Minnie Arwood, Author at In Class Book

February 20, 2022

Xinjiang: IFC, World Bank Group member, accused of lending money to companies allegedly linked to forced labor in China

The report, titled “Financing and Genocide: Development Finance and the Crisis in the Uyghur Region,” presents evidence that in recent years the IFC has loaned money to four Chinese companies that have been linked to forced labor and land expropriation in the region, along with environmental damage and the destruction of indigenous cultural heritage sites.

According to public disclosures, the four companies named in the report — Chenguang Biotech Group, Camel Group, Century Sunshine and Jointown Pharmaceutical Group — have received loans and equity investments from the IFC valued at $439 million. Including loans sourced from institutional investors via the IFC, that figure rises to around $485 million.

The loans could contravene the IFC’s own internal guidelines — known as its Performance Standards — which function entirely to “prevent IFC from financing projects that will have adverse environmental and social impacts that jeopardize [its] development aims,” according to the report.

Solar panels are key to Biden's energy plan. But the global supply chain may rely on forced labor from China

CNN Business was granted exclusive, advance access to the report, which was led by the Helena Kennedy Centre for International Justice at Sheffield Hallam University in the United Kingdom and published by the Atlantic Council, a Washington-based think tank.

The Helena Kennedy Center for International Justice researches modern day slavery, gender-based violence and hate crime and has previously published reports alleging the use of forced labor in Xinjiang to produce cotton and solar panels. They say the four named companies are not the only businesses receiving IFC funds in the region.

“I think it’s clear that the IFC needs to divest from all their investments in the Uyghur region,” said report author Laura Murphy, a professor in Human Rights and Contemporary Slavery at Sheffield Hallam University, who added that it is “incumbent on the IFC based on their own standards that they ensure that their clients are not involved in forced labor.”

In a statement, an IFC spokesperson told CNN the corporation has “strong environment, social and governance (ESG) standards” that are diligently applied during the life of the investment and are considered a model for development finance worldwide.

“We do not tolerate discrimination or forced labor under any circumstances,” the spokesperson said. “Whenever such serious allegations are brought to our attention, we work to verify and address them with our clients with urgency.”

Beijing responded to the report on Thursday, saying it was “false” and “full of lies and groundless accusations.”

“It is understood that the organization has no staff in Xinjiang. There was no field investigation, no real research, no evidence to back up the report,” Foreign Ministry spokesperson Wang Wenbin said in a briefing.

“The Chinese government attaches great importance to the protection of human rights and workers’ rights and interests. For some time now, certain countries have been hyping up social lies and extending their reach to multilateral development institutions,” Wang added.

CNN sought comment from the four Chinese companies named in the report but did not receive a response. The report’s authors also said they attempted to contact them but did not receive a response.

Police officers patrolling the Xinjiang Uyghur Autonomous Region of China in 2018.

‘Punished with internment’

Xinjiang has become a geopolitical hotspot because of the breadth of human rights abuses alleged to have taken place in the region, including what some Western governments have called the “genocide” of Uyghurs and other minorities.

The US State Department has estimated that since 2017 up to two million members of religious and ethnic minorities have been imprisoned in a shadowy network of internment camps.

China has described the facilities as “vocational training centers” where people learn job skills, Chinese language and laws, and officials declared in 2019 that such centers — also aimed at deradicalizing local Muslims — had been closed down. They also claimed that the original detainees had graduated but that people were still enrolling to gain new skills.

Western governments and human rights organizations have alleged that minorities in the region have been subjected to forced labor through job creation schemes run by the Chinese government to achieve “poverty alleviation.”

Workers who have participated in those job programs have told CNN that if they did not take the jobs they were offered, for a fraction of the usual rate of pay, they were warned they would be sent to camps.

“The Chinese government has embarked on a massive campaign which they deem to be poverty alleviation,” said Murphy of Sheffield Hallam. “These programs are often non-consensual, and people who refuse can be punished with internment.”

China has consistently denied all allegations of human rights abuses in Xinjiang and told CNN in a statement prior to publication that claims of forced labor were lies created to smear its reputation.

“China has repeatedly emphasized that the so-called issues of ‘forced labor’ and ‘repression’ against ethnic minorities are huge lies concocted by anti-China forces in the US and the West. They are entirely baseless. Such attempts to attack and smear China based on lies and disinformation are bound to fail,” the statement said.

A watchtower at a high-security facility near what is believed to be a re-education camp on the outskirts of Hotan, Xinjiang.

Concerns raised about IFC outcomes

Based in Washington, D.C., the IFC describes itself as the “largest global development institution focused on the private sector in developing countries.”

It is part of the World Bank Group and says it provided roughly $31.5 billion in loans and other financial assistance — including nearly $12 billion in “fragile, conflict-affected, and poverty-stricken countries” — last fiscal year to private companies and financial institutions in emerging and developing economies around the world.

The IFC spokesperson told CNN its mission is to “fight poverty by helping the private sector thrive.” “In doing so, we create jobs and raise living standards, especially for the poor and vulnerable,” the spokesperson said.

But its investments have been criticized for years by charities that accuse the IFC of sometimes causing more harm than good by failing to carry out due diligence.

In 2015, Oxfam International published a report compiled with input from several NGOs that claimed the IFC sent billions of dollars in “out of control” investments to third parties that caused “human rights abuses around the world.”

IFC said at the time that it was working with its clients to resolve issues raised by Oxfam and other civil society organizations and that it valued any insights into those concerns. The organization also said that it took additional efforts to train its staff and be more selective about its clients and was strengthening oversight and supervision.

The World Bank Group had been acknowledging concerns even prior to that report. In 2013, the organization’s Independent Evaluation Group highlighted declining “outcome ratings” for IFC-financed projects and advised the IFC to focus on “supervision” and “enhancing the quality of projects” through “intensified efforts.”

CNN approached the World Bank Group for comment about the Helena Kennedy Centre’s findings, and a spokesperson directed CNN to the IFC’s response.

The World Bank headquarters in Washington, D.C.

Alleged connections to forced labor

The four Chinese companies with ties to Xinjiang named in the Helena Kennedy Centre report work in sectors ranging from food to pharmaceuticals and energy. Using corporate documents, stock exchange filings, Chinese state media reports, IFC disclosures and satellite imagery, the report claims these companies have ties to parts of the region where allegations of forced labor are rampant.

In some cases, the report says these companies have participated in state-endorsed “labor transfer” or “poverty alleviation” schemes, which international human rights organizations and foreign governments have for years claimed perpetuate forced labor in the region.

CNN has independently verified that the four companies named in the Helena Kennedy Centre report have all received loans from the IFC in recent years. At least two of those loans, made to Camel Group and Jointown Pharmaceutical, have been used to finance projects in Xinjiang. Because the firms are all publicly traded on Chinese stock exchanges, corporate filings detail some of their dealings in the region. Chinese state media reports also explain some of their work, while the IFC’s own records shed some light on the organization’s involvement in providing financing to these firms.

One company, Chenguang Biotech Group, makes food additives, natural dyes and pigments, and sources its raw materials primarily from India and Xinjiang. In Xinjiang, the company is involved in the production of marigolds.

The IFC, which loaned Chenguang $40 million in 2019 so the company could increase production, conducted an assessment that found the company’s risk of being implicated in forced labor with respect to marigold growers to be “low” and that overall “the risks in Chenguang’s primary supply chain are low to medium.”

But according to the Helena Kennedy Centre report, Chenguang sources some of its workforce from “coercive” state-sponsored labor and land transfer programs.

