Aurelia Butler

BEVERLY HILLS (Reuters) – Prominent investors including hedge fund and private equity managers at a major industry conference say they are shying away from stocks and real estate amid uncertainty over interest rates, fears of a recession and threat of a U.S. debt default.Instead, fixed income, which was unpopular when rates were low, is back in favor and seeing strong capital flows into products like bond funds, said fund managers at the Milken Institute Global Conference this week.Until now, investors made decisions on how to allocate their money based on models that looked at correlations between asset classes, statistics, returns and volatilities over the past 20 years, said Elizabeth Burton, a managing director and client investment strategist at Goldman Sachs (NYSE:GS). “Things are very different now,” she said.The shift in focus has been quick and is forcing investors to move away from some assets that had been popular recently. Six months ago, real estate was seen as the “savior asset class” but that is no longer the case, Burton said.Hedge fund and private equity fund managers plus top banking executives gathered at the conference that began Sunday with debates on how much more the Federal Reserve should raise interest rates and when rate cuts might begin. Attendees also discussed whether federal regulators should raise FDIC deposit insurance after First Republic Bank (NYSE:FRC) was seized and sold to JPMorgan (NYSE:JPM), and how markets will react to even higher interest rates and potentially more market volatility.With the S&P 500 up 7.5% since January after a brutal 2022 when the index tumbled nearly 20% and bonds also fell, fund managers are hoping for more gains – though some at the conference said that smacked of rose-colored glasses. “You get a good sense of consensus at these conferences,” said Katie Koch, president and CEO of investment firm TCW. “And I think people are still feeling a little too good. People are too happy.” But some also worried that big companies like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) that helped pull the S&P 500 index higher this year may be overvalued. “I don’t like equities because of the uncertainty,” said Anastasia Titarchuk, chief investment officer at the New York State Common Retirement Fund.Others warned that companies will soon have to refinance their debt at higher rates, making them less attractive.Instead, thanks to higher interest rates, fixed income is once again playing a bigger role in portfolios.”The Fed has helped us put the income back in fixed income,” said Anne Walsh, Chief Investment Officer for Guggenheim Partners Investment Management. “As a result, we’re actually able to capture at least in the short run some very nice yields.”Other investors also said secondary private equity funds that purchase assets from primary private equity investors could also become attractive as demand for liquidity rises sharply.Some investors have not given up on equities, though they caution that portfolio selections need to be made carefully. “Bottom up fundamental investing, including crunching the numbers, is coming back as the risk-free rate has climbed,” said Alexander Roepers, chief investment officer of investment firm Atlantic Investment Management, referring to the interest rate investors can expect on an investment that carries zero risk. As investors mulled what lies ahead for markets, the mood was more downbeat than in previous years – though at the conference at least, a wellness area for participants with hug-worthy puppies and massages offered some respite. More

