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AUGUST / S EPTEMBER 2020 ISSUE 4 B LOOM B ERG M A R K E T S

VOLUM E 29

The Journal of Global Finance

The Diversity Issue

THE D I V ER SI T Y I S SUE

VOLUM E 29 / I S S UE 4

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Contents

VOLU ME 2 9 I SS U E 4 AU GU ST / S E PT E MBE R 2020

The Diversity Issue

What Went Wrong? We ask experts why the finance industry’s diversity efforts have fallen short

By Bloomberg News

This Affects You,Too Economic factors are at the root of racial injustice. Now they may help drive change

Race and Finance The data on race in the finance industry show where its challenges lie By Max Abelson, Jordyn Holman, Siobhan Wagner, William Spada, and Daniela Sirtori-Cortina

The Only One in the Room There is no single definitive experience for Black men and women on Wall Street. All of their stories matter By Max Abelson, Sonali Basak, Kelsey Butler, Matthew Leising, Jenny Surane, and Gillian Tan

By Jacqueline Simmons

COVER ARTWORK BY TIF FANY AL FONSECA

“To capture a moment of Black intimacy is crucial for the culture. The media loves

to portray the Black life as only a violent lifestyle. My goal in creating this

illustration is to capture Black love/intimacy in its purity and also to normalize it.”

Contents

QuickTake

Cross-Asset Opportunities

Alternative Data

Ideas for addressing inequality

Find the best investment for right now

Watch metrics such as OpenTable reservations for signs of economic revival

14 <GO>

Natural Variety

Management Sentiment

Appreciating diversity in birds— and birdwatchers

A new automated tool ranks companies by this key factor

Public Pensions on Private Credit

Expand Your Circle

Nine big allocators share their views of a growing asset class

20 Q&A With Ken Ofori-Atta Ghana’s finance minister sees injustice in global markets

22 Variable Results Compare hedge funds to liquid alternative strategies

24 Fixed-Income Focus

An exclusive function for connecting allocators with new managers

36 Dollar Alternatives The pros and cons of each of the leading rivals to the U.S. currency

40 Cryptocurrencies Up Close See how Bitcoin performed in volatile markets

50 The ‘S’ in ESG Andy Howard, global head of the sustainable investment team at Schroders, has gathered some surprising data during the pandemic

82 Life in 2020 Three leaders share their perspectives

83 Cheat Sheet The most important functions you should know about right now

84 FFM Quiz Test your market smarts

42 The New Benchmarks

Stay ahead of the Fed’s ETF buying

A guide to the leading Libor replacements in each region

Recession Bonds

Activist Tracker

Two former Fed officials suggest a new way to fight the next crisis

Keep an eye on shareholder campaigns in the Covid era

46 Q&A With Bain Capital’s Greg Shell The impact investor wants to help drive change

Correction: Due to an editing error in “This Time Really Is Different” (June/July, page 62), Kenneth Rogoff’s fourth response gave the year 2010 instead of 2019.

Editor’s Letter

The Diversity Issue

Editor Christine Harper Design Director Josef Reyes Features Editor Stryker McGuire <GO> Editor Jon Asmundsson Special Reports Editor Siobhan Wagner Graphics Editor Mark Glassman

Functioning markets require diversity— they need buyers and sellers with different points of view. Investing theory has long embraced the value of a diversified portfolio. And at Bloomberg Markets, we always seek to bring our readers a broad assortment of ideas and voices. In this issue we’re shining a special spotlight on racial diversity. In “Race and Finance” (page 54), we present data that show financial companies in the U.S. don’t reflect the diversity of the population as a whole. For “Why Have the Finance Industry’s Diversity Efforts Failed?” (page 7), Bloomberg News reporters around the world gathered a wide array of opinions on what needs to change. In “This Race Moment Affects You, Too” (page 11), Jacqueline Simmons, Bloomberg News senior executive editor for the Americas, gives her own take on the demographic and economic factors that—finally— may be driving long-delayed progress.

Bloomberg Markets draws on the resources of Bloomberg News, Bloomberg TV, Bloomberg Businessweek, Bloomberg Intelligence, Bloomberg Economics, BloombergNEF, and Bloomberg LP.

Editor-in-Chief John Micklethwait Deputy Editor-in-Chief Reto Gregori Advisory Board Chris Collins, Stephanie Flanders, Caroline Gage, David Gillen, Chris Nagi, Jenny Paris, Emma Ross-Thomas, Marty Schenker, Joe Weisenthal

We’ve turned over our entire feature section to one package that we’re calling “The Only One in the Room” (page 58). In these 24 pages, we showcase the stories of current and former Wall Streeters who agreed to share what it’s like to be Black in the world of finance. Certain themes emerge, but so does the diversity of their experiences—some bad, some better. We’re grateful to all the people who gave their time to Bloomberg News reporters Max Abelson, Sonali Basak, Kelsey Butler, Matthew Leising, Jenny Surane, and Gillian Tan. We hope you find this issue useful and enlightening. Perhaps it will even challenge some of your assumptions. As always, we welcome your feedback. Christine Harper Editor

Managing Editor Kristin Powers Copy Chief Lourdes Valeriano Copy Editors Marc Miller, Brennen Wysong Production Manager Susan Fingerhut Map Manager Ilse Walton Production Associate Loly Chan

Production/Operations Steven DiSalvo, Debra Foley, Thomas Gambardella, Annmarie Gentile, Dan Leach, Daniel W. Murphy, Carol Nelson Global Head of Advertising and Marketing Stephen Colvin Head of U.S. Sales Anthony DeMaio Head of APAC Sales Mark Froude Head of Europe Sales Duncan Chater

Creative Director Christopher Nosenzo

Head of Middle East and Africa Sales Amit Nayak

Photo Director Donna Cohen

For advertising inquiries go to bloombergmedia.com

comments@bloombergmarkets.com

QuickTake

Tackling Inequality

Reconsider the role of central banks

Central bankers are facing questions about whether their policies disproportionately help the rich. Even in the strong pre-pandemic economy, minorities struggled to close gaps in employment, earnings, and wealth. Some economists suggest a more relaxed approach to inflation could help narrow labor market disparities. While U.S. Federal Reserve officials stress that monetary policy has a limited ability to target things such as Black unemployment, they’re pressing lawmakers more openly for government spending and other steps to help ease inequality.

Lighten the load on poorer countries

More than 100 nations confronting the humanitarian and economic shocks of the pandemic have asked the International Monetar y Fund for help. Global leaders b a c ke d a m o ra to r i u m o n fo re i g n d e bt payments for some of the world’s poorest countries this year; some $730 billion was scheduled to come due. China said it would help African nations facing “the greatest strain.” Ultimately, there may need to be a broad program to help poorer countries restructure their loans, similar to the Brady Plan of the late 1980s.

rich and poor had become a defining narrative of the 21st century long before Covid-19 put racial disparities and the struggles of low-paid workers in stark relief. Catastrophic events such as the pandemic have historically been catalysts for reshuffling the economic order. Here are some of the ideas gaining currency among economists and policymakers. �Rebecca Greenfield THE GAP BETWEEN

Tax the rich (more)

In the U.S., the Democratic Party is percolating with proposals to tax the assets, income, inheritances, or financial transactions of the affluent. Former Vice President Joe Biden, campaigning against President Trump, wants to restore the top tax rate to 39.6%, the level before Trump dropped it to 37%. Biden also would double the lev y on capital gains, to 39.6%, for taxpayers earning more than $1 million annually. Meanwhile, the pandemic has accelerated plans in several countries to raise revenue through a “digital tax” on the local sales of rich U.S. tech companies.

Strengthen unions and boost wages

The plight of essential workers during the pandemic has drawn attention to their low pay and lack of labor protections. Some front-line workers in the U.S. began agitating for more rights, with walkouts at Amazon.com, grocery delivery service Instacart, and meat processor Perdue Farms. One possible answer is stronger unions. Many countries are seeing a push for employers to pay a “living wage” that lifts workers out of poverty. Economists are also studying how breaking up dominant companie s in some industrie s might im prove workers’ eroded bargaining power.

Count heads

Efforts to hire, retain, and promote minorities have largely failed to get more underrepresented groups into the highest-paying jobs. Quotas—or numerical targets—have a proven track record in Norway and California for getting more women on corporate boards, though the idea raises hackles even with metrics-obsessed executives. Still, with many companies reframing their thinking on inequality, big employers including Adidas AG and BlackRock Inc. have rolled out hiring targets or tied executive pay to hitting diversity goals.

Provide a universal basic income

With automation raising fears about robots eliminating jobs, politicians and business leaders have floated the idea of a stipend for every citizen, also known as universal basic income. Former U.S. presidential candidate and entrepreneur Andrew Yang made it the central pillar of his platform, calling for a $1,000-a-month “freedom dividend” for every American adult. Countries and cities around the world that have experimented with the idea have had modest success.

Pay for past wrongs

Proposals to compensate African Americans for the shackles of slavery reach into the trillions of dollars. Interim steps might include federally funded trust funds for Black children that could be tapped in adulthood to pay for education, start a business, or purchase a home. In July the city council of Asheville, N.C., voted unanimously to create a reparations plan that will provide funding for Black homeownership, businesses, and career programs. A 2019 Gallup poll found that 29% of Ameri cans supported cash reparations, up from 14% in 2002.

Reform capitalism

So-called stakeholder capitalism demands that companies balance the interests of shareholders with those of employees, customers, and s o c i e t y. I n A u g u s t 2 0 1 9 t h e B u s i n e s s Roundtable, an association of U.S. chief executive officers, endorsed the idea. Germany requires 50% employee representation on large corporations’ supervisory boards, which make strategic decisions. In Scandinavia, high taxes are used to offset inequality. Governments can also expand efforts to address societal needs failed by the capitalist system, such as building affordable housing.

With reporting by Ryan Williams, Matthew Boesler, Sydney Maki, Ben Steverman, and Peter Coy

VO LU M E 2 9 / ISS U E 4

Access Bloomberg webinars, all in one place. Gain market insights and actionable ideas via free, live and on-demand webinars from Bloombergâ&#x20AC;&#x2122;s wealth of economists, analysts, market specialists, industry thought leaders and product experts. Search by topic or region to see whatâ&#x20AC;&#x2122;s moving the markets. Visit the webinar portal at: blpprofessional.com/webinars SMNR <GO> on the Bloomberg Terminal

Surveillance By BLOOMBERG NEWS DECADES OF INITIATIVES to increase diversity

within the finance industry have produced limited results. None of the major U.S. banks have ever had a woman chief executive officer. Women and people of color are still underrepresented throughout the asset management industry. (See data on pages 54-57.) So we went around the world asking for advice on what needs to be done.