The report claims that in some cases farmers have no say in whether to participate in major farming projects, or what they want to plant. Companies, too, are under pressure to support state programs.

Citing an official press release, the report said that, in one case, the paramilitary organization Xinjiang Production and Construction Corps (XPCC), which controls the region economically and politically, conducted “ideological work” on those who expressed reluctance about changing their farming methods, which the report described as a method of “coercing” minorities.

Those people are encouraged by government agencies to “relinquish their land, change their crops, alter their farming methods, work for cooperatives or large-scale farms that have expropriated their lands, or move to factory labor,” the report said.

Another company, the battery maker Camel Group, received nearly $36 million in funding from the IFC in July 2019 to expand its battery recycling operations in parts of China, including Xinjiang, according to IFC documents. Chinese corporate records also show the company has at least two subsidiaries in the region.

An IFC risk assessment did acknowledge “potentially significant adverse environmental or societal risks” on account of smelting waste lead but added that Camel promised the organization it would promote the hiring of more local minority residents in Xinjiang. IFC also assessed that “no forced labor practices” are used by Camel Group and that its battery suppliers are subject to quarterly audits by the company to ensure they are complaint with child and forced labor inspections.

However, the Helena Kennedy Centre report cited government press releases that it says show Camel has benefited from state-sponsored labor transfer programs. In July 2017, according to one government release, 165 laborers were taken across Xinjiang for a 10-day long “closed pre-job training,” which the report authors say was an indication that their movements were restricted.

During that time, according to a government press release, the participants received “military and ideological training,” and “were required to sing patriotic songs” and learn Mandarin Chinese — measures that human rights organizations worry can lead to the erasure of culture for Uyghurs, ethnic Kazakhs and Kyrgyz in Xinjiang. Those groups speak languages closer to Turkish than Mandarin Chinese.

Before the laborers were dispatched to their assigned companies — one of which was Camel — they were made to attend a flag-raising ceremony, affirm their loyalty to the ruling Chinese Communist Party and pledge to “make due contributions to national security, national unity, social stability and harmony,” according to the government press release.

A third company, the fertilizer and materials firm Century Sunshine Group, received $165 million from the IFC between 2014 and 2016, according to IFC documents. That figure includes $125 million to upgrade a fertilizer manufacturing facility in Jiangsu province, north of Shanghai on China’s eastern coast. As of December 2020, IFC had roughly a 17{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} stake in the company, according to an annual report from Century Sunshine.

Century Sunshine also has ties to Xinjiang. The report cited local state-run media from December 2017 that said the company’s Xinjiang subsidiary took in 10 rural laborers from a township in eastern Xinjiang through state-sponsored labor transfer programs. Two years later, that same subsidiary was one of nine firms that participated in a state-backed labor recruitment event that encouraged off-season farmers to work for industrial manufacturing facilities in the area — an event involving labor transfer the report’s authors said was at “high risk”of violating standards for labor and working conditions.

The final company implicated in the report, Jointown Pharmaceutical, received nearly $200 million in debt financing from the IFC in the last few years, according to IFC documents. IFC assessed their investments in Jointown Pharmaceutical as having “limited” environmental or social risks.

The company — which distributes personal protection equipment, medical devices and pharmaceutical drugs — received nearly $150 million in July 2019 to build distribution centers and upgrade four warehouses in middle and western China, including Xinjiang. In October 2020, Jointown Pharmaceutical received another $50 million to buy pharmaceutical products and expand distribution because of the Covid-19 pandemic.

Like Camel and Century Sunshine, the Helena Kennedy Centre report alleges that Jointown Pharmaceutical has participated in Xinjiang-related labor transfer programs. The report cited an article published in December 2020 by the Xinjiang Food and Drug Administration on its official WeChat account that said Jointown Pharmaceutical acknowledged receiving “more than 200” workers “transferred” from southern Xinjiang and other remote and underdeveloped prefectures through the labor programs.

The report also said that Jointown Pharmaceutical has “many” facilities in Xinjiang that are located next to buildings identified as internment camps by the Australian Strategy Policy Institute, a Canberra-based think tank. One of Jointown Pharmaceutical’s facilities in the regional capital of Urumqi, for example, is in one of the city’s “largest prison districts,” according to the report.

Efforts to monitor investments in Xinjiang

While travel to Xinjiang by foreign organizations has become almost impossible in recent years, the Helena Kennedy Centre report says the IFC paid a one-day visit to the region in 2019, during the height of the government crackdown there.

Report co-author Kendyl Salcito, the Executive Director of human rights research non-profit NomoGaia, told CNN she spoke via phone to an IFC representative who went on the trip. The employee told Salcito that their group was temporarily detained by police three times within a roughly 24-hour period, adding that the atmosphere was very uncomfortable and they wanted to leave quickly.

The IFC continued to fund projects in the region after that visit, as seen in IFC documents reviewed by the report authors and by CNN. In November 2020, Salcito said, the IFC told her that it did not have alternative arrangements for monitoring projects there.

The IFC did not respond to CNN’s questions about Salcito’s account of the trip. However, the spokesperson told CNN that in the last two years the IFC has dedicated more resources to supervising companies it works with in Xinjiang.

“While accessing projects on the ground has been more difficult for all development actors in the last two years due to the Covid-19 pandemic and travel restrictions, IFC has dedicated more resources to supervising the companies we work with regarding adherence to our ESG standards. These standards are legally binding, include protections for workers, communities, and the environment, and expressly prohibit discrimination and the use of forced labor,” the spokesperson said.

Paramilitary police vehicles on a road in Artux in China's northwest Xinjiang region in June, 2019.

The IFC has taken some steps to withdraw from the region. It ceased its relationships with three other Chinese firms that “were engaged or sourcing from companies engaged in repression in the Uyghur Region,” according to the report.

The IFC did not respond to CNN’s questions about why it chose to divest those companies and not others.

In 2020, the IFC told Salcito in email exchanges viewed by CNN that the Chinese companies it works with assured the organization they did not use any forced labor. The IFC did not respond to CNN’s questions about that correspondence. The Helena Kennedy Centre report authors say that form of self-reporting is wholly insufficient.

“The continued willingness to provide financing in the region, without any direct oversight, indicates that its investment strategy in the region continues to overlook the ongoing crimes against humanity and Performance Standards violations that render the IFC’s investments complicit,” the report said.

A lack of due diligence

Multinational corporations have for years found it difficult to perform due diligence on their supply chains linked to Xinjiang because of limited access, surveillance and the threat of government interference. That makes the use of publicly available records and satellite imagery all the more important in determining whether a firm has ties to forced labor in the region.

Satellite images, for example, have shown that detention facilities are often built up simultaneously alongside factories and business parks, which human rights activists say is a clear indication that factory workers are being drawn from the prison or camp population.

Maxar satellite imagery of a re-education internment camp in
Hotan, Xinjiang, China.

Some companies, investors and other organizations have pulled out of the region because of the difficulties in auditing activity there. Many international auditors will no longer certify products made in Xinjiang, and the Fair Labor Association — a Washington-based non-profit whose members include multinational corporations and Ivy League universities — has banned its members from sourcing from Xinjiang due to an inability to gather accurate information, or to verify if workers there are under duress.

“The underlying problem in the Uyghur region is the political repression is so great, we’re of the view that no company can do adequate human rights due diligence,” said Sophie Richardson, China Director of Human Rights Watch. “Where [a company] can’t do adequate human rights due diligence, it should withdraw.”

Foreign governments have also been piling pressure on companies. In December, US President Joe Biden signed into law new rules that will effectively ban imports of products made in Xinjiang.

