with a rate of 2.75% at the end of the year,” said Persson. “In 2025, the cuts will continue down to 2 per cent. Interest rates need to be reduced at a rapid pace to avoid the risk of delaying the recovery of the Swedish economy or deepening the recession. But we cannot rule out that the Riksbank may need to move faster and go lower than our forecasts.” 

With inflation below target, fiscal policy is pivoting and will support a strong recovery for the Swedish economy. Unfunded fiscal measures totalling SEK60bn in 2025 and the same amount in the 2026 election year will lead to a budget deficit per year of approximately 1% of GDP for Sweden’s entire public sector. 

Swedish economic growth will be weak during the rest of 2024. Swedbank expects GDP to grow by a moderate 0.3%. From the beginning of next year, however, growth will shift up, and GDP will grow by nearly 3 per cent in both 2025 and 2026.   

“The recovery is drawing closer and will start slowly during the rest of 2024, but next year the Swedish economy will pick up speed,” added Persson. “The rapid recovery in the Swedish economy that we see going forward will be largely due to supportive economic policy. Both fiscal policy and monetary policy will support the Swedish economy, which will recover lost ground and grow faster than normal in 2025 and 2026.”

 

DBS leverages PBOC’s Carbon Emission Reduction Facility to issue green loan

DBS, in partnership with Envision Energy, has announced an RMB500m (SG$92m) green loan facility to develop a 100-megawatt wind turbine farm in northeastern China's Henan province. DBS China also served as the sole green finance advisor for this loan to ensure that the terms comply with the China-EU Common Ground Taxonomy.

When completed, the project is expected to generate about 270 gigawatt hours of renewable energy – enough to power 90,000 households and avoid 212,600 tonnes of carbon emissions annually.

The loan will be issued under the People's Bank of China’s (PBOC) Carbon Emission Reduction Facility and represents the first successful transaction in this programme by a Southeast Asian bank.

The programme enables participating banks to offer low-cost loans to fund sustainable development projects in China across critical sectors, including clean energy, energy saving, environmental protection, and carbon emission reduction technologies. The programme helps to subsidise China’s transition efforts, with PBOC providing financial institutions with funds equal to 60% of a loan's principal at an annual interest rate of 1.75%. As of June 2024, participating banks had extended over RMB547bn (SG$100bn) in loans. 

 

AIIB issues its first digitally native note on Euroclear’s D-FMI platform

The Asian Infrastructure Investment Bank (AIIB) has issued its first digitally native note (DNN) on Euroclear's Digital Financial Market Infrastructure (D-FMI). This marks Euroclear's first digital issuance in USD. The initiative was supported by BMO Capital Markets, which served as dealer, and Citi, which served as dealer and the issuing and paying agent on the transaction.

The issuance, the first by an Asia-based issuer, was executed via Euroclear’s Digital Securities Issuance (D-SI) service, which enables the issuance, distribution and settlement of fully digital international securities on distributed ledger technology (DLT). The DNN, with a triple-A rating by Moody’s, Standard & Poor’s and Fitch Ratings, successfully raised US$300m to support AIIB’s sustainable development bond programme. 

The note is listed on the Luxembourg Stock Exchange. Clearing of the bonds is also possible in the Hong Kong Monetary Authority’s Central Moneymarkets Unit (CMU) and the SIX Swiss Exchange (SIX). AIIB was advised on the transaction by Clifford Chance, and the dealers were advised by A&O Shearman.

 

SIX flag to help investors identify Paris Agreement-aligned equities

SIX has introduced the new ‘SIX 1.5 °C Climate Equity’ flag to help investors identify companies whose existing business models and future plans align with limiting global warming to 1.5°C above pre-industrial levels, as outlined in the Paris Agreement. An approved reviewer must confirm whether a company meets the relevant requirements. Companies listed on the SIX Swiss Exchange can now apply for the voluntary flag.

To earn the flag, a company must provide SIX with confirmation from an approved reviewer that it meets all flag requirements. Currently, two approved reviewers are available: S&P and SGS. The flag is valid for one year and must be renewed annually with an updated confirmation.