Why have the finance industryâ&#x20AC;&#x2122;s diversity efforts failed? 7

There’s still a boys-club mentality and network that’s alive and well, even today. This doesn’t stop women from advancing, but there’s no natural propellant to enable women to compete on the same footing either. This isn’t an issue of men vs. women, though. It’s just that we should have a cultural change in viewing some fields as naturally more male- or female-dominant, and both men and women should be more aware of the biases/perception they may hold when interacting with each other. This may seep into their dealings and comfort in forming connections, and that, in turn, can affect the atmosphere of a workplace. This similarly goes for racial differences. In some cases you see promotion of more women and minority representation on corporate boards, for example. I do think we need more role models to break through the glass ceiling to start changing some perceptions. The industry has talked about earmarking funds to go to women- and minorityled funds in the U.S., for example, but we haven’t seen enough evidence of the flows really going that direction to make much difference.

It is too early to say the finance industry has failed on diversity. There are many indicators that the sector is moving in the right direction. However, the pace of change needs to accelerate. Covid-19 could be a stimulus to expedite that change. Mindsets are shifting, with diversity being seen as contributing to strong and resilient businesses rather than being a problem that needs to be fixed. There are clear signs that the Covid-19 crisis, over the longer term, will help to accelerate a move to a flexible working culture in the finance sector. As a sector known historically for its long-hours culture—with only 7% of employees working part time, compared to a U.K. average of 28%—that would be a necessary and welcome reset. [It would] enable everyone to have more choice and flexibility over their work, which means greater equality both at work and home for both men and women. It’s vital that firms adapt. Otherwise, they’ll fail to attract and retain the most talented people.

Monica Hsiao

Jane Goodland

FO U N D E R T R I A D A C A P I TA L LT D. I N H O N G KO N G

C O R P O R AT E A F FA I R S D I R E C T O R Q U I LT E R P LC I N LO N D O N

Having access to reliable data and insights enables us to concentrate our efforts in the right places. We can make effective change and support our employees regardless of their identity—race, gender, age, religion, sexual orientation, and so on—to progress to senior roles. We can remove potential confirmation bias from our processes—such as recruitment and performance management, compensation decision-making, leadership development, and promotions—and use targets to measure progress. Without targeted action, we cannot change the profile of our workforce or improve diversity statistics.

Unless you tie compensation to these initiatives, you’re never going to see it change. Unless you change the compensation, it ain’t happening.

Compensation drives behavior; behavior drives performance. I don’t think that it should be about shaming if the numbers are low. I think it should be about collectively coming together to change the numbers. If you don’t diagnose that you’re sick, you’re never going to get well. The numbers, while they may not be pretty, give you an opportunity to fix what’s broken. [C-suite executives need to take the lead.] They’ve been playing this game that they punt back and forth with no ownership.

Cynthia DiBartolo C H I E F E X EC U T I V E O F F I C E R T I G R E S S F I N A N C I A L PA R T N E R S I N N E W Y O R K

Despite the best of intentions, there’s little evidence that diversity is improving in the industry. I firmly believe that businesses need to set formal quotas by gender and by ethnicity if we are to change hiring practices that today clearly entrench academic and social biases— unconscious or conscious. Diversity doesn’t work in finance primarily because recruitment policies are geared toward hiring young people from a small, select group of schools. These schools tend to draw their students from an equally predictable pool. Finance needs to be more deliberate in reaching out beyond its traditional hunting grounds.

David Mathers

Paul Smith

CHIEF FINANCIAL OFFICER C R E D I T S U I SS E G RO U P AG I N Z U R I C H

F O R M E R G LO B A L C E O A N D P R E S I D E N T C FA I N S T I T U T E

Contributions from Divya Balji in Toronto, Marion Halftermeyer in Zurich, Bei Hu in Hong Kong, Lananh Nguyen

BLO O M B ERG M A R K ETS

The reality is that the industry was on the wrong side of progress for a long time—30 years ago, much of the industry was openly sexist, homophobic, and racist. This left a huge hole in the pipeline of diverse talent as quality people were either put off by the industry and never joined or rightly left the industry.

Luke Ellis C EO M A N G R O U P P LC I N LO N D O N

My own experience in the wealth and asset management industries is that a lot of the recruiting is done either through personal networks—so you’re delving back into where you went to school or your alumni network—and/or you hear that age-old adage, “We only recruit from the best schools.”

The industry echo chamber focuses on the question, “Did we make more money than last year?”—confirming the system in a vicious cycle even as traditional banking businesses are less and less lucrative. When bonuses become dependent on the question, “Are you making money and have you taken advantage of the skills that come with hiring a group of people that don’t all think alike and have different worldviews?” then things will change, and people will probably make more money. There’s a mountain of data to back that up.

Dennis Mitchell C EO S TA R L I G H T C A P I TA L I N T O R O N T O

I am a firm believer in the importance of data and analytics to improve our decision-making, and in the last 12 months we have campaigned for our people to tell us more about themselves and complete their diversity profiles. It is only with this data that we are able to direct our resources to make the changes with the biggest impact. Our decision, several years ago now, for Schroders to communicate our gender pay gap—ahead of statutory requirements—reflected my belief that data transparency is key to driving real change. With progress on diversity metrics linked to pay outcomes for senior management, we are holding our people accountable for addressing this role representation gap, as well as diversity and inclusion more broadly.

Companies, for example, say, “I am going to put a diversity policy in place.” And they put a woman in that position, and that’s great. But I’m a Black man, and my civil rights were violated, and I’m coming to work in the morning. How would she understand my problem and what happened to me and the psychological trauma that I went through as a result of that experience as a Black man? So wouldn’t it be nice to have another person within that organization that shares the same role that I can now go to and talk to and can counsel me because I just experienced a trauma? We have people who are putting things in place that don’t understand me. And they think they do by putting these systems in place. If we’re there, then when they are making policies we can say, “No, that doesn’t apply.”

Lauren Cochran M A N AG I N G D I R ECTO R B L U E H AV E N I N I T I AT I V E I N W A S H I N G T O N

The chief risk officer should be having sleepless nights over the lack of diversity. Boards who take representative and cognitive diversity seriously have recognized that it brings results in performance and decision-making, as well as having a positive impact on brand and revenue. The solution lies in not picking one diverse group to focus on but investing in real solutions to help build a diverse industry where everyone can thrive regardless of race, gender, sexuality, or anything else. Only then will we truly have the best talent.

Wes Hall Peter Harrison G RO U P C H I E F E X EC U T I V E O F F I C E R S C H R O D E R S P LC I N LO N D O N

E X EC U T I V E C H A I R M A N A N D FO U N D E R K I N G S DA L E A DV I SO RS I N TO RO N TO ( H A L L FO U N D E D T H E CA N A D I A N CO U N C I L O F B U S I N ESS L E A D E RS AG A I N ST A N T I - B L AC K SYST E M I C R AC I S M )

Bhavini “Bev” Shah FO U N D E R A N D C EO C I T Y H I V E N E T W O R K I N LO N D O N

in New York, Heather Perlberg in Washington, and Nishant Kumar and Suzy Waite in London

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Forward Guidance

This Race Moment Affects You,Too By JACQUELINE SIMMONS I L L U S T R AT I O N B Y M AT T C H A S E

BLACK AMERICANS , myself included, were not surprised by what happened to George Floyd and countless others who preceded him. Or, sadly, those who will surely follow him. Enraged, yes. Hurt? Incredibly. Surprised, no. These days, I’m often asked whether I regret returning to the U.S. after spending 23 years working and living in France and the U.K. As I near the end of my first year back, the answer is a hard no. I’d rather have a front-row seat to watch, query, and appreciate the shift that’s occurring here. Europe, for the record, has its own issues with systemic racism in schools, institutions, and workplaces. But, country by country, it also provides a sturdier economic safety net and a more equitable health-care system, which have made managing the pandemic far easier for people across income brackets. In the U.S., Floyd’s agonizing death on camera, along with pandemic-induced lockdowns, shed light on how badly society has failed the Black community. Black unemployment was 15.4% in June, the highest among race categories. Meanwhile, 26% of Black-owned businesses shuttered from February to May, compared with 11% of White-owned businesses. The disproportionate Covid-19 death toll in Black and Latino communities—at least twice the rate of Whites—is exacerbated by poor access to health care and a workforce that skews toward industries with greater risk of exposure to the virus. What’s surprising is how long it has taken to confront our collective past.