Washington is also leading a diplomatic boycott of the Beijing Winter Olympics, which conclude Sunday. In December, White House Press Secretary Jen Psaki said that the United States would not continue do “business as usual” and participate in the “fanfare” of the Games because of the “ongoing genocide and crimes against humanity in Xinjiang.”

But activists also point out that governments that work with the IFC should also review their funding plans. The United States, after all, has plowed more than $23 billion over the last 20 years into the World Bank Group, and as of June 2021 was the largest IFC shareholder with a stake of about 21{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

That funding has increased during the pandemic: In March 2020, the World Bank Group announced that the US government authorized a $5.5 billion capital increase for the IFC as part of the Coronavirus Aid, Relief, and Economic Security Act.

In a statement to CNN, the US Treasury Department said that it “works closely with other parts of the United States government to strongly condemn and respond to the atrocities taking place in Xinjiang.”

It said the government had pressed multilateral development banks (MDBs) — including the IFC — to strengthen their safeguards so projects “do not inadvertently support companies that participate in or benefit from forced labor.”

The statement added: “The US has been — and will continue to be -— a lead voice on this issue in all the MDBs and will continue working with other shareholder countries to make companies with alleged linkages to forced labor practices ineligible for MDB investments.”

February 19, 2022

Founder of collapsed $1.7 billion mutual fund charged with fraud

The founder and manager of a $1.7 billion mutual fund that collapsed very last year has been charged by federal prosecutors with securities fraud and obstruction of justice for allegedly inflating fund asset values to hold trader income flowing, then falsifying data to conceal the improprieties.

The Infinity Q Diversified Alpha Fund halted investor redemptions in February 2021, approximately 7 years immediately after it was co-founded by James Velissaris, 37, its chief expenditure officer. A govt inquiry started, Velissaris stepped down and the mutual fund and a parallel hedge fund he oversaw commenced liquidating.

It was a rare example of a massive mutual fund failure amid a roaring bull marketplace. And the collapse ensnared billionaire investor David Bonderman, co-founder of TPG, a huge private-equity firm that went public this year. The Bonderman Spouse and children was a big trader in Infinity Q Cash Management, the financial investment firm overseen by Velissaris, regulatory documents show. Velissaris had labored for the Bonderman household before he co-started Infinity Q Cash Management.

Prosecutors stated Velissaris inflated the worth of the funds’ holdings by $1 billion and manipulated the results for at least four many years to mask poor performance. At particular moments for the duration of 2020 when the pandemic was roiling the money marketplaces, the funds’ real values have been fifty percent what investors had been told they were, prosecutors mentioned. Certain positions held by the mutual fund “had been reported at mathematically not possible valuations,” according to a civil grievance filed in opposition to Velissaris on Thursday by the Securities and Exchange Fee.

In addition to securities fraud and obstruction of justice, Velissaris has been charged with wire fraud and lying to auditors. Each charge carries a utmost sentence of 20 a long time in prison.

The SEC also accused Velissaris of pocketing $27 million in administration costs produced by his incorrect valuation of the funds’ holdings. The SEC said its investigation into the debacle is continuing.

Mark Schonfeld, a attorney at Gibson Dunn who represents Velissaris, presented this assertion: “James managed investments at Infinity Q with the optimum integrity in accordance with all relevant ideas. We seem ahead to vindicating James, who has been scapegoated by others who will have to remedy in court for their personal compliance failures and the losses incurred by their irresponsible liquidation of the portfolio.”

A spokesman for Infinity Q Capital Administration declined to comment.

The resources overseen by Velissaris ended up supposed to crank out returns that did not transfer in tandem with the total inventory and bond markets. Lots of of their holdings concerned bets on exotic investments acknowledged as derivatives, since they are derived from other securities. The resources claimed once-a-year returns of approximately 9.5 p.c ahead of they folded.

The Bonderman ties ended up a providing point for Infinity Q a presentation from the fund boasted that its buyers would get access to the identical “alternate investment decision tactics at first developed” for the affluent loved ones. Very last yr, an Infinity Q Money Administration spokesman said the Bonderman family was a passive investor in the firm and experienced no handle above its investments. The family members misplaced “a significant amount” in the collapse, the spokesman reported. TPG, the personal-equity firm cofounded by David Bonderman, did not react to a request for remark from Bonderman on the prosecutors’ fees.

Prosecutors said the mispricing of property took location from at the very least 2017 into 2021. About March 2020, with the resources in a tailspin, Velissaris sought a $100 million financial loan from the house owners of Infinity Q Cash Administration, the SEC reported. The loan was not produced.

Prosecutors’ allegations of mispriced assets in the Infinity Q portfolios echo former difficulties at the mutual fund. In 2016, the fund was late in submitting a regulatory report because an independent pricing support experienced been not able to “support” some of its valuations. Immediately after that incident, the fund’s trustees, billed with overseeing it for buyers, noted they had “worked closely” with Infinity Q Cash Management “to be certain that the correct resource documentation for its valuation determinations are preserved, and the adviser’s trade allocation oversight was enhanced to superior establish any glitches or misallocations.”

Allegations that Velissaris manipulated returns and asset values for 4 several years following that incident point out the fund’s trustees were being furnishing inadequate oversight, stated Marshall Glickman, an aggrieved trader in the Infinity Q fund. “Why was Velissaris in a position to misprice the property for 4 decades?” he questioned.

Also disturbing, Glickman said, is the total of investor money at this time becoming held again by the fund trustees to deal with litigation and other expenses incurred by the fund. Final yr, the trustees established aside $750 million, expressing the greatest element was for attainable liability in relationship with litigation filed from the Infinity Q fund. The set-apart is vital, the trustees reported, because insurance policy held to protect lawsuit charges might be insufficient, and it does not cover specific costs, together with those people linked with the liquidation and federal government investigations.

As a outcome of this set-aside, Glickman reported he has gained only 30 percent of his financial commitment back again.

Fund traders harmed in the alleged fraud are also having to pay out roughly $900,000 a month in fees, records exhibit. Among June 2021 and February, these expenses totaled $7.24 million. “This could drag on for a extended time,” Glickman stated. “If this circumstance usually takes three decades, that is $36 million gone correct there.”

Glickman mentioned he believes the SEC really should have appointed an independent group to control the fund’s liquidation and disbursements, in its place of making it possible for the trustees who had been on hand in the course of the alleged fraud to oversee it.

An email to the fund’s trustees was not returned. Late previous calendar year, they approved the creation of a exclusive committee consisting of two new trustees to look into and go after likely claims on behalf of the fund and its traders.

February 19, 2022

Carnival cruise passenger seen in video moments before reportedly jumping off ship

Listed here are your FOX Business enterprise headlines.

A Carnival cruise ship passenger was caught on digital camera having difficulties with protection moments before she reportedly jumped overboard into the Gulf of Mexico.

In the cell mobile phone video acquired by FOX 8, the girl, 32, is found becoming pulled to her feet by safety guards on the deck of the Carnival Valor ship on Wednesday.

The ship was on a 5-working day cruise to Mexico that departed Saturday, Carnival told FOX Organization.

Simply click Listed here TO Go through Extra ON FOX Business enterprise

The girl is then observed having difficulties as the guards try and maintain her arms driving her back again. At a single position, the lady can be heard screaming “Alicia” before being escorted away by security.

The clip cuts off and then reveals passengers dashing to the edge of the ship looking above the balcony following the female had reportedly previously jumped into the drinking water. Crew users were being also viewed rushing to the facet with lifestyle preservers.