Good morning. Shares in the education sector fell sharply yesterday as investors bet that artificial intelligence could upend business models following a revenue warning at edtech company Chegg. California-based Chegg, which provides online study guides, admitted that a “significant spike in student interest” in AI chatbot ChatGPT was starting to hurt its sales. The comments mark one of the first instances of a company acknowledging a hit to its finances as a direct result of generative AI. Chegg’s shares plunged by half yesterday and the warning rattled other companies, with shares in London-listed Pearson falling 15 per cent, language-learning platform Duolingo down by 10 per cent and US-listed education company Udemy dropping by more than 5 per cent. More AI news: The co-founders of Google DeepMind and LinkedIn have launched an artificial intelligence chatbot called Pi — but there are key things it cannot do.And here’s what else is happening today:Chinese and Japanese markets closed: Financial markets in both countries will be closed for public holidays.US interest rate decision: Officials expected to deliver another quarter-point rate rise, lifting the federal funds rate to a new target range of 5 per cent to 5.25 per cent, before considering a pause in further increases. Earnings: Companies reporting today include Airbus, BNP Paribas, Enel, Estée Lauder, Kraft Heinz, Lloyds Banking Group, Lufthansa, Prudential Financial and Qualcomm to name a few. More in our Week Ahead newsletter.Five more top stories1. Regional bank shares continued to slide despite the rescue of First Republic this week. Trading in PacWest, seen as one of the weakest of the midsized regional banks, was briefly halted for volatility and was down 28 per cent by late-afternoon in New York. A KBW index of regional bank stocks slid more than 5 per cent.In other banking news: HSBC is to buy back $2bn of its own shares to shore up support against its biggest shareholder Ping An after reporting a jump in profits.2. US short seller Hindenburg Research has unveiled a position against Icahn Enterprises, the publicly listed fund run by activist Carl Icahn, knocking its share price and setting up a battle between two of Wall Street’s most feared and outspoken investors. Read the details of Hindenburg’s report.3. The Reserve Bank of Australia yesterday unexpectedly raised interest rates by 25 basis points to 3.85 per cent as inflation eased. The RBA said further rate rises may be needed as it looks to return inflation to the target range of 2 to 3 per cent. 4. The EU and US have warned Malaysia of risks to national security and foreign investment as the government finalises a review of its 5G rollout that could allow China’s Huawei a role in the country’s telecoms infrastructure. 5. Joe Biden said the US commitment to the Philippines was “iron clad” days after the American ally accused Beijing of dangerously harassing a patrol ship in the South China Sea. FT’s Demetri Sevastopulo has more from Marcos’ four-day visit to the US.News in-depth

Video: Soaring profits put oil and gas ‘supermajors’ in the spotlight | FT Moral Money

Over the past year, high energy prices have brought the global fossil fuel producers an extraordinary flow of wealth. In a new video, the FT’s Simon Mundy looks at the question this raises over their obligation to society and to the planet. For the latest in the debate around responsible business, Premium subscribers can sign up to our Moral Money newsletter. We’re also reading . . . ‘Men in black’: Due diligence is inherently risky in China, and it’s become more vital — and more hazardous as Beijing steps up scrutiny of corporate sleuths.Social media: A Twitter lookalike, backed by Jack Dorsey, has gained rapid traction among journalists and celebrities in search of an alternative platform.Big numbers: People are numb to millions, billions and trillions, but that is perhaps exactly what politicians want, writes Sarah O’Connor.Chart of the dayChinese initial public offerings have raised more than five times as much money as those in the US this year as a crop of new listings in the world’s biggest economy failed to appear after a dire 2022.Take a break from the newsThe Met Gala, technically a fundraiser for the Met’s Costume Institute, has over the years transformed into the fashion world’s Super Bowl. Take a look at some of the most eye-catching looks from this week’s event, which paid tribute to the late Chanel designer Karl Lagerfeld with humour and haute couture.

Jared Leto on the Met steps dressed as Karl Lagerfeld’s cat Choupette © Getty Images

Additional contributions by Gordon Smith and Tee Zhuo More

(Reuters) -Match Group on Tuesday forecast second-quarter revenue below analysts’ expectations, but said it is seeing signs of growth at Tinder after it made changes at the dating platform.Tinder has undergone changes to product and marketing execution and though those optimizations are not visible yet in the financial results, it is seeing early signs of greater momentum, Match Group (NASDAQ:MTCH) said in a letter to shareholders.Shares of the company, whose revenue per paying user grew by about 2% from a year earlier, rose 3% in volatile trading after the bell.Match, which also announced a $1 billion share buyback program, said paying users and direct revenue for its flagship app Tinder were little changed in the first quarter from a year ago, the company said.”Online dating, though resilient in recent history, is beginning to feel the pressure of tightening wallets and ARPU (average revenue per user) can be expected to decline industry-wide throughout the rest of 2023,” said Nicholas Cauley, an analyst at Third Bridge.The company forecast current-quarter revenue between $805 million and $815 million, compared with analysts’ average estimate of $822.3 million, according to Refinitiv.Dating app Hinge introduced a two-tier subscription model, giving users more options, which is expected to increase the average revenue per user and bring in more paying users.The company said negative foreign exchange impact in the reported quarter was $35 million, $7 million more than it had anticipated in its fourth-quarter earnings call.Match Group said it saw paying users across its family of dating apps fall 3% from a year earlier to 15.9 million.The company reported revenue of $787 million in the three-month period ended March 31, compared with analysts’ average estimate of $793.8 million.Net profit fell to $120.8 million, from $180.5 million, a year earlier. More