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This includes understanding the significance of Juneteenth—the day marking the effective end of slavery in the U.S.—the devastating legacy of Jim Crow laws, and the destruction of Black Wall Street in Oklahoma. Acknowledging this history is an important first step toward restructuring a system that’s persistently suppressed equitable access to wealth. But why, after so many years, is it happening now? There are many plausible explanations for why this particular moment has seized the public’s attention, but here’s another: There are too many of us to ignore. The U.S. is quickly becoming a minority-majority country. Racial and ethnic minorities accounted for all the nation’s population growth in the past decade, according to Census Bureau estimates released in July. In pure economic terms, we can’t be overlooked. In early June, even as the White House’s top economic adviser insisted systemic racism isn’t a problem in the U.S., Federal Reserve policymakers indicated that a true economic recovery will require doing more for those who have historically been at a disadvantage. Noting the disproportionate loss of jobs among women, Latinos, and Black workers during pandemic lockdowns, Chair Jerome Powell said the Fed will use “our tools to support maximum employment and take that definition to heart.” Sure, he stopped short of giving specifics on how monetary policy can achieve that goal, beyond fostering a strong labor market, but acknowledgment is a first step. Look at the changes taking place in the South. One of my relatives who lives in the heart of the Mississippi Delta says he was surprised when the state’s legislature voted overwhelmingly in June to remove the Confederate symbol from its flag. But he also notes the economic pressure exerted by the National Collegiate Athletic Association and the Southeastern Conference, which threatened to stop holding major events in Mississippi if it didn’t make the change. Francis Coleman, a Black money manager in New York, puts it succinctly: “How is it a shock in a state where nearly 40% of the population is Black?” In South Carolina, where about

27% of the population is Black, Republican Senator Lindsey Graham, an ardent supporter of the president, said he disagreed with Trump’s embrace of the Confederate flag. “I’ve lived in South Carolina all my life, and if you’re in business, the Confederate flag is not a good way to grow your business,” Graham said in an interview with Fox News Radio. Symbols matter, but there’s much more to be done. Mississippi’s Black population suffers from a poverty rate of about 30% and accounts for about half of the state’s Covid-19 deaths. the events of this year, the business community was rethinking its priorities. The Business Roundtable, which includes BlackRock Inc.’s Larry Fink and JPMorgan Chase & Co.’s Jamie Dimon, released a statement in August 2019 that redefined the purpose of a corporation. They would no longer espouse Milton Friedman’s vision that companies must place shareholder interests above all others but instead recognize a wider responsibility to employees, suppliers, customers, communities, and the environment. “This broader spectrum of responsibility to society is beginning to find its way into decision-making and conversations,” Craig Arnold, chief executive officer of Eaton Corp. and a member of the Business Roundtable, said in an interview with Bloomberg News on June 29. The racial reckoning that followed Floyd’s death has added fuel to this awakening in corporate America and other influential institutions. Think brand-name changes, such as Aunt Jemima pancake mix or Uncle Ben’s rice—remnants of an America built on Black stereotypes. Or dropped television shows such as Cops and the music industry’s rethinking the use of the term “urban.” In June, Princeton University said it’s removing former President Woodrow Wilson’s name from its School of Public and International Affairs, citing “Wilson’s racist thinking and policies.” A majority of the Senate wants to declare Juneteenth a federal holiday. But what about real economic power? Black Americans remain underrepresented in the finance and EVEN BEFORE

BLO O M B ERG M A R K ETS

technology sectors, John Rogers Jr., chairman and co-CEO of Ariel Investments LLC in Chicago, the biggest Black-owned mutual fund firm, said at virtual event Bloomberg Invest Global in June. I reported on investment banking and deals for a decade and never had a meeting with a source who was Black. There are no Black CEOs of a major U.S. bank, and it’s estimated that only 8% of the finance industry’s total workforce is Black, unchanged from 15 years ago. The world’s most valuable companies are also predominantly White and male, according to a Bloomberg News analysis of diversity reports of the biggest tech companies, including Apple, Google, and Facebook. Ultimately, numbers and, more specifically, targets matter. While 86% of companies have goals aimed at driving diversity and inclusion, only 11% are setting firm targets to get there, according to a survey of 890 companies by Just Capital, a New York-based nonprofit research group that tracks stakeholder performance. BlackRock, the world’s biggest money manager, is giving itself less than four years to increase its Black workforce by 30% and to double the percentage of senior executives who are Black from the current 3%. Citigroup, Google, and PepsiCo are all setting deadlines by which they expect their senior echelons to include more Black executives and other people of color. Companies are also redirecting money to Black communities—Netflix Inc. said it will steer as much as $100 million to Black-owned banks. And then there are other moves, such as the Reddit co-founder who stepped off his company’s board to make room for a Black member. These pledges alone do not make up for centuries of systemic wrongs, but they’re a start. working as a business and financial journalist in three countries over the past 27 years, I’ve been thinking about what I’ve seen change. The honest answer is not much or not enough. I’m often the lone Black woman in meetings. It’s difficult to describe the innate feeling of dissonance I experience: the sense of having to be

GIVEN MY EXPERIENCE

Where Covid-19 Is Deadliest in the U.S. Average county’s death rate per 100,000 people among counties where there is a … Smaller share of Black residents than in the U.S. population (13.4%) Larger share than in the population Majority of Black residents All counties

0 3/23/20

extra-vigilant, overprepared, and careful with my words to remain acceptable to a largely White audience. I’m not sure that will ever completely fade. Likewise, the cumulative actions of private-sector companies, social justice advocates, and foreign and domestic governments may not lead to the kind of sustained systemic reform that would enable me— and others like me—to feel any different. If the reform is real, it will affect those with power and privilege whether they choose to acknowledge it or not. Some of this is already in motion. State and local municipalities are rethinking budgets to include, for instance, funneling money from law enforcement

7/10/20

toward affordable housing and public health. Economic policymakers are taking a closer look at Black unemployment. Companies and other institutions are changing their employment policies to make room for new voices. “We are at a crossroads—do we believe diversity is a strength?” asks Eaton’s Arnold, who is one of the few Black CEOs of a publicly listed U.S. company. “Diversity is ultimately the thing that makes this country unique— the diversity of our people, the diversity of thought. Our diversity has been the source of so much wealth creation historically.”

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We have a collective responsibility to make sure racial inequity continues to be front and center in the consciousness of Americans. Long after the protests have dwindled, we must use the aftermath of George Floyd’s death to make sure transparency and accountability are the bedrock of everything we do. The challenge for us all is keeping this alive—and not only while the memories of 2020 are fresh.

Simmons is the senior executive editor overseeing Bloomberg News in the Americas. This column doesn’t necessarily reflect the opinion of Bloomberg LP and its owners.

<GO>

Red-shouldered hawk

Yellow-crowned heron

American white pelican

Black-crowned night heron

Nature’s Bounty

AS HUMANS RETREAT from each other during

Song sparrow

the pandemic, we are becoming more alert to the biodiversity around us. Many of us have also become more aware of the challenges faced by Black nature lovers, such as the birdwatcher in New York’s Central Park who in May posted a video of a White woman calling the police on him after he asked her to leash her dog. In Oklahoma, Joseph Saunders has long loved nature photography, but he credits the BlackAFinSTEM Collective with sparking his interest in birds. (The group organized Black Birders Week from May 31 to June 5 after the park video went viral.) “Learning to identify birds by sight and by call while I am in the field adds another layer of gratification,” says Saunders, who found the yellow-crowned heron, American white pelican, and northern cardinal pictured here near Hefner Lake in Oklahoma City. Jason Ward, chief executive officer and a founder of BlackAFinSTEM, photographed the three other birds in Atlanta: “Birds occupy every niche on Earth. That toughness, coupled with the freeing, boundaryless exploration of their surroundings, always made birds particularly special to me.” �Donna Cohen For news about the environment, run {NI GREEN <GO>}.

Northern cardinal

P H OTO G R A P H S BY J OS E P H SAU N D E RS A N D JASO N WA R D

Alternatives

How Do Public Pensions Like Private Credit Now? By FOLA AKINNIBI and KELSEY BUTLER

to invest—and returns depressed by ultralow interest rates—U.S. public pension funds have been dipping their toes into private credit. The relatively new asset class had grown quickly, attracting almost $1 trillion, before it was hit by March’s pandemic-driven collapse. So how do pension fund managers feel about this burgeoning asset class now? Bloomberg Markets talked to officials at nine pension systems of different sizes and in different parts of the country to get their views on how these investments are working out. We heard a wide range of reactions, presented here from the smallest fund to the largest: WITH SOM E $ 4 TRI LLION

San Diego County Employees Retirement Association Stephen Sexauer, chief investment officer Size: $11.9 billion Serves: More than 44,000 members Private credit allocation: Less than 0.5% Performance in the lockdown: Too soon to judge Target allocation: Unchanged

LOOKING BACK: “Why would pension plans get in the banking business and start making loans to corporations?” asks Sexauer, who inherited the private credit allocation from his predecessor. He says the first quarter market sell-off showed him there were more opportunities in the traditional fixed-income markets that don’t involve signing a multiyear contract with a private investment firm and paying the fees that come with such an arrangement. LOOKING AHEAD: “Our allocation is under a half a percent. We don’t see a lot out there that would change that. Our takeaway right now is it’s a bull market strategy that’s a medieval marriage to generate fees for the private debt managers.” There are likely fewer than a dozen pensions in the U.S. and Canada with the in-house expertise to do the sort of credit work necessary to analyze these deals, Sexauer says. “It doesn’t sound like a scalable business to me. You’re not going to know what the results are for a long time. We’ll see how the returns are in six or seven years.”

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Connecticut Retirement Plans & Funds Shawn Wooden, state treasurer Size: $36 billion Serves: 212,000 state and municipal employees Private credit allocation: 0.4% Performance in the lockdown: As expected Target allocation: 5% LOOKING BACK: “Our view is that private credit is an attractive asset

class for us. An important point was trying to expand our access to a wider credit opportunity set that would be more complementary to the more liquid fixed-income strategies. That was our view prior to this; that remains our view today. In February we created the 5% bucket [for private credit], and the crisis hit. The crisis is obviously bad and terrible, but with respect to our greater focus on private credit [the timing] was in many respects perfect. Those private credit opportunities did perform as expected, and we’re pleased with the performance.” LOOKING AHEAD: “We’ve found that there’s tremendous opportunity.” OTHER STRATEGIES: “Some of these more niche strategies, such as pharmaceutical royalty, are attractive due to the lower correlation of the exposure and return factors vs. other asset classes. In addition, some of these strategies provide the opportunity to generate attractive absolute and relative returns due to the more niche market opportunity and expertise required by the best investment managers pursuing these strategies. While we do not expect these will be a core component of the allocation, we do have the flexibility to invest in these strategies.”