Carnival advised FOX Small business that the passenger was by no means in handcuffs at any stage throughout the incident.

US Coastline Guard responds to studies of cruise ship passenger overboard in Gulf of Mexico (WVUE-DT)

GET FOX Organization ON THE GO BY CLICKING Below

Other passengers posted videos to Twitter times just after the female allegedly jumped, with a person demonstrating a daily life preserver floating in the water close by.

Carnival beforehand advised Fox Information that it been given reports about a female visitor who jumped overboard from her balcony although the ship was at sea.

A corporation spokesperson explained the ship’s command straight away began research and rescue procedures and returned to the area in close proximity to where the incident happened and notified the U.S. Coastline Guard.

“Carnival’s Treatment group is providing assistance to the guest’s partner who was traveling with her,” the spokesperson explained.

US Coast GUARD RESPONDS TO Stories OF CRUISE SHIP PASSENGER OVERBOARD IN GULF OF MEXICO

Even so, just after 14 hours of hunting, the Coast Guard declared that it suspended its mission.

After having the get in touch with Wednesday, U.S. Coast Guard District 8 started seeking for the passenger around 150 miles offshore SouthWest Go.

Crews canvassed more than 2,514 sq. nautical miles off the coastline of Louisiana.

“The decision to suspend a research-and-rescue scenario is by no means 1 we appear to frivolously,” claimed Main Warrant Officer Tricia Eldredge, Command Duty Officer at Sector New Orleans. “We offer our deepest sympathies to the family through this difficult time.”

The ship arrived back again its home port of New Orleans on Thursday early morning, Carnival claimed.

FOX News’ Bradford Betz contributed to this report.

February 19, 2022

Capital One Financial Analysts Lower Earnings Estimates for EQT Co. (NYSE:EQT)

EQT Co. (NYSE:EQT) – Capital One Financial dropped their Q2 2022 EPS estimates for shares of EQT in a report released on Tuesday, February 15th. Capital One Financial analyst B. Velie now forecasts that the oil and gas producer will post earnings per share of $0.27 for the quarter, down from their previous forecast of $0.76. Capital One Financial also issued estimates for EQT’s Q3 2022 earnings at $0.32 EPS, Q4 2022 earnings at $0.61 EPS, FY2022 earnings at $2.10 EPS and FY2023 earnings at $5.17 EPS. EQT (NYSE:EQT) last posted its quarterly earnings data on Wednesday, February 9th. The oil and gas producer reported $0.41 EPS for the quarter, missing the consensus estimate of $0.51 by ($0.10). During the same quarter last year, the company earned ($0.02) EPS.

Several other equities research analysts have also recently commented on the stock. JPMorgan Chase & Co. raised shares of EQT from a “neutral” rating to an “overweight” rating and set a $31.00 price objective on the stock in a research report on Friday, October 29th. They noted that the move was a valuation call. Morgan Stanley raised shares of EQT from an “equal weight” rating to an “overweight” rating and boosted their price objective for the company from $24.00 to $31.00 in a research report on Friday, November 19th. Truist Financial lowered their price target on shares of EQT from $34.00 to $31.00 and set a “buy” rating on the stock in a research note on Friday, January 14th. MKM Partners reiterated a “buy” rating on shares of EQT in a research note on Thursday, February 10th. Finally, StockNews.com upgraded shares of EQT from a “sell” rating to a “hold” rating in a research note on Monday. One investment analyst has rated the stock with a hold rating and thirteen have assigned a buy rating to the company’s stock. According to data from MarketBeat.com, EQT has a consensus rating of “Buy” and a consensus price target of $27.60.

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EQT traded down $0.43 during trading on Friday, hitting $22.78. The company had a trading volume of 199,702 shares, compared to its average volume of 9,425,470. The company has a market capitalization of $8.57 billion, a PE ratio of -5.32, a PEG ratio of 0.75 and a beta of 1.11. EQT has a one year low of $15.71 and a one year high of $24.83. The firm’s 50-day moving average price is $21.95 and its 200 day moving average price is $20.50. The company has a quick ratio of 0.45, a current ratio of 0.45 and a debt-to-equity ratio of 0.45.

The firm also recently disclosed a quarterly dividend, which will be paid on Tuesday, March 1st. Shareholders of record on Monday, February 14th will be paid a $0.125 dividend. This represents a $0.50 dividend on an annualized basis and a dividend yield of 2.19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. This is a positive change from EQT’s previous quarterly dividend of $0.03. The ex-dividend date is Friday, February 11th. EQT’s dividend payout ratio (DPR) is -11.47{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

EQT announced that its board has authorized a share buyback program on Monday, December 13th that allows the company to repurchase $1.00 billion in outstanding shares. This repurchase authorization allows the oil and gas producer to repurchase up to 13.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of its shares through open market purchases. Shares repurchase programs are generally a sign that the company’s board of directors believes its shares are undervalued.

Several institutional investors and hedge funds have recently added to or reduced their stakes in EQT. Nisa Investment Advisors LLC lifted its position in EQT by 0.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the fourth quarter. Nisa Investment Advisors LLC now owns 105,781 shares of the oil and gas producer’s stock valued at $2,248,000 after purchasing an additional 595 shares during the last quarter. Louisiana State Employees Retirement System lifted its position in EQT by 0.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the fourth quarter. Louisiana State Employees Retirement System now owns 77,700 shares of the oil and gas producer’s stock valued at $1,695,000 after purchasing an additional 600 shares during the last quarter. Centre Asset Management LLC lifted its holdings in shares of EQT by 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the 3rd quarter. Centre Asset Management LLC now owns 164,890 shares of the oil and gas producer’s stock worth $3,351,000 after acquiring an additional 760 shares during the last quarter. Whittier Trust Co. of Nevada Inc. lifted its holdings in shares of EQT by 117.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the 4th quarter. Whittier Trust Co. of Nevada Inc. now owns 1,511 shares of the oil and gas producer’s stock worth $33,000 after acquiring an additional 815 shares during the last quarter. Finally, State of Michigan Retirement System increased its stake in shares of EQT by 1.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the fourth quarter. State of Michigan Retirement System now owns 76,661 shares of the oil and gas producer’s stock worth $1,672,000 after buying an additional 900 shares during the period. 89.38{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the stock is currently owned by institutional investors.

EQT Company Profile

EQT Corp. engages in natural gas production, gathering and transmission in the Appalachian area. It has operations in Marcellus and Utica Shales of the Appalachian Basin. The company was founded in 1888 and is headquartered in Pittsburgh, PA.

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February 19, 2022

Stocks renew declines as Russia-Ukraine tensions ramp

Stocks extended declines Friday to close a second straight week in negative territory with geopolitical tensions intensifying to contribute to a further risk-off tone in markets.

The S&P 500 fell 0.71{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to 4,348.97, building on a 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} loss in the previous session, while the Dow Jones index closed down 0.68{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to 34,079.12 after erasing 1.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Thursday for its worst day in nearly three months. The Dow also closed at its lowest level since September. The Nasdaq Composite shed 1.23{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to 13,548.07 — its lowest level since January. Meanwhile, the CBOE Volatility Index (VIX), or “fear gauge,” spiked back to hover near 28 Friday.

The souring in sentiment came after U.S. officials said they estimated Russia had built up around 190,000 military personnel near Ukraine, raising the specter of a near-term attack. And this came a day after President Joe Biden told reporters on Thursday that the threat of a Russian invasion of Ukraine was “very high” in the coming days. Crude oil prices fell Friday morning to pause a recent run-up even as Russia-Ukraine tensions resurged.