The requirements for the confirmation consist of three assessments. The first is a top-down analysis of whether the company's entire value chain aligns with the 1.5°C goal by examining its future emissions reduction and removal targets. The second evaluates bottom-up whether it is credible that the company will continue to meet its targets. The third is an activity-level assessment determining whether over 50% of the company’s current revenues and investments contribute towards the 1.5°C goal.

SIX has defined these criteria based on established sustainability principles and the scientific consensus on climate science, according to the Intergovernmental Panel on Climate Change (IPCC). Herewith, the emerging accordance among widely used methodologies and standards are reflected. These mainly include the Carbon Disclosure Project Assessing Low-Carbon Transition initiative (CDP ACT initiative), the Climate Bonds Initiative (CBI), the UN Race to Zero Starting Line Criteria, and the WFE Green Equity Principles (2023). SIX continuously observes developments in this field and will refine its framework as necessary to ensure it remains current and effective.

 

Banking Circle launches bank-backed MiCA-compliant stablecoin

Banking Circle has announced the launch of EURI, a bank-backed stablecoin compliant with the Markets in Crypto Assets Regulation (MiCA). The launch of EURI follows the implementation of the first phase of the MiCA regulation, which has applied to asset-referenced tokens and e-money tokens since 30 June 2024.

The MiCA regulation aims to foster the use of innovative technologies by setting a regulatory framework that covers crypto-assets (including stablecoins), crypto-assets issuers and crypto-asset service providers to protect the rights of holders in the EU. As an EU regulation, it is directly applicable to all 27 EU member states.

EURI is the first e-money token launched by Banking Circle, and the first MiCA-regulated stablecoin that is issued and backed by a bank in the EU. It will first be available via Binance, followed by CoinUT Switzerland, with more exchanges to follow. The burning and minting of EURI is enabled by the Fireblocks Tokenization Engine and secured by its Multi-Party Computation (MPC-CMP) technology. This announcement provides competition in the EU stablecoin market, which has historically lagged behind dollar stablecoins.

 

Coupa rolls out AI-driven features to simplify business operations

Coupa has unveiled over a dozen AI-driven innovations to help companies optimise process efficiency, improve productivity, and make it easier for employees to do their jobs, freeing them up to work on higher-value initiatives.

The new AI tools include Coupa Navi, a GenAI-based personal agent, which will be generally available in September. Navi aims to improve productivity and how customers interact with the Coupa platform by finding document status and approvals faster, accelerating requests, and serving as an always-available knowledge base for instant answers to questions.

The Contract Intelligence feature provides customers with risk-informed clause recommendations, helping reduce exposure to potential issues. New enhancements also provide GenAI-generated legal agreement summaries, giving users important context, whether from third-party contracts or negotiations.

The platform also gives businesses a view of their direct and indirect spending. By unifying all spending categories in one place, the firm says that organisations can maximise savings and efficiency gains. The Coupa Advantage Marketplace offers access to a range of goods from trusted suppliers with pre-negotiated rates and financial benefits. Helping finance and procurement leaders identify savings opportunities, improve spend visibility and efficiency, and eliminate maverick spend.

Elsewhere, Service Maestro enhancements allow customers to create, view, and manage contingent worker records and assignments, providing complete visibility into services spend. This is designed to enable businesses to drive efficiencies, optimise costs, and comply with staffing regulations.

 

U.S. Bank acquires healthcare payments platform Salucro

U.S. Bank has acquired Salucro Healthcare Solutions, a company that provides healthcare financial technology focused on patient payments and billing.

Founded in 2004, Salucro provides online billing and payments offerings for healthcare providers across the US. Salucro had previously been a partner of Elavon, the merchant acquiring unit within U.S. Bank. The bank initially invested in Salucro in 2022, and Salucro's platform is sold through Elavon as MedEpay.

The Salucro team members are now employees of U.S. Bank and will integrate into Elavon, one of the largest payment processing companies globally.