School Employees Retirement System of Ohio (SERS)

Arizona State Retirement System

Farouki Majeed, chief investment officer

Al Alaimo, senior fixed-income portfolio manager

Size: $14.5 billion

Size: $41 billion

Serves: More than 200,000 nonteacher school employees

Serves: More than 500,000 current and retired employees

Private credit allocation: 1.3%

Private credit allocation: About 15%

Performance in the lockdown: Performed well

Performance in the lockdown: Down less than 1%

Target allocation: 5%

“We have for the most part avoided the sectors most impacted, including hospitality, retail, and energy. Our managers were able to opportunistically deploy capital during the depths of the crisis in March and early April.” LOOKING AHEAD: “The Covid pandemic has heightened the risks in this space but also presented new opportunities. Since we will be increasing our exposure post-Covid, we feel good about the entry point for new commitments. SERS has committed several hundred million dollars to new funds that are expected to take advantage of the prolonged recovery. We are expecting that new commitments in this period will generate higher returns.” OTHER STRATEGIES: “Currently we have a small exposure to assetbased leasing/lending strategies in the opportunistic portfolio. We have no plans to increase that exposure at this time.” LOOKING BACK:

LOOKING BACK: “We’re very pleased with how it performed. It helped

that our portfolio was well-diversified—with multiple strategies targeting different markets in the U.S. and Europe. We also had very little exposure to energy and retail, two industries particularly hard hit in the economic downturn.” LOOKING AHEAD: “Since Covid-19, all of the credit markets—both public and private—have repriced, so everything has gotten more attractive, and every new dollar a manager can put to work has higher expected returns today than at the end of last year.” OTHER STRATEGIES: “In 2019, we really built out our credit asset class and added a number of new managers. Several were in what we call ‘other credit,’ which are private strategies. They include litigation finance, life settlements, risk-sharing transactions, and leasing. Those are niche strategies, but they tend to be very attractive. They also tend to be relatively limited in terms of being able to deploy capital.”

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Los Angeles County Retirement Association Jon Grabel, chief investment officer Size: $56.8 billion Serves: More than 165,000 members Private credit allocation: 2% Performance in the lockdown: 1.8% net for illiquid credit in the quarter ended in March Target allocation: Up to 5%

LOOKING BACK: “Some may view illiquid credit or private credit as

very distressed-oriented—that, in effect, you use debt securities to get equitylike returns. That is not our strategy. We are not looking for this to be a private equity replacement. “We made some recent commitments over the last several months. Those commitments have been more single-investment, separate-account-type structures as opposed to drawdown vehicles.” LOOKING AHEAD: “We are under target. We will continue to evaluate opportunities, but we’re sensitive to markets. The stimulus and intervention from the Fed has impacted credit dramatically.”

Pennsylvania Public School Employees Retirement System

State of Wisconsin Investment Board

Steve Esack, press secretary

Chris Prestigiacomo, portfolio manager

Size: $55.8 billion

Size: $101.5 billion

Serves: 256,000 active and 234,000 retired school employees

Serves: 642,000 participants

Private credit allocation: 8.5%

Performance in the lockdown: As expected

Performance in the lockdown: Down 11.3% in first quarter Target allocation: 10%

“While the portfolio outperformed its benchmark on a relative basis, absolute performance was worse than expected, driven by a couple of outliers. For example, energy investments within the real assets credit allocation were heavily impacted by negative supply-demand dynamics given the uncertainty of OPEC+ production cuts and the collapse of demand due to the global pandemic.” LOOKING AHEAD: “While there are benefits and drawbacks of private credit vs. other asset classes, we continue to believe the benefits prevail. Compared to public high yield for example, private credit should benefit from its seniority in the capital structure, yield pickup from illiquidity premium, less price volatility, technical-driven selling, and covenant protection. We view private credit as a longterm asset class that shouldn’t be evaluated quarter over quarter.” OTHER STRATEGIES: “Our current private credit [investment policy statement] provides ample flexibility to consider numerous private credit substrategies. [These include] direct lending, mezzanine, distressed [and] special situations, specialty finance, structured credit, real assets credit, and real estate credit.” LOOKING BACK:

“There was some volatility in mid-March when things started to unravel a little bit, but that started to come back in early Q2. It was really the Fed’s actions that allowed the credit markets and equity markets to snap back very, very quickly.” LOOKING AHEAD: “There are a lot of plans out there that, when they see a big downdraft, have to sell at unfortunate times. We don’t have to do that. We can play a volatile cycle. I would say today we’re still very interested in private credit. The spreads haven’t returned to pre-Covid levels, which is good. I think there’s some consensus within our shop that the back half of this year, there will be some more volatility, which we think will bring some good opportunities for us.” OTHER STRATEGIES: “Within our privates group, excluding hedge funds, we’re predominantly lending to operating businesses across various industries. If you look in our hedge fund book as well as our multiasset book, they participate more in some of the newer strategies: asset-backed, royalty lending, distressed credits—those areas. So we are looking at those kind of ‘niche-y’ areas. As the risks subside and strategies become more developed, that’s when you would see other participants come in and bid up pricing and lower returns. And that’s probably a time where we would be a seller, if we had the ability to exit.” LOOKING BACK:

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Growing Market Private debt assets under management as of December

$900b

600

300

0 2000

2019

Source: Preqin

North Carolina Total Retirement Plans

State Board of Administration of Florida

Dale Folwell, state treasurer

Trent Webster, senior investment officer in charge of alternative investments

Size: $103.9 billion for the defined benefit plan

Size: $160.7 billion in defined benefit retirement assets

Serves: More than 332,000 payees

Serves: Almost 648,000 active members

Allocation: 7% for opportunistic fixed income

Private credit allocation: 2% to 2.25% Performance in the lockdown: As expected

“We were finding [credit] more appealing until a big competitor showed up: the Federal Reserve. I’m not criticizing the Fed’s actions, I’m just saying that when they come in and make these multitrillion announcements, obviously spreads narrowed tremendously. It takes time to analyze these deals and in some instances, there wasn’t enough time to analyze them before spreads started tightening.” LOOKING AHEAD: “I don’t think we have fully witnessed some of the timeless impacts that this virus is going to have on the credit markets.” LOOKING BACK:

Target allocation: Likely to grow LOOKING BACK: “For a couple of years we had gotten quite cautious

on credit. We thought spreads had gotten too tight for the most part. We thought the lack of covenants was very unappealing. A lot of money had flowed into the market searching for yield. In March and April, we saw spreads blow out, and we put money to work pretty aggressively where we could.” LOOKING AH EAD: “The amounts that we have been looking to commit over the first and second quarter of this year are greater than we have committed in the past. We’re watching to see if this rally is justified based on the future economic fundamentals. We do think that in certain parts of the economy there will be very interesting opportunities on the stressed and distressed side, regardless of what the market does.”

Akinnibi covers municipal finance and Butler covers private credit for Bloomberg News in New York.

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Africa

Ghana’s Finance Minister Says It’s Time to Fix Global Markets By EKOW DONTOH P H O T O G R A P H B Y N A N A KO F I A C Q U A H

KE N O FO RI -AT TA ,

61, worked at Morgan Stanley and Salomon Brothers before returning in 1990 to Ghana, where he helped found Databank Group, a leading West African investment banking and fund management company. In 2017 he became Ghana’s minister for finance and economic planning, focusing on cutting the country’s budget deficit to below 5% of gross domestic product and exiting an International Monetary Fund bailout program in April 2019. Then the pandemic dealt a blow to GDP growth, which had exceeded 6% for three straight years. The government redirected its energies toward keeping its people healthy and safe. Ofori-Atta has played a leading role in helping to negotiate a debt standstill for African countries. He spoke with Bloomberg Markets in early July about Ghana’s fiscal challenges, inequities he sees in the global financial infrastructure, and his reaction to the global racial justice movement sparked by the killing of George Floyd in the U.S. EKOW DONTOH: What are the main challenges that Ghana is facing

amid the Covid-19 pandemic? KEN OFORI-ATTA: This is probably the phenomenon with the greatest economic impact since World War II, at least for Africa. Ghana started the year on an incredible note. We had expected 6.8% GDP growth, and now we realize there is going to be a steep drop—we are expecting growth of 1.2%. The deficit, which we had jealously guarded and kept under 5%, is now expected to widen north of 10%. We had to respond very quickly to the economic impact of the virus. At the center of it was not economic development per se but the quality of life and dignity of our people. So the president [Nana Akufo-Addo] was swift and decisive and put together a $100 million program to ensure that we protect the sanctity of life. We [then created] another $219 million social intervention program and distributed 400,000 packets of food to vulnerable citizens. We gave health workers tax exemptions and 50% of their salaries as bonuses. We realized that about 90% of the Ghanaian

economy may be informal, so [as part of the $219 million program] we put together the $120 million Coronavirus Alleviation and Business Support System, which seeks to impact about 250,000 lives with soft loans. We have been charged by the president to put together a [post-Covid] stabilization and revitalization program [dubbed GhanaCares] for the next three and a half years. So the next six months will be the stabilization program to make sure that we don’t move from recession to a depression. We expect a steep drop in growth and a three-year slow slide before we come up again, what I call the trapezoid growth. ED: Tell me about the African effort to win a debt freeze. KO-A: I worked with African finance ministers, especially the South African finance minister, to try and push the G-20, World Bank, and IMF to look at the African situation as exceptional. We were seeking some forbearance for three years in terms of debt servicing. We were also seeking over $100 billion to support the continent’s health infrastructure and another $100 billion for revitalization of African industries. The G-20 came up with the Debt Stand Still Initiative [DSSI], which most of the continent’s countries qualified for. It sought to give some breathing space for six months, and we hope they will extend beyond that. But there are some clauses in the agreements which impact other lenders, and therefore one needs to go to them individually to get a waiver, so it’s a little tricky and cumbersome. What we are proposing now is somehow to get the SDRs [IMF-backed Special Drawing Rights] to be reactivated—or else quite a number of G-20 countries are not using their SDRs, so [we want to determine] whether that can be lent or put into a bucket so that it creates the liquidity we need. We also want to create a new special-purpose vehicle which potentially could take all of Africa’s debt and have a triple-A wraparound to make it cheaper. This may be a new mechanism for

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3-6-1-6-6-7-5-1-3

Ofori-Atta

financing and getting to the capital market at a cheaper rate to de-risk the African risk, which we think is unfair: There is no basis for us borrowing at 6%, 7%, or 8% while other countries borrow at cheaper rates. Argentina has defaulted a number of times, but they are still able to come to the market and borrow at the same rate as African countries do. One thing that is clear is that the current situation of the global financial infrastructure is not fit for purpose. It’s going to take some strong leadership and compassion to be able to redesign it to make it more effective for everyone. When you look at the risk premium put on African countries you just question, why? You question whether the philosophical economics are correct. What is an economy of mutuality that will make the world much more efficient and enable us to progress in a much more balanced way? ED: What do you think about the racial justice movement spurred by the police killing of George Floyd in the U.S.? KO-A: As they say, “In the end we may not remember the words of our enemies, but we will remember the silence of our friends.” The George Floyd thing has illustrated a whole kind of spiritual stupor in which people have accepted things as they are without realizing that they were being killed spiritually. The systemic racism is so deep that even the good White person is not aware of how the system is structured, so you will walk to a policeman as a White person to seek a resolution to a problem, and maybe a Black person won’t. It’s a chance for the world to rethink and to recalibrate. Four hundred years after the first African slaves landed in Virginia, it’s an opportunity for Blacks in Africa and Blacks in the diaspora to begin to see ourselves as one people and really be restless until we take this yoke off our necks. It is depressing, it is sad. It is up to us to now see and ask: What is humanity? And all of humanity is at risk if we don’t rediscover ourselves as a people. Dontoh is a Bloomberg News reporter based in Accra.