“The two things we’re most concerned about right now in terms of headwinds for the market and causes for volatility, are clearly tensions with Russia-Ukraine … and then clearly, our concern over not just inflation but what the monetary policy response to that inflation is going to be,” Art Hogan, National chief market strategist, told Yahoo Finance Live on Thursday. “And those headlines have changed quite a bit too.”

“We’ve gone from thinking the Fed would be very, very deliberate in their actions starting in March and telegraph everything … to having some outliers on the committee talking about being very aggressive, a lot more aggressive than what’s priced into the market,” he added. “Every day the story changes a bit.”

Treasury yields fell further after dropping across the curve on Thursday, with the 10-year yield holding back below 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. This came as markets priced in a lower probability of a front-loaded 50 basis-point interest rate hike from the Federal Reserve in March, with investors looking past hawkish commentary from St. Louis Fed President James Bullard calling for a more aggressive path on interest rates.

Other strategists also underscored the dual concerns around Russia and Ukraine and on the Fed for markets in the near-term.

“Really, it’s about Russia and Ukraine, and it’s about the Fed. And on the geopolitical side, I think the challenge for investors is that geopolitical risk is just really hard to weigh,” James Liu, Clearnomics founder and CEO, told Yahoo Finance Live on Thursday. “Our view is that we’re not yet in a situation where it makes sense to make any real portfolio moves based on this. I mean, first of all, diplomatic channels are still open, so the situation is still evolving on a regular basis.”

“The challenge is that even if the worst case scenario were to happen, it’s hard to gauge exactly what the impact long-term would be on the markets,” he added.

—

4:00 p.m. ET: US stocks mark second straight losing week amid Russia-Ukraine turmoil

Here were the main moves in markets at the end of Friday’s session:

S&P 500 (^GSPC): -31.29 (-0.71{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 4,348.97
Dow (^DJI): -232.91 (-0.68{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 34,079.12
Nasdaq (^IXIC): -168.65 (-1.23{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 13,548.07
Crude (CL=F): -$0.18 (-0.20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $91.58 a barrel
Gold (GC=F): -$4.70 (-0.25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $1,897.30 per ounce
10-year Treasury (^TNX): -4 bps to yield 1.9320{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

—

10:52 a.m. ET: ‘Underlying inflation appears to be well-anchored’: Evans

Chicago Fed President Charles Evans suggested on Friday that absent pandemic and supply chain disruptions, underlying price pressures were still consistent with the Federal Reserve’s targets and did not warrant an extreme policy response.

“By my reading underlying inflation appears to still be well anchored at levels consistent with the Fed’s average 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} objective,” Evans said during a University of Chicago Booth School of Business conference on Friday.

“I see our current policy situation as likely requiring less ultimate financial restrictiveness compared with past episodes and posing a smaller risk” to economic activity, he added.

—

10:02 a.m. ET: Existing home sales post surprise jump in January, inventory sinks to record low

Sales of previously owned homes in the U.S. posted an unexpected jump at the beginning of 2022, reversing declines from the prior month.

Existing home sales rose at a seasonally adjusted annualized rate of 6.5 million in January, according to the National Association of Realtors (NAR). This represented a 6.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} month-on-month increase, following a 3.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} drop in December. Still, sales were down 2.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from the same month last year, when low interest rates stoked demand for purchases.

Housing inventory slid by 16.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} over last year to 860,000, marking a record low since NAR began tracking the data in 1999. Tight supplies pushed prices higher, and the median existing-home price rose 15.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} over last year to $350,300.

—

10:46 a.m. ET: ‘Underlying inflation appears to still be well-anchored: Evans

Chicago Federal Reserve President Charles Evans suggested Friday that the Federal Reserve’s current monetary policy setting was “wrong-footed against the current, sharp increases in inflation,” and suggested price pressures would subside without extreme moves by the Fed.

“I see our current policy situation as likely requiring less ultimate financial restrictiveness compared with past episodes and posing a smaller risk” to economic growth, Evans said during a University of Chicago Booth School of Business conference. He noted that in absence of pandemic and supply chain impacts, “underlying inflation appears to still be well-anchored at levels consistent with the Fed’s average 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} objective.”

Evans’. —

—

9:30 a.m. ET: Stocks mixed amid mounting Russia-Ukraine concerns

Here’s where markets were trading shortly after the opening bell:

S&P 500 (^GSPC): +4.64 (+0.11{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 4,384.90
Dow (^DJI): -43.35 (-0.16{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 34,258.30
Nasdaq (^IXIC): +23.65 (+0.17{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 13,740.37
Crude (CL=F): -$2.53 (-2.76{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $89.23 a barrel
Gold (GC=F): -$3.20 (-0.17{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $1,898.80 per ounce
10-year Treasury (^TNX): -3.2 bps to yield 1.942{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

—

8:50 a.m. ET: Stocks turn negative as officials signal Russian military build near Ukraine

Stock futures erased earlier gains to trade in negative territory with just over 30 minutes until the opening bell.

Contracts on each of the S&P 500, Dow and Nasdaq turned lower. Investors turned into safe haven assets, and Treasury yields fell as prices were bid higher. The Vix spiked back above 28 after falling below 27 earlier Friday morning.

News that Russia had amassed some 190,000 military personnel near Ukraine contributed to the decline, erasing earlier optimism that diplomatic talks would lead to a deescalation of the tensions in the region. Earlier, the U.S. State Department had said Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Antony Blinken would meet next week.

—

7:24 a.m. ET Friday: Stock futures point to a higher open

Here’s where markets were trading Friday morning:

S&P 500 futures (ES=F): +21 points (+0.48{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,395.50
Dow futures (YM=F): +124.00 points (+0.36{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 34,355.00
Nasdaq futures (NQ=F): +91 points (+0.64{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 14,255.75
Crude (CL=F): -$1.92 (-2.09{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $89.84 a barrel
Gold (GC=F): -$9.10 (-0.48{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to $1,892.90 per ounce
10-year Treasury (^TNX): -0.2 bps to yield 1.972{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

—

6:10 p.m. ET Thursday: Stock futures extend declines after rout

Here were the main moves in markets Thursday evening:

S&P 500 futures (ES=F): -5.25 points (-0.12{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,369.25
Dow futures (YM=F): -24 points (-0.07{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 34,207.00
Nasdaq futures (NQ=F): -24.75 points (-0.17{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 14,140.00

Photo by: NDZ/STAR MAX/IPx 2022 2/11/22 People walk past the New York Stock Exchange (NYSE) on Wall Street on February 11, 2022 in New York.

—

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter

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February 19, 2022

Agendas for best wealth management growth

Wealth management is a growth industry, but it is experiencing a set of accelerating disruptions. While the pandemic challenged the performance of the US wealth management industry for much of 2020, the last 12 months have given rise to optimism that the conditions for a significant wave of innovation and experimentation across the wealth management ecosystem are in place. The conditions include rapid technological advancements, fast-evolving consumer needs and behaviors (accelerated by the pandemic), and an environment of economic stimulus.

To thrive in this dynamic environment, firms must prioritize growth, adopt an innovation mindset, and be prepared to reallocate resources rapidly in response to the changing context. Finally, to free resources for strategic investment and prepare for any potential market downturn, firms can rethink their cost structures and improve the industry’s spotty record on cost management.

To guide these efforts, this paper offers a brief overview of the US wealth management industry’s present conditions and then presents four themes that define the new growth narrative we foresee. We recommend agenda items for wealth managers to address as they plan how to flourish in the changing ecosystem. Finally, we offer questions for organizational self-assessment.