The risk of default looms ever larger after Treasury Secretary Janet Yellen on Monday said the date the government may run short of funds to pay its bills under the current $31.4 trillion debt limit may be as early as June 1. Time is running short and President Joe Biden and congressional Republicans are unlikely even to meet for the first time for another week.Despite Powell’s protestations, the Fed would have a role in trying to limit the harm to financial stability. In past debt-ceiling standoffs – in 2011 and 2013 – Fed staff and policymakers developed a playbook that would likely provide a starting point.And the recent banking turmoil has introduced at least one potential new twist.Here are some of the Fed’s options:THE BASICSThe U.S. central bank’s basic responses to debt-limit-related market stress were laid out in an August 2011 conference call held by its policy-setting Federal Open Market Committee to discuss what seemed to be imminent trouble.Two of the key ideas developed then, the use of repurchase and reverse repurchase agreements to ensure liquidity for the most important financial markets, are now permanent Fed programs integral to how it manages interest rates on a day-to-day basis.If market stress became apparent in short-term interest rates, it could temporarily increase the amounts available for “repos” – short-term sales or purchases of securities that can run into the trillions of dollars each day. Indeed, doing so might be necessary for the Fed to conduct monetary policy if market stress pushed its benchmark target rate outside the range set by policymakers.SUSPEND QT? Another quick tool at hand would be to suspend the current “quantitative tightening,” also known as QT, used by the Fed to shrink its balance sheet each month.While QT is part of the Fed’s move to tighten monetary policy to control inflation, it has a net effect of pulling about $95 billion a month out of financial markets – money the central bank could in effect add back by holding its balance sheet constant until the debt-ceiling standoff ended.OLD TOOL, NEW TWIST?The Fed’s most standard tool, acting as lender of last resort to banks through its discount window, would also be available.But now there’s a twist, one perhaps foreshadowed in the 2011 planning discussions but brought back into the light by the failures in March of Silicon Valley Bank and Signature Bank (OTC:SBNY).A default would not extend to the nearly $24 trillion stockpile of Treasury securities all at once – it would spread one bill, one note, one bond at a time as interest and principal payments became due.In 2011, top Fed staff, led by then-head of its monetary affairs division William English, posited the central bank could accept any defaulted Treasury securities as collateral for its standing programs such as the discount window or repos.That “seems appropriate so long as the default reflects a political impasse and not any underlying inability of the United States to meet its obligations, so that all payments on defaulted securities would presumably be made after a short delay,” English – now at Yale School of Management – told officials, the transcript of the 2011 conference call shows.English, however, had envisioned the bonds being accepted by the Fed at a market price that would likely be impaired by their defaulted status.But, following the bank failures in March, the Fed has a new bank lending facility – one that allows securities with impaired prices to be pledged at face value. The same terms apply to discount window loans.THE ‘LOATHSOME’The last and most sensitive step for the Fed would involve removing defaulted securities from the market altogether – either through outright purchases that would involve increasing its balance sheet, or “swaps” in which it would trade its own holdings of Treasuries on which interest or principal payments were expected to stay current for those that were in default.English in the 2011 call warned that approach “would insert the Federal Reserve into a very strained political situation and could raise questions about its independence from Treasury debt management issues.” When the issue resurfaced during another debt ceiling stand-off in 2013, Powell – then a rather junior member of the Board of Governors with a bit over a year of service at the central bank under his belt – chafed at that idea in particular. But also didn’t rule it out.After endorsing a range of less fraught options during a briefing that October, the future Fed chief said, “as long as I’m talking, I find 8 and 9 to be loathsome,” referring to the swaps and outright purchases.     “I hope that gets into the minutes. But I don’t want to say what I would and wouldn’t do, if we have to actually deal with a catastrophe.”Ben Bernanke, Fed chair at the time, quipped: “So you are willing to accept ‘loathsome’ under some certain circumstances,” drawing laughter from others on the call.Powell responded: “Yes, under certain circumstances.” More