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Investing

Track How Hedge Funds and Liquid Alts Managed Covid-19 Turmoil By WILLIAM SPADA

Fig. 1 For a snapshot of the Bloomberg Hedge Fund Indices, go to {HF <GO>}.

The Bloomberg All Hedge Index lost 3.3% this year through June.

Fig. 2

Hedging Market Drops Monthly return Hedge funds Liquid alternatives S&P 500

10% Alternative strategies mitigated losses when stocks plunged

-10 1/2020

6/2020

Sources: {BHEDGE Index}, {HFS <GO>}, {SPX Index}

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ji-xian-sheng

Fig. 3 Run {HFS <GO>} for the Hedge Fund Search function. HFS lets you group and sort by fund type and strategy so you can view statistics including average performance for liquid alternative strategies such as these.

Click here to specify fund type, groupings, and the statistics you want to see.

To browse the full set of filters you can use to drill down to funds that interest you, click here.

associated with secrecy and high returns, were originally intended to help investors mitigate—hedge—risk during difficult times. With the Covid-19 pandemic rattling markets this year, investors may want to review their portfolios and assess the value of hedge funds and liquid alternatives. The latter refers to investment vehicles that employ hedge-fund-like strategies but are not structured as hedge funds. To understand how hedge funds and liquid alts have handled the market volatility, check out Bloomberg’s hedge fund data. Unsurprisingly, some funds capitalized on that volatility. Commodity hedge funds gained 3.34% in March, making the style the month’s best-performing, per Bloomberg’s Hedge Fund Indices. Yet running {HF <GO>} to open the Bloomberg Hedge Fund Indices function shows that the industry overall was down 3.3% this year through the end of June (FIG. 1 ). While a 3.3% loss might not seem impressive, a comparison of the Bloomberg All Hedge Index and a group of liquid alternative funds with the S&P 500 index shows that hedge funds and liquid alts both helped limit losses during the market’s most difficult months. In March, while the S&P 500 plunged 12.5%, the hedge fund index declined 8.6% and liquid alts fell 6.8% (FIG. 2 ). IF YOU’RE INTERESTED in hedge funds and liquid alts, you might want

{HFS <GO>}—shows hedge funds provide less liquidity. More than 75% of hedge funds limit redemptions to a monthly or quarterly basis. By comparison, the median redemption frequency for liquid alts is seven days. Hedge funds tend to be more expensive, as well. Their average management fee is 1.4%, and average performance fee is 15%. For liquid alts, the comparable numbers are 1.2% and 9%, respectively. To dig into such statistics for alternative funds, run {HFS <GO>} and click on the Terms tab. Click the Settings button and use the Group By drop-down to select Fund Type. Then tick the statistics you want to display, such as Average or Median, and hit Update. Consider liquid alts that comply with the European Union’s directive for funds that can be sold across Europe. These UCITScompliant mutual funds have strict liquidity requirements that allow an investor to leave at will and constrain the fund from investing in certain assets. Hedge funds have no such limitations, and managers often require that investors agree to lockup periods. Fortunately for the hedge fund managers, their approach has paid off in recent years. When benchmarked against liquid alternatives, hedge funds have generated alpha—outperforming in four of five major strategies from 2017 through 2019 (FIG. 3 ). Funds that wish to set up a profile on Bloomberg should contact a Bloomberg Hedge Funds representative at hfnd@ bloomberg.net. �With Anibal Arrascue and Anthony Feld

to weigh their benefits and limitations. Bloomberg’s database of alternative funds—available via the Hedge Fund Search function at

Spada is on the hedge fund data team at Bloomberg in New York.

HEDGE FUNDS, OFTEN

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T5H8PZ0

Credit

See How the Fed’s ETF Buying Supports Banks and High-Yield Bonds By STEVEN GEE, GEORGE OOMMAN, and BRIAN PALUCCI

in April announced $2.3 trillion in stimulus, including support to keep credit flowing freely to U.S. households and businesses. Chief among these programs, the Secondary Market Corporate Credit Facility (SMCCF) outlined plans to buy corporate bonds and exchange-traded funds in the secondary market. Under this program, the Fed’s agent would buy securities that satisfy a number of criteria. To be eligible, corporate bonds must be deemed investment-grade by at least two raters. Issuers’ business operations and employees must be chiefly in the U.S. Issuers can’t be depository institutions according to the Dodd-Frank Act—think: banks. (For facility details including the term sheet, see newyorkfed .org/markets/secondary-market-corporate-credit-facility.) The ETF buying program provides additional support to markets by indirectly purchasing credits that are excluded from the SMCCF guidelines, including banking and noninvestment-grade bonds. The ETF provision says the Fed’s agent is empowered to select both investment-grade and high-yield ETFs, as long as most of the constituents are U.S. issuers. What’s more, by providing liquidity to ETF markets, the program likely helped to mitigate systemic credit risk resulting from bloated bank balance sheets. THE FEDERAL RESERVE

TO UNDERSTAND WHICH constituent bonds and sectors may benefit

most from the Fed’s ETF buying, use Bloomberg’s Portfolio & Risk Analytics (PORT) and Fixed Income Worksheet (FIW) functions. FIW is Bloomberg’s most robust credit-relative-value workflow platform, enabling you to quickly identify bonds from large populations of securities. (This article is the eighth in a continuing series on FIW. To see the others, go to {NSN QCPK8RT0G1KW <GO>}.) First, before we delve further, consider that the Fed’s aim is to provide broad market stability. During this crisis, the Fed has needed to ensure that market liquidity remains available and that banks are able to provide it. Given banks’ role in the ETF creation and redemption process, providing support to ETFs would bolster banks in addition to the constituents in the corporate bond ETFs. In March the balance sheets of banks and dealers quickly ballooned as the pandemic spread. To track the Fed’s data on corporate bonds held by primary dealers, go to {FED <GO>} (FIG. 1). In the Toolbox section of the screen, click on ECST Balance Sheet Items. Then, in ECST, under Monetary Sector, click Primary Dealer Transactions. Click on the Net Outright Position tab. Scroll down to the Corporate Securities item in the table and click on the chart icon to the right of it (FIG. 2). Charting this PDPPCRP2 Index shows dealer

holdings of corporate bonds spiking to almost $40 billion in March, from about $15 billion—an increase that raised risk to the system. In normal market conditions, the banks could have used the ETF creation process to package corporate bonds in exchange for ETF shares. But the ETF markets were stressed, and net asset values and ETF prices diverged significantly—especially when bond ETFs dropped more than 20% during March lows. Consider LQD, BlackRock Inc.’s iShares iBoxx $ Investment Grade Corporate Bond ETF. To chart it in the Premium/Discount Analysis function, run {LQD US <Equity> NAV <GO>} (FIG. 3 ). You can see that ETF outflows and selling pushed the discount—the difference between the price and NAV—to -5% in March. Other ETFs experienced even wider discounts. That posed risk to the markets and banks. By supporting ETFs, the Fed was able to reduce credit risk on ballooning bank balance sheets. look at the SMCCF program. The Fed’s H.4.1 report is a weekly statistical release that provides a consolidated balance sheet for the 12 Federal Reserve Banks. To view the H.4.1 data, go to {FED <GO>} again and click on Balance Sheet under Aggregates on the left-hand side of the page. Scroll down in the table to the Corporate Credit Facility LLC item. The May 15 data showed $305 million of holdings, and as of May 22 that had risen to $1.8 billion. The following week, though, the amount had jumped to $34.8 billion. Essentially, this jump came because a slug of Treasuries was added to the Corporate Credit Facility line item: The May 28 release explained in a special note that 85% of the Treasury Department’s $37.5 billion backstop, which must be invested in Treasuries, was reported in the CCF. So to calculate the amount of ETF and corporate bond holdings, you have to subtract $31.875 billion from the reported CCF amount. To see the ETFs that the Fed had reported purchasing, go to {FED <GO>} again. Under Covid-19 QE Measures in the upper right, click on HTTP Fed Reports to Congress. Then on the web page, scroll down to the Secondary Market Corporate Credit Facility section and click on the latest Transaction-specific Disclosures XLSX link. For an overview of Fed holdings, click the Position Summary ETF tab (FIG. 4). (The ETF holdings are also available by running {8765Z US <Equity> HLDR <GO>}. Select Equity for Show Asset Type.) Sort by market value. As of the June 28 report, the top holdings were LQD, VCSH, VCIT, IGSB, and JNK—four investment-grade ETFs and one high-yield ETF. (Note: These are also among the largest corporate bond ETFs, which you can see by running {ETF <GO>}.) LET’S TAKE A CLOSER

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Fig. 1 For a trove of information you can use in your analysis, go to {FED <GO>} for the Federal Reserve function.

Click here to track data from the Fed’s H.4.1 reports on the consolidated balance sheet of the 12 Federal Reserve Banks.

For Covid-related balance-sheet items, click here.

Click here for the Fed’s reports to Congress, including detailed information on the central bank’s ETF purchases and holdings.

Fig. 2 To track the Fed’s data on corporate bonds held by primary dealers, run {FED <GO>} and click on ECST Balance Sheet Items in the upper right of the screen.

Dealers’ holdings of corporate bonds spiked in March as the pandemic took hold.

Click here and then on the Net Outright Position tab.

Fig. 3 Go to {LQD US <Equity> NAV <GO>} to chart the divergence between the price and net asset value of the iShares iBoxx $ Investment Grade Corporate Bond ETF.

In the March dislocation, the ETF traded at a 5% discount to the value of its holdings.