Coming out of the crisis: Resilient but not unscathed

At face value, the US wealth management industry entered 2021 from a position of strength—record-high client assets, record growth in the number of self-directed and advised clients, and healthy pretax margins (Exhibit 1). However, beneath these strong headline numbers, the story was mixed, with the worst two-year revenue growth since 2010, as well as negative operating leverage. The depressed margins and profit pools that resulted were caused primarily by rock-bottom interest rates and uneven cost discipline (Exhibit 2).

US wealth management entered 2021 from a position of relative strength. — Exhibit 1

US profit pools declined by 11 percent in 2020. — Exhibit 2

Consequently, while the industry is now benefiting from vigorous market performance, it faces significant crosscurrents: equity-market and interest-rate uncertainty and industry-specific challenges including lack of cost discipline, increased competition from new entrants, and an aging and shrinking advisor force.

Despite this near-term uncertainty, US wealth management remains a growth industry, albeit with moderating revenue growth projections. McKinsey modeling suggests industry revenue pools will grow by about 5 percent per year over the next five years,

driven by moderating market performance, moderate net flows, and the continued shift from brokerage to advisory (where revenue yields are typically higher). However, the growth will not be equally split among industry segments. We expect digital advice models, including robo- and hybrid advisory, to continue growing fastest, potentially even outperforming their historical revenue growth of more than 20 percent per year. Next in terms of growth will be registered investment advisors (roughly 10 percent projected annual growth rate), followed by national/regional broker–dealers (6 percent), direct brokerages (5 percent), wirehouses (2 percent), and other broker–dealers (independent, retail, and insurance owned) plus private banks (1 percent). If interest rates return to prepandemic levels, wirehouses and direct brokerages will disproportionately benefit, given their reliance on interest income from cash for profitability, with the overall growth rate for the industry reaching about 7 percent a year—similar to the growth that occurred between 2015 and 2018.

A growth agenda for the coming decade

Over the last 18 months, the industry has spurred a significant wave of innovation and experimentation. It is also facing long-standing demographic shifts that will redistribute wealth among subsegments. This combination of forces will shape growth trends for years to come. We see four key themes: fast-growth segments, new client needs, new products, and new business models (Exhibit 3).

Contours of the new growth narrative. — Exhibit 3

Fast-growth segments offer new potential

Three investor segments are showing signs of significant and lasting growth: women, engaged first-time investors, and a segment we call hybrid affluent investors.

Women are taking center stage as investors over the next decade. Today, women control a third of total US household investable assets—approximately $12 trillion. Over the next decade, this share will grow. The biggest cause of this shift will be demographics: as baby boomer men die, many will cede control of assets to their female spouses, who tend to be both younger and longer lived. By 2030, American women are expected to control much of the $30 trillion in investable assets that baby boomers will possess—a potential wealth transfer that approaches the annual GDP of the United States. At the same time, younger affluent women are becoming more financially savvy; for example, 30 percent more married women are making financial and investment decisions than five years ago.

$3O trillion

in investable assets will be possessed by baby boomers by 2030, much of it controlled by women

A new wave of engaged investors are opening accounts. The resurgence of the engaged-investor, or active-trader, segment has been one of the most headline-catching disruptions in the industry. Since the start of 2020, more than 25 million new direct brokerage accounts have been opened, a significant percentage by first-time investors. This growth resulted from a confluence of prepandemic market developments (for example, the elimination of online brokerage commissions, access to fractional share capabilities) and pandemic-related trends such as high savings rates (enabled by lower consumption).

While this segment’s exponential growth is likely not sustainable (for example, there was a sharp decline in trading app downloads and active daily users in the third quarter of 2021), it remains poised for accelerated growth over the next decade, given engaged investors’ relatively low median age of 35.

The opportunity for wealth managers is to serve this segment by meeting their demand for direct brokerage-based investing and to build deeper relationships with them over time—for example, by recognizing that these new investors tend to express their personal values in their investment decisions.

40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

increase in total direct brokerage accounts since the start of 2020—more than 25 million new accounts

Hybrid affluent investors are an opportunity to differentiate. While headlines have focused on the rise of first-time young investors with typically low assets, growth in the hybrid investor segment—those with at least one self-directed account and a traditional advisor—has been overlooked. In 2021, a third of affluent investors—households with more than $250,000 and less than $2 million in investable assets—were hybrid (Exhibit 4), a sharp increase of nine percentage points in just three years. The biggest beneficiaries of this trend have been incumbent and new direct brokerages, as well as some traditional wealth managers with sizable direct brokerage platforms.

The fastest-growing segment of affluent investors is hybrid--those with self-directed accounts plus a traditional advisor. — Exhibit 4

The rapid growth of hybrid affluent investors is a result of two trends that are expected to persist: investors’ desire for human advice and the ease and affordability of direct investing. Therefore, to foster deep relationships with affluent clients and prevent them from investing with competitors, wealth managers of all types need to have both direct brokerage and advisor-led offerings with a seamlessly integrated experience across the two. Achieving this will not be easy; it will require careful management of channel conflicts and potential revenue cannibalization.

New customer needs provide an opening to differentiate

Investors are increasingly looking for institutions that can provide them with omnichannel access, integration of banking and wealth management services, and personalized offerings. As similar kinds of benefits become available from providers of other services, investors see them more as needs than as luxuries. In fact, fully 50 percent of high-net-worth (HNW) and affluent clients say their primary wealth manager should improve digital capabilities across the board.

Omnichannel access is no longer just ‘nice to have.’ One of the clearest disruptions triggered by the pandemic has been the sharp acceleration of digital adoption across consumer segments—including wealthier and older clients who were previously less digitally inclined with respect to financial advice. As a result, according to McKinsey’s latest Affluent and High-Net-Worth Consumer Insights Survey, digital is now the most preferred channel for clients, closely followed by remote (Exhibit 5).

This trend is even more pronounced for the HNW segment, which we define as households with more than $2 million in investable assets: roughly 40 percent of HNW clients say phone or video conferences are their preferred wealth management channels, and only 15 percent look forward to going back into branches or resuming in-person visits. Interestingly, the preference for digital and remote engagement among HNW clients is higher than for their affluent counterparts.

50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

of clients think their primary wealth manager should improve their digital capabilities

Convergence of banking and investing has gone mainstream. Over the last three years, there has been a striking increase in clients’ preference to consolidate their banking and wealth relationships to achieve convenience and better relationship deals: the share with this preference has risen from 13 percent in 2018 to 22 percent in 2021. The trend applies to both wealthy and young households (Exhibit 6). In particular, 53 percent of those aged under 45 and about 30 percent of those with $5 million to $10 million in investable assets prefer to consolidate relationships.

Younger and, to a lesser extent, wealthier segments have a strong preference for consolidating banking and investing. — Exhibit 6

Banks and wealth managers alike can benefit from this trend, but their starting position differs by client segment: HNW, ultra-HNW,

and older clients tend to consolidate banking with their primary wealth manager, whereas young investors are more likely to consolidate wealth management with their primary bank.

Clients’ reasons for consolidating with their primary bank or investment firm vary. High-yield deposits, lower management fees, and seamless transactions across accounts are the top three reasons for consolidation—and are basically table stakes. Beyond that, our research has found that banks generally win on convenience (for example, an existing relationship with the client, customer service tailored to younger clients), while investment firms win on products and reputation (for example, more expansive accounts or products such as securities-based lending, concierge-like customer service tailored to older clients, and recommendations).