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Fig. 4 To download a spreadsheet with details on the Fed’s ETF purchases and holdings, run {FED <GO>} and click on HTTP Fed Reports to Congress. In the web page that appears, scroll down to the SMCCF section and click on the Transaction-specific Disclosure XLSX link.

Click here for a summary of the Fed’s holdings.

The Fed’s holdings roughly correspond with the largest U.S. corporate bond ETFs.

Fig. 5 To analyze the composition of a selected ETF, run {HLDR <GO>}.

In this case, LQD is 31% financials. Click here and select Sector to view the sector weightings.

Fig. 6 Run {FIW <GO>} and load the LQD ETF by typing its ticker in the field in the upper left and clicking on the match.

To group by sector and country, select BClass Level 4 and Country of Risk.

U.S.-based issuers accounted for only 316 of the 471 banking bonds in the ETF.

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Fig. 7 To look at how sector spreads have changed since the Fed’s announcement of additional stimulus, use the Axes: Y drop-down to specify change in G-spread since April 9.

The average G-spread for the banking group tightened by 80 basis points from April 9 to June 25.

Let’s take a look at the investment-grade ETFs. To find out what sectors are held by a selected ETF, you can use the Holder Ownership (HLDR) function. To analyze LQD, run {LQD US <Equity> HLDR <GO>}. Use the drop-down to the right of Group By and select Sector, and you can see that LQD is composed of about 31% financials (FIG. 5 ). Following similar steps shows that VCSH, the Vanguard Short-Term Corporate Bond ETF, is 42% financials. VCIT, the Vanguard Intermediate-Term Corporate Bond ETF, is 37%, and IGSB, the iShares Short-Term Corporate Bond ETF, is 40%. The financials sector, of course, encompasses a number of subindustries. For more detail, you can use the PORT function. Go to {PORT <GO>} and use the top left drop-down to load LQD. Click on the Holdings tab and on the Main View subtab if it isn’t already selected. Use the drop-down to the right of By to select Bloomberg Barclays Level 4 to see the sector composition of the ETF. Banking accounted for more than 24% of the holdings of the ETF. Next, use the same drop-down to select Issuer, then sort by % Wgt or Mkt Value columns. As of late June, Bank of America Corp. accounted for the biggest chunk of the ETF. Of the top 10 issuers held by the ETF, six were banks. Another byproduct of the ETF buying program is that other credits—including non-U.S. corporate and bank issuers and lowerrated credits—will get some of the benefit. Let’s take a look at LQD in FIW to view its constituent bonds by country of risk, sector, and spread information. Run {FIW <GO>}, enter “LQD US equity” in the field in the upper left, and click on the matching item to load the ETF. First, you can see in the Facets panel on the left side of the screen that banking bonds outnumber those of any other BClass Level 4 sector. Use the Group By drop-downs to select BClass Level 4 and Country of Risk. Then click on the Bond List tab and on the Pricing subtab. Right-click on a heading such as Airlines and select Collapse

All, then expand Banking. As of late June only 316 of the 471 banking bonds were issued by U.S.-based banks (FIG. 6). From our analysis in PORT, we’d noted that six of the top 10 holdings in the ETF were banks: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs Group, and Morgan Stanley. In FIW, to visualize how these six banks account for the major exposure of the ETF to the banking sector, click on the Bond Chart tab. In the Facets panel, tick United States under Country of Risk and Banking under BClass Level 4. Use the Group By drop-down to select CAST Ultimate Parent (you may need to click on [More Options] and search for CAST). Then right-click on the chart and select Collapse All Groups. Using FIW, you can also see how the Fed’s announced corporate bond stimulus initiatives have helped all bonds and sectors. Although banks are excluded from the SMCCF program, the six major U.S. banks, in addition to non-U.S. banks and other major issuers in the market, may have indirectly benefited. Untick United States and Banking in the Facets panel. Use the Group By drop-down to select BClass Level 3. Right-click on the chart again and select Collapse All Groups. Next, let’s look at how G-spreads have changed since the stimulus was announced on April 9. At the top of the chart, use the drop-down to the right of Axes: Y to select More… . In the Customize Spread window that appears, select G-Spread, Change, and Custom Dates and set the first date to 04/09/20. Click on Close (FIG. 7). You can apply a similar analysis to the high-yield ETFs. When you analyze JNK, you’ll find that almost all of the securities in the ETF are rated Ba3 or lower. Gee is a credit market specialist, Oomman is a fixed-income business manager, and Palucci is a fixed-income advanced specialist at Bloomberg in New York.

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Central Banking

A New Tool for Fighting the Next Recession By EMILY BARRETT

that shut down economies around the globe showed how crucial—and difficult—it is to get money swiftly to people who need it most in a crisis. Former central bank officials Simon Potter, who led the Federal Reserve Bank of New York’s markets group, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, are among the innovators brainstorming solutions. They propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments. Coronado, president and founder of MacroPolicy Perspectives LLC, and Potter, nonresident senior fellow at the Peterson Institute for International Economics, spoke with Bloomberg Markets to explain their idea. THE CORONAVIRUS PANDEMIC

B LO O M B E R G M A R K E T S :

How would recession insurance

bonds work?

Congress would grant the Federal Reserve an additional tool for providing support—say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households’ apps. And so instead of these gyrations we’ve been going through to get money to households, it would happen instantaneously. SIMON POTTER: It took Congress too long to get money to people, and it’s too clunky. We need a separate infrastructure. The Fed JULIA CORONADO:

could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more. The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side. BM: Aside from speed, what are the main advantages of this approach? JC: It’s the most efficient from a macroeconomic standpoint in supporting spending and confidence. The fear of unemployment acts as an accelerant on a recession. There’s a shock—people are losing their jobs or worry about losing their jobs. They get very risk-averse. [By] getting money to consumers you can limit the depth and duration of a recession. And you could actually generate real inflation. It could be beneficial for not only avoiding negative rates but creating a more healthy interest-rate market, a more healthy yield curve. BM: What are the origins of the idea? JC: The Bank of England has proposals for digital currency. And a number of people have talked about the need for monetary financing—the idea that the interest-rate tool is simply less effective in lower growth, slower credit growth economies. Helicopter money [making direct payments to the public] goes back to Milton Friedman, but Ben Bernanke revisited it. Some people proposed doing that through financing fiscal stimulus. We think going directly to consumers is more efficient than wading through that sticky fiscal process.

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Coronado

This policy could be complementary to Treasury stimulus? It’s not a replacement for fiscal policy. It makes sense from a fiscal perspective, for example, to authorize unemployment insurance benefits for people who lose their jobs and other assistance for medical-care providers in the current situation. SP: The central bank is not elected. It cannot make allocation decisions about fiscal transfers. It’s now being pushed to make allocation decisions around credit with the Treasury, because we believe this situation is so unique that the private sector cannot make those decisions itself. The simplest way to do this would be a lump sum. Not in the way Congress did it. We’d take the bluntness of monetary policy and say anyone who’s eligible should get the same amount of bonds. Fiscal controls could use the same infrastructure. The imperative to invest in it is high. Nearly all Treasury payments at some point touch the Fed because it’s the Treasury’s bank. The digital payment providers—called interface providers in the Bank of England proposal—would manage these accounts and link them to the Fed and Treasury. BM: What are the objections from the Fed, and other challenges? SP: The reaction from some of my former colleagues a while ago to the notion of helicopter money was not the most embracing. Some of those concerns have disappeared. The two objections were related to the switch of deposits in normal times from the traditional banking system into digital accounts and the extra stress in crisis times as people want to get safe. An account with the central bank is safe because the central bank can always print money to honor that claim. A private BM:

JC:

Potter

bank can’t do that because their asset side has all kinds of credit on it. What we’ve created is a narrow bank-type model [narrow banks only take deposits and invest them in the safest assets] that’s small and fit for purpose, with a cap of $10,000 [per person]. JC: One challenge is making it profitable for digital providers. We want strict limitations on the fees so we’re reaching people that are underbanked, but we also want a public-private partnership with a diversity of competitors jumping into this market. Privacy is just as important, because one thing that might induce them is access to people’s data. As the Fed, are you blessing that, and what structure do you put around that? SP: We’ll all have to deal with deep questions of privacy in the digital world. One of the issues Congress had in passing the Cares Act is identifying who’s got mainly tip income, who doesn’t have sick days. If society wanted, you could use large datasets to direct fiscal transfers to those people. But that’s a job for Congress. BM: Have you seen similar trials elsewhere? SP: Sweden is a leader in thinking about this in part because they had a large decline in cash use. China is testing versions of digital currency. Fintech firms in the U.S. are interested in this— there’s a stable coin version of our proposal. There’s easily sufficient innovation within the U.S. to do this. How to do it in a way that’s well regulated and serving the public purpose is something the Fed should focus on over the next few years. It would be a key accomplishment of the Fed and Treasury to get this infrastructure in place. Barrett covers rates and foreign exchange markets for Bloomberg News in New York.

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Cross-Asset Analysis

Looking for Value Across the Capital Structure By FINN BARRY, KAI BLATNICKY, ROWAN DAIKSEL, and STEVEN GEE

MARKET DISLOCATIONS have offered unprecedented opportunities

in both equities and credit this year. You can use Bloomberg’s equity screening tools to identify potential upside in stocks. Then, taking the companies you’ve identified, dig deeper into their capital structure to see if debt offers better risk-return characteristics than equity. This analysis can help you find the best investments. First, run {EQS <GO>} for the Equity Screening function. EQS lets you screen for securities that match the criteria you specify. For a ready-made search that identifies companies in the Russell 3000 with higher leverage but relatively strong cash positions and positive and improving earnings, run {EQS /SAMPLE 17067745 <GO>}. (To use this screen later in our analysis, let’s save it. Click the Actions button, select Save As, give the screen a name such as “Leveraged Performers,” and click on the Update button.) Once you’ve saved the search, you can customize and filter for your own criteria. In addition to the criteria you use to winnow your list, you can also add “no condition, display only” metrics that enable you to rank securities in the results. To view the results of your screen in the Watchlist Analytics function, click on See Results | WATC. Here, we ranked by S&P credit rating to target B, BB, or BBB credits, for example (FIG. 1 ). 1.

We’ve also added columns that will show returns since the March 23 market bottom and the upside to analyst price targets. To dig into the characteristics that matter the most for a particular stock or for a list of securities, run {DRIV <GO>} for the Drivers function. One of the BB-rated companies that shows up in our screen is DaVita Inc. To analyze the Denver-based kidney dialysis company, run {DVA US <Equity> DRIV <GO>} (FIG. 2 ). DRIV shows that DaVita had more positive than negative key characteristics. The best factors for this stock as of early June were low dispersion of revenue estimates, high return on equity, and high three-month sales revisions. Rankings of characteristics are based on a 10-year historical backtest. You can change the backtest time frame by hitting the pencil icon next to United States. To understand the table, let’s look at the top characteristic: low revenue estimate dispersion for FY1. The green “Low” indicates which direction is preferred for that factor and that DaVita ranks low on the characteristic: Its dispersion was only 0.7%, compared with the median of 3.5% for the company’s peers. That information is displayed graphically in the Range column. The % Rank column shows that DaVita ranked in the 9th percentile for the metric among all companies in the United States model; among the company’s peers, the median rank was 58th percentile. The last columns indicate the preferred characteristic signal—“Low” in this 2.

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Fig. 1 For a ready-made screen that identifies Russell 3000 companies that are highly leveraged but with a comparatively strong cash position and positive and improving earnings, run {EQS /SAMPLE 17067745 <GO>}.

Click here to sort the list by rating.

This metric calculates the percentage change from yesterday’s price to the median analyst target price.

Fig. 2 Run {DRIV <GO>} to analyze the characteristics that have been driving the performance of a selected stock.

For DVA, low dispersion of revenue estimates was the strongest favorable driver of performance.

case—and the strength rank of the score, which is shown by the decile bar icon to the right. Click on the icon to view the underlying historical factor backtests in the Factors to Watch (FTW) function. (Bloomberg LP Chairman Peter Grauer serves as lead independent director at DaVita.)

OK, so let’s say you have an EQS screen of companies you’re interested in. How can you compare the companies’ stocks with their bonds in a systematic way? The first step is to run {SRCH <GO>} for the Fixed Income Search function. In the top portion of the screen, click on Sources. Then select Equity Screen and Leveraged Performers and click on Close. There were 198 active bonds issued by the 52 companies in the equity screen as of midJune. Under Additional Analysis Options at the bottom of the 3.

screen, click on Evaluate Pricing | FIW. That opens up the results in the Fixed Income Worksheet function. FIW lets you quickly analyze large universes of securities to find relative value. Click on the Matrix tab if it’s not already selected and you can get an overview of bonds issued by this group of companies. Use the dropdown to select OAS and you can view the average option-adjusted spread by rating and maturity (FIG. 3 ). Refine your list by clicking on the Bond List tab. To filter for bonds trading at a price below 100, you can type “<100” in the amber field at the top of the Price column. Similarly, to look at bond spreads trading at wider than the average OAS of about 300 basis points— type “>300” in the field in the OAS column. (To edit columns click on the pencil icon on the upper right side.) Next, click on the 4.

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Fig. 3 The Matrix tab in FIW lets you get an overview of average option-adjusted spreads for groupings bucketed by rating and maturity.

Click here and select OAS for a snapshot of average optionadjusted spreads by rating and maturity.

Fig. 4 Click on the Bond Chart tab for a graph that you can use to analyze your list of bonds.

Click here and select More… to chart a customized metric such as 1-month change in OAS. This Centene Corp. bond has widened more than 80 basis points.

This DaVita bond has tightened more than 120 basis points in the past month.

Relative Value subtab. To look at the recent performance of these bonds, you can use the dropdown menus at the top of the table to filter by changes in OAS for the period of your choosing. Click on the Bond Chart tab for a graph that can be helpful for spotting outliers—bonds that are viewed as particularly risky by the market, for example. You can also use the chart to examine changes in spreads over a particular period. To examine a customized metric such as the change in OAS over the past month, use the dropdown to the right of Axes: Y to select More … In the Customize Spread window that appears, select Option Adjusted Spread, Change, and set the Over field to “the past 1 month.” Click Close and you can see which bonds have tightened or widened over the past month (FIG. 4 ). 5.

When you’ve identified a security such as the Centene Corp. bond that widened more than 80 basis points in the past month, you can compare it with another. To do that, click on it, then press Control and click on another bond, such as the DaVita instrument. Then right-click on it. In the menu that appears, click on Two Bond Historical Spread Analysis and then on HS - Historical Spread Analysis. The analysis can help you to possibly identify trends and pick out the most promising opportunities. 6.

Barry is an equity advanced specialist at Bloomberg in San Francisco. Blatnicky is an equity market specialist, Daiksel is a commodities advanced specialist, and Gee is a credit market specialist, all at Bloomberg in New York.

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Factor Analysis

Upbeat Management Sentiment Is One of the Strongest Indicators of Outperformance By ADAM LYNNE

Fig. 1 To see the key characteristics that drive McDonald’s stock, go to {MCD US <Equity> DRIV <GO>}.

McDonald’s Management Sentiment grade was A, while the median for its peer group was C.

Click here to see how Management Sentiment compares with all other characteristics in the Factors to Watch (FTW) function.

management commentary was among the most positive of U.S. companies filing earnings in the first quarter. That’s important, because management sentiment has been one of the strongest indicators of stock performance over the past 10 years. Bloomberg’s new automated ranking of management sentiment is embedded in the equity analysis tools Drivers (DRIV) and Factors to Watch (FTW). DRIV is a customizable scorecard that shows you the pros and cons of a stock. The proprietary scores are based on the ratio of positive words to total words in the Management Discussion & Analysis section of 10K and 10Q filings and are available within seconds of the posting of filings on the U.S. Securities and Exchange Commission website. Grades of A, for most positive, to E for least positive, are assigned to each company. To see the key characteristics that matter most for McDonald’s stock performance, run {MCD US <Equity> DRIV <GO>}. For McDonald’s, the No. 1 most favorable characteristic as of mid-June was Management Sentiment (FIG. 1 ). Reading across the top line in DRIV, you can see that McDonald’s grade was A. By comparison, the median of its competitors—the BI North American Restaurants MCDONALD’S CORP.’S

peer group—was C. The range bar shows that grades ranged from E to A in the group. Click the range bar to see that it was Wendy’s Co. that had a score of E. The Rank vs. U.S. column shows that McDonald’s Management Sentiment was higher than that of 99% of U.S. companies overall. In addition, the restaurant peer group’s median fell at the 53rd percentile of all U.S. companies. Why should you care? Click on the Strength bar in DRIV to compare Management Sentiment to all other characteristics of U.S. companies in the FTW function. The Management Sentiment Factor was the seventh-strongest measure predicting outperformance in the U.S. over the past 10 years. Its Composite score— 87 out of 100—is based on three statistics that determine if a given metric is useful in generating outperformance. Click the Sharpe column header. Management Sentiment has the strongest riskadjusted performance of all factors in the U.S. To see the stocks with the highest Management Sentiment scores, click the blue View Securities link at the top of the chart. Lynne is an equity product manager at Bloomberg in New York.

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Portfolio Diversification

Find a Manager OutsideYour Normal Circle By ZACHARY ERRICHETTI

Fig. 1 To see what kind of managers investors are looking for, run {MNDS <GO>}.

Click here to see the location of investors with open mandates.

often seen as a hallmark of good investing. But adding something different to your portfolio might require looking outside your existing network of money managers. This can be a daunting task for both new and experienced investors. Where do you start searching? Some Bloomberg clients have already discovered MNDS <GO>. You might not have heard of Bloomberg’s mandates function, and there’s a reason for that: It’s discreet. MNDS is an exclusive, permission-based service that allows allocators to connect directly with select alternative hedge fund and private market fund managers, based on specific search criteria. Allocators work with Bloomberg’s mandates account managers to craft a profile of their investment needs or intent to invest in certain criteria. The criteria could be based on the particular fund strategy employed, with minimum requirements for a track record or performance history, or even individual characteristics that distinguish a manager. DIVERSIFICATION IS

The mandates team reviews managers individually and requires each one to have an up-to-date fund ticker on the Bloomberg terminal. Once fund managers are permissioned for the mandates platform, they can find allocators who are looking for their ideal match. The MNDS homepage contains screening criteria including fund strategy, manager location, and keyword search. Managers simply input details about themselves and their funds to find the right investors. Results appear on the bottom half of the screen, showing all of the allocators’ mandates that are compatible. From there, managers can click on the mandates to see the allocators’ full set of requirements, details on typical due diligence, and contact information. Over the past year, MNDS has recorded a growing number of allocators who are seeking managers with a focus on environmental, social, and governance (ESG) factors. Profiles with the keyword “ESG” doubled over the course of 2019 (when

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Fig. 2 Managers can filter MNDS by type of investor or mandate specifications to find opportunities.

You can narrow your search of mandates by inputting keywords such as â&#x20AC;&#x153;ESG.â&#x20AC;?

For this example we chose Government Pension as the Investor Type here.

Fig. 3

Must Love ESG Investors looking for managers who apply environmental, social, and governance strategies, as measured by mandates tracked by Bloomberg 50

0 8/1/16

7/1/20

Source: {MNDS <GO>}

measured as a percentage of overall open mandates) and have remained a popular requirement in 2020. While diversity of investment styles is an important criteria, some allocators are also seeking more diversity among the people who are managing their money. You can find allocators who are looking for minority-run asset managers by adding MWBE (which stands for minority/women-owned businesses/enterprises) as one of your screening criteria. All of these filters help connect allocators with the right managers, saving time and resources in discovery. Allocators who wish to set up a profile and access MNDS should contact a Bloomberg mandates representative at mandates@bloomberg.net. Errichetti is a data analyst covering alternative investments at Bloomberg in London.