The increased preference for consolidating banking and investing has been driven by a flurry of innovation. National banks are building wealth management capabilities and closely integrating experiences with traditional banking services, often in partnership with fintechs. Full-service wealth managers are upgrading their digital banking capabilities. And consumer-facing fintechs—with millions of users—are blurring the lines between investing and cash management.

Rise of personalized investing. Personalization matters. It is a key driver of client satisfaction and the number-three factor for clients selecting financial advisors. Wealth managers have responded to the demand to personalize investment management with customized, tax-efficient managed accounts. Because of their operational complexity, these products have typically been accessible only to the HNW and ultra-HNW segments. However, direct indexing, fractional share trading, and $0 online commissions are shifting the paradigm by enabling customized portfolios of securities at lower minimums.

Assets under management (AUM) in direct indexing tripled between 2018 to 2020, reaching $215 billion, or 17 percent of the retail separately managed account (SMA) market. We anticipate direct indexing volumes to triple through 2025, given how this new investing technology meets client needs, most notably the growing demand for tax-efficient investing and the desire of some retail investors, particularly younger clients, to ensure that their portfolio holdings reflect their personal values (Exhibit 7). The recent flurry of acquisitions of direct indexing providers by leading US wealth and asset managers will create further supply-side momentum in expanding the growth of the category.

Younger and, to a lesser extent, less affluent segments are more likely to consider ESG when choosing investments. — Exhibit 7

Broader adoption among clients will require further innovation. For both self-directed and advisor-led models, offering direct indexing requires a careful consideration of the trade-offs associated with taxes and environmental, social, and governance (ESG) constraints. All this creates a need for intuitive interfaces and analytical tools, which need to be integrated into the advisor desktop and workflow.

New products expand ways to serve customers

Across industries, transformation arises from the introduction of new products. In wealth management, we see notable potential in two main categories of new products: investments in private markets and investments in digital assets.

Democratization of private markets. In the current lower-for-even-longer interest-rate environment, investors’ appetite for alternative investments is as high as ever, with the young leading the way: about 35 percent of 25-to-44-year-old investors indicate an increased demand for alternatives. Within alternatives, private markets (private equity, private debt, real estate, infrastructure, and natural resources), an asset class that was once the preserve of institutional investors, is making inroads to individual portfolios. Large private-markets firms are building out retail distribution capabilities and vehicles, and home offices make it easier for clients to access private-markets products, often with the help of fintech infrastructure providers. Increased client demand and innovations have potential to increase the share of assets allocated to private markets from about 2 percent in 2020 to 3 to 5 percent by 2025, representing asset growth of between $500 billion and $1.3 trillion. It is imperative for wealth managers to facilitate this growth by making it easier for their clients to access private markets.

Digital assets going mainstream. The arrival of an army of new retail investors has proven to be a boon to the growth of new asset classes that were incubated in the margins of the market. Nowhere is this phenomenon clearer than in the realm of digital assets, which have ballooned from a combined valuation of $100 billion in 2019 to a market capitalization of more than $2.5 trillion today. They span multiple digital asset classes, or “tokens,” beyond cryptocurrencies, including tokenized equities, bonds debt, stablecoins (typically pegged to conventional currencies), art, and collectibles. The motivations for investors in digital assets are diverse—experimentation, speculation, the search for inflation protection, or getting exposure to the building blocks of new technology that is increasingly cast as the next iteration of the internet (that is, Web3). Whatever the motivation, investors’ enthusiastic embrace of digital assets is very clear. For example, digital trading platform Coinbase has gathered a staggering 68 million verified users.

For wealth managers, digital assets present both an opportunity and a challenge. On the one hand, the cryptocurrency market has grown too large to ignore amid robust client demand; 11 percent of affluent clients and 8 percent of HNW clients invest in digital assets. On the other hand, three broad challenges are associated with offering cryptocurrencies. First, regulatory ambiguity—on asset classification and tax reporting, among other issues—has lingered, often creating uncomfortable levels of risk exposure for wealth managers. While it is still early days, the advent of crypto exchange-traded funds (ETFs) could help address some of these challenges. Second, the infrastructure required for offering digital assets, including custody services, differs from what is required for traditional investment products. Lastly, digital asset classes are not well understood by many advisors, so advising on the products is challenging for them.

Wealth managers face a choice: they can take a wait-and-see approach and accept the business risks associated with staying out of a rapidly growing market, or they can pursue the opportunity aggressively by leveraging partnerships with fintechs while addressing heightened regulatory risks. What remains for certain is that over the longer term, there is meaningful potential for a far broader class of digital assets to enter the investing mainstream and for the underlying technologies of blockchain-based decentralized finance (DeFi) to revolutionize the distribution of investment products, including the T+0 settlement cycle.

New business models position firms for growth

The last of our four contours of the new growth narrative is the introduction of new business models. Two such models are of importance: offering services to registered investment advisors (RIAs) and digitizing the delivery of advice.

Advisors’ desire for independence presents an opportunity to serve RIAs. The last decade has seen a migration of advisors to registered independent advisors, with 24 percent of all financial advisors being part of an RIA in 2020, compared with 16 percent in 2010. This shift is expected to continue apace, with the share of advisors affiliated with RIAs growing to 26 percent by 2025. Motivations for advisors’ migration to RIAs include the expectation of higher payouts plus two other factors: First, advisors are looking at the RIA channel as the best way to monetize their business, with RIA acquisition multiples for top advisors (those with books over $1 billion) two to three times higher than retire-in-place incentives at traditional wealth managers. Second, technology and services firms, working in conjunction with the major custodians, have lowered barriers for advisors to launch their own firms. Moreover, advisors believe they can procure technology and services that are similar to or better than what traditional wealth managers provide.

While this trend presents a challenge for wirehouses and broker–dealers, whose advisor force is expected to shrink by 3 percent over the next five years, there is a silver lining: RIAs’ reliance on third-party products and solutions creates an opportunity for participants in the wealth management ecosystem to seek a share of this fast-growing revenue and profit pool. Some ecosystem participants are viewing this segment in terms of a single product or service—lead generation, tech point solutions, custodial offerings, banking-as-a-service for advisors, asset management. Others, including turn key asset management providers (TAMPs), established custodians, and traditional wealth managers with attacker mindsets, are attempting to build a next-generation, wirehouse-quality platform for advisors.

Therefore, wealth managers, especially those who rely on advisor recruiting for growth, need to look beyond the competitive threat posed by the fast-growing RIA channel and explore new business models that would allow them to participate in this growing revenue and profit pool. Wealth managers seeking to serve the RIA segment will need to manage technology as a core competency, and those with large advisor forces will need to manage the advisor attrition risks associated with opening up the platform (even partially) to RIAs.

2X

faster annual revenue growth projected over the next five years for RIA channel versus industry overall

The opportunity for digital advice models. Digital advice models, including robo-advisor and hybrid advisor models, have been around for more than a decade and have been the fastest-growing wealth management delivery model, with more than 20 percent annual revenue growth between 2015 and 2020. They still account for only about 1 percent of the market, but the growth prospects are high: the last three years—and last 18 months in particular—have marked a step increase in investor comfort levels with these offerings (Exhibit 8). In fact, the share of investors saying they are comfortable with remote advice grew from about 38 percent in 2018 to roughly 46 percent in 2021. Among clients younger than 45, the comfortable share grew from 43 percent to 59 percent. Similarly, while comfort with digital-only advice remains modest overall at about 15 percent, it has more than doubled since 2018 among investors under 45, to roughly half in 2021.

Unsurprisingly, the growing interest has motivated wealth managers to expand into and innovate in this channel. However, wealth managers should be aware that achieving a step change in adoption of digital advice offerings will require going beyond the lower-cost value proposition, privileged acquisition strategies, and brand equity. Among investors who do not express comfort with robo-advisor models, the main reasons they give are perceived lack of personalization, privacy concerns, and lack of motivation to explore the offering. Bringing more investors on board will require matching the advisor-like experience with personalized content and solutions.

60{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

increase in share of investors comfortable with digital-only models since 2018 and 21{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} increase in those comfortable with remote models

Embracing the new growth narrative: A four-part agenda

Clearly, wealth management remains an attractive industry with strong growth fundamentals and long-term margins. If anything, the disruptions we have discussed in this report expand the industry’s options and will shape the growth narrative for the next decade.

Given the pace of change, stasis is not a viable option. We recommend that wealth managers follow a four-part agenda for action: reposition, redesign, reimagine, and reallocate.

Reposition the firm for what’s next

Every wealth manager needs to take a hard look at the secular growth themes shaping the industry—fast-growth segments, banking, personalization, new product propositions, and new business models—and decide, based on the firm’s unique sources of competitive advantage, which of these updrafts it should ride. Where a firm lacks natural advantages in capitalizing on particular growth themes, M&A is a critical lever for accelerating the repositioning of individual wealth management franchises. The last 24 months have seen numerous high-profile transactions as firms seek scale and/or the acquisition of new capabilities to accelerate their strategy. We expect M&A to be a particularly important theme over the next 24 months as wealth managers reposition themselves for the postpandemic “next normal,” whenever it arrives.

Redesign offerings for new needs

Firms also should monitor and try to anticipate evolving client needs, using this information to redesign their offerings. Examples could include new value propositions (for instance, around tax efficiency, integration of wealth and banking, or specific high-growth segments), privileged access to new products (such as digital assets or private markets), or completely new business models (for example, light-guidance digital offerings).

Reimagine client engagement and experience

The third agenda item is to radically reimagine client engagement and experience. The pandemic has reset clients’ assumptions about how they want to be served, and the accelerated uptake of technology has created unprecedented degrees of freedom for wealth managers. Every wealth manager needs to ask, “What is the blueprint for a client experience model in a digital-first world?” and “How can such a model simultaneously deepen our relationships and broaden our reach?”

Reallocate resources to support the strategy

Finally, successful wealth management firms make a bold commitment to putting the money where the strategy is, and they make multiyear resource-reallocation decisions, including where firm’s top talent spends time, in favor of growth. Regular reallocation of resources is a critical but often neglected step that can close the loop between visionary strategic intent and successful implementation.

Our research across industries suggests that fortune favors the bold: the top third of companies, which have been the most dynamic resource reallocators, achieved 1.6 times higher total returns to shareholders than the bottom third (about 10 percent versus 6 percent annualized over 20 years). In the wealth management context, we estimate that top performers are making strategic resource reallocation decisions to the tune of 15 percent or more of operating expenses over five years, whereas those simply dabbling with subscale experiments in strategic growth areas will not see results. Simply put, firms should not aim to be all things to all clients.

Five questions for wealth management executives

Given the significance of the opportunity at hand, wealth management executives must consider their firm’s readiness to capitalize on it. To provoke a self-assessment, we offer five questions for executives to ponder and discuss with their teams:

What are the three or four priority growth themes you are betting on for the next five years? While several growth avenues and disruptions are reshaping the wealth management landscape, the optimal recipe will differ depending on an individual firm’s starting position and its sources of competitive advantage. Clarifying priority growth themes and aligning with your executive team help lay a foundation for developing a winning growth strategy.
Do you have the right team and operating model? To paraphrase Peter Drucker’s famous phrase, “Execution eats strategy for breakfast.” A prerequisite for successful execution is an effective leadership team that is brought together around critical behaviors. In the context of wealth management and the shifts the industry is going through, these behaviors for executive teams must include operating in an agile manner and developing connections across business units and functions. In addition, the team needs leaders who are not afraid to experiment and innovate and whose mandates are aligned with major growth themes that typically cut across business unit lines (for example, banking and wealth, segments, sustainability).
Does your ability to attract sought-after client-facing and technology talent match your ambition? Over the last 12 to 18 months, wealth managers of different sizes and business models have publicly announced ambitious hiring targets with an emphasis on client-facing and technology talent. However, these plans have been challenged by severe labor shortages across industries, as a result of what has been dubbed the Great Attrition: 40 percent of employees say they are at least somewhat likely to leave their current job in the next three to six months, and 54 percent of employees say they leave because they do not feel valued by their organizations.

Wealth management is no exception to this trend.

While many of the levers for attracting and retaining talent remain effective, other factors have gained importance during COVID-19, with more than 80 percent of workers saying that a hybrid-office working model is the optimal route forward. In addition to rethinking their operating models to attract and retain talent, wealth managers need to take bolder and more creative approaches to attracting new-to-industry talent. These may include flexible working arrangements, alternative career paths (including new payout structures for client-facing roles and programs aimed at creating the next generation of advisor talent), and partnerships with various types of educational institutions.
Are you reallocating a significant portion of your resources—spending and capital—toward priority growth areas, including M&A? Systematic and dynamic resource allocation is an essential part of a winning business strategy. Achieving industry-leading levels in this area involves several steps: conducting a critical review of the firm’s existing cost structure, introducing a culture that continuously reallocates resources from low- to high-value tasks, increasing transparency around returns of individual projects, and implementing governance processes to enable more dynamic resource allocation.
Capital reallocation can be a powerful tool for acceleration of growth in high-priority areas, which requires a clear M&A blueprint consistent with the broader enterprise strategy. We expect three major M&A themes to shape wealth management deal making in the next 18 to 24 months: (a) transactions focused on platform synergies, mostly in the vibrant RIA market but also among the largest wealth managers; (b) transactions focused on entering adjacent revenue pools, such as asset management, banking, retirement, or payments; and (c) transactions to acquire capabilities that will be key for growth—for example, direct indexing, tax solutions, or wealth tech.

While not all deals are accretive in value, the top 25 percent of deals achieve 8.5 percent excess TRS. Top acquirers are distinguished from the rest by two characteristics: the ability to embed M&A in their strategic planning process and a clear post-acquisition playbook, inclusive of an integration capability. Thinking through programmatic M&A in the context of business strategy is essential for making accretive deals that contribute to both top-line growth and business value.
Do you have a partnership strategy rooted in your business strategy? When it comes to digital, data, and technology, it is impossible for any organization to stay ahead of the pack on every dimension, so a clear partnership strategy is crucial. In fact, many wealth management incumbents already rely on fintechs to gain access to better technology across the value chain—client acquisition, client front-end, portfolio management, point solutions on advisor desktops, cybersecurity, and cloud infrastructure, among others. Looking ahead, it is important for executives and their teams to be clear-eyed about which capabilities will be a source of sustainable competitive advantage and then to decide how to acquire those capabilities: build in-house, build in-house in partnerships with fintechs, or outsource.

Despite a modest dip in profits, the US wealth management industry has thus far come through the pandemic not only unscathed but with tailwinds from sustained demand for advice, potential upside of higher interest rates, the rise of new client segments, and the embrace of unprecedented levels and speed of innovation. As the industry moves toward the hoped-for postpandemic new normal, it faces near-term macroeconomic uncertainty but also meaningful opportunity.

Tomorrow’s successful managers will need to adapt their models to preempt the disruptions that lie ahead and adopt a new sense of purpose and innovation as they head into a period of growth.