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A Guide to the U.S. Dollar’s Leading Rivals By GARFIELD REYNOLDS

to become the dominant currency started after World War I, but it was only definitively confirmed by the Bretton Woods accord reached in 1944. President Trump has accelerated America’s turn away from some of the post-World War II global architecture that reinforced the U.S. currency’s place at the heart of international systems. His tendency to pursue a unilateral approach could reduce the dollar’s appeal. When previous leaders moved to weaken the dollar, they did so as part of a consensus shift aimed at redressing global imbalances—most notably with the 1985 Plaza Accord. Last year, global reserve managers cut their U.S. currency holdings as a percentage of their total stockpiles close to the lowest level since the 1990s, International Monetary Fund data show. That may have helped fuel the rush into dollars that occurred as the coronavirus pandemic spread in March, so the next IMF release could reveal a rebound in dollar holdings. But the severity of that dash into the U.S. currency helped drive up volatility in currencies such as the Australian dollar, Korean won, and Mexican peso when the Federal Reserve waited four days after taking emergency liquidity actions on March 15 to extend swap lines to those nations. The Fed has added almost $3 trillion to its balance sheet since February. Traders have bet Chair Jerome Powell would follow the central bank’s prolific quantitative easing program by cutting benchmark rates below zero. Though he has said that’s not appropriate for the U.S., he’s declined to specifically rule it out. Add a federal budget deficit that’s set to triple to $3.7 trillion, and you have reason to doubt the dollar as a long-term store of value—a crucial factor for any currency, let alone a global reserve currency. “The fact that the global financial system runs on dollars and that the Fed is central to its operation—those things haven’t changed, and those facts have been underscored and reinforced in the early stages of the crisis,” says Barry Eichengreen, a professor of economics and political science at the University of California at Berkeley. “At the same time, I think what the crisis and those dollar-related facts have raised are renewed concerns about the mismatch between the dollar-centric international financial system on the one hand and a THE DOLLAR’S RISE

multipolar world on the other. That’s an uncomfortable situation.” While it seems hard to imagine the dollar losing its place as the world’s reserve currency, a glance at history tells us it’s far from impossible. The Dutch guilder filled the role in the 17th and 18th centuries, before the Spanish dollar took over, followed by the pound sterling from 1860 until at least 1914. In each case, the nation’s domination of global trade and finance was key to the currency’s status, though central banks and regulatory maneuvers played a role. The dollar still dominates currency reserves and transactions, but its power is weakening (FIG. 1 ). In global trade, the U.S. lags behind the euro zone and China in overall volume of exports and imports, IMF data show. So it seems like a good time to review the leading alternatives to the dollar, even if none appears ready to knock it off its perch just yet.

Gold “Money is gold, and nothing else,” John Pierpont Morgan testified to the U.S. House of Representatives’ Bank and Currency Committee in 1912.

Gold’s allure as a global reserve currency is that it can’t be written into existence. That removes the risk that the government rolls its printing presses to fund spending, a practice that’s brought on hyperinflation and destroyed currencies throughout history. The only way to increase the global supply of gold is to dig up more. That’s difficult and expensive, leading to remarkably stable long-term inflation rates. A favored anecdote is that an ounce of gold bought the same amount of bread (350 loaves) in the Babylon of 562 B.C. as it did in 1998, when economist Stephen Harmston took a look into the metal’s properties as an inflation hedge. Gold is also free of counterparty risk. Fiat currencies derive their value from the creditworthiness of the issuer. That means PROS :

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Fig. 1

King Dollar Average daily foreign exchange turnover by currency* U.S. dollar

Euro

Japanese yen

British pound

Chinese yuan

Other

$12t

0 2001

2004

2007

2010

2013

2016

2019

*Amounts equal twice the annual turnover because each transaction involves two currencies. Source: Bank for International Settlements

their value can be eroded by economic or political policies pursued by the country or group of countries that backs the currency. Gold, by contrast, has an intrinsic value. Not only is it a sought-after ornament, but it’s also useful as an inert, pliable electric conductor. These attributes prevent its value from falling to zero.

Gold’s scarcity removes a key central bank policy tool. If central banks can’t control the money supply, they can’t respond to changes in aggregate demand. Adherence to the gold standard has been blamed for exacerbating deflation and causing the Great Depression. Most of the world’s governments abandoned goldbased money systems over the past century to gain flexibility in managing economic difficulties. In the modern world, where money moves at the speed of light, sending shipments of gold to settle sovereign debt has become impractical. �Eddie van der Walt CONS :

The Japanese Yen The yen has ranked among the world’s top reserve currencies for decades. It made up almost 6% of official foreign exchange reserves last year. Japan’s $9.5 trillion sovereign debt market trails only the U.S., data from the Bank for International Settlements show, providing investors with access to a deep liquidity pool. Japan’s self-reliance is also a draw. The country has persistent current-account surpluses and the world’s largest savings pool. Japanese households held 1,903 trillion yen (more than $17.5 trillion) of assets at the end of 2019. PROS :

The Bank of Japan’s massive asset purchases—the central bank owns almost 44% of the nation’s debt, far outweighing the Fed’s or the European Central Bank’s bond buying—have distorted markets. Negative interest rates have failed to overcome persistent CONS :

deflation, damping the appeal of Japanese assets. The yen slid as a proportion of global reserves after the BOJ introduced quantitative and qualitative monetary easing in 2013, though it has clawed back some market share. Japanese policymakers may resist anything that causes strong currency appreciation, preferring to keep its exporters—the backbone of its economy—competitive in world markets.

The nation’s economy has been eclipsed in the past decade by China. Japan’s rapidly aging and shrinking population has contributed to an economic slowdown, and even negative interest rates haven’t shaken its tendency toward high savings and low investment. Prime Minister Shinzo Abe has pursued reforms designed to restore growth, known as Abenomics. To make up for the labor shortage created by the shrinking workforce, the government has welcomed foreign workers. Still, cumbersome immigration policies have kept their numbers limited to 1.5 million in 2019. Japan’s wariness about yen strength could be the biggest obstacle for the currency. In 2011 the country sold more than 14 trillion yen (worth about $185 billion at the end of that year) to halt a surge to a post-World War II record of 75 yen per dollar. �Ruth Carson and Chikako Mogi THE BIGGER PICTURE :

Special Drawing Rights The appeal of Special Drawing Rights, or SDRs, lies in their international pedigree. They were created—and are backed—by the International Monetary Fund. In that sense they match the multipolar nature of the world economy. They’re accessible to almost all nations and are based on an adjustable basket of key currencies. Wider use of SDRs as a reserve currency would reduce developing economies’ need for foreign exchange reserves as “self-insurance.” PROS :

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Fig. 2 A chart of the dollar alternatives’ performance shows that gold and Bitcoin have been outliers during the past year.

SDRs became a go-to reserve asset when the dollar fell 34% vs. the yen and 23% against the deutsche mark in the two years ended Dec. 31, 1978. And from 2009 through 2011, the IMF boosted the SDRs available to member nations to ensure adequate global liquidity. CONS : In their current form, Special Drawing Rights can’t be used

as a direct medium of exchange. Countries receive allotments from the fund, but they need to sell the SDRs to another country, or the IMF, to obtain actual currency. Outstanding SDRs were worth only $281 billion as of March 2020, a fraction of the $11.8 trillion of total central bank reserves. The IMF’s role gives the U.S. effective veto power over SDR allocations. And there’s no central bank to redress imbalances. Suspicion of the IMF has increased around the world amid a growing awareness of the downsides of globalism. So a currency explicitly backed by the institution could be a political nonstarter.

The Euro From its birth at the dawn of the millennium, the euro inherited the deutsche mark’s position as a key rival of the dollar. Its standing has grown with the expansion of the euro zone to 19 countries. Today the euro is used in a third of all foreign exchange transactions, behind only the dollar. The bloc accounts for almost half of global trade, and its economy is tied for second place with China at about $13 trillion. (The U.S.’s economy is worth $20 trillion.) The euro is the second-most-widely held currency in foreign exchange reserves, and the euro zone has the third-largest sovereign debt market, behind the U.S. and Japan. The euro has its own central bank, and as a currency used by a diverse set of sovereign nations, it’s a more multilateral medium of exchange than the dollar. PROS :

The euro is still recovering from a near-death experience. In 2011 to 2013, policymakers in Greece and Italy came close to exiting the shared currency rather than accepting the austerity measures attached to bailout packages. That highlighted a flaw in the euro: the lack of a shared fiscal policy to match the European Central Bank’s monetary powers. Richer countries in the north didn’t want to subsidize the poorer nations in the south. Until there’s a solution to that, the currency will struggle to challenge the dollar’s credibility among world markets. The region’s relatively weak economic performance, often blamed on bureaucracy and a lack of innovation, also limits the currency’s appeal. CONS :

THE BIGGER PICTURE : SDRs were set up in 1969 as a reserve asset

that could act as a substitute in case of a shortfall of dollars. Unlike most dollar rivals, the SDR was explicitly designed as an alternative to the U.S. currency. “The SDR—created 50 years ago to supplement IMF member countries’ official reserves—is the only true global money, backed by all IMF members,” Jose Antonio Ocampo, a professor at Columbia University who previously served as finance minister and central bank board member in Colombia, wrote on the fund’s website last year. “A more active use of this tool would significantly strengthen the IMF’s role as the center of the global financial safety net.” �Garfield Reynolds

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Europe has a habit of taking key steps only when on the brink of collapse. The European Union in July agreed on a €750 billion ($857 billion) recovery fund, to be paid for by selling debt on behalf of the 27 member states. That debt could one day rival U.S. Treasuries, boosting demand for the euro and fulfilling the long-held dreams of policymakers who want a more integrated Europe. The U.S. bond market, which has long seemed impervious to growing government deficits, could be punished by investors known as bond vigilantes if they felt they had another option. “The only thing that can make U.S. bond vigilantes return is a viable alternative to Treasuries or the dollar, and the EU just took a major first step toward producing one,” Tom Essaye, president of Kinsale Trading, wrote in a note to clients. It’s not a problem for now, he said, but “the euro could challenge the dollar.” �John Ainger THE BIGGER PICTURE :

way to go to compete with the dollar, the way the nation surged in the 2000s to become the world’s largest consumer of raw materials shows its capacity for transformation. �Tian Chen

Cryptocurrencies The newest dollar rivals are a bewildering array of decentralized digital tokens, which include Bitcoin, Ether, Tether, Bitcoin Cash, and others. Notoriously volatile and prone to manipulation, they have become infamous for their use in illicit transactions (FIG. 2). But the technology behind them—and its potential ability to reorder global finance—has gained influential proponents, including former Bank of England Governor Mark Carney, Fidelity Investments Chief Executive Officer Abby Johnson, and Facebook Inc. CEO Mark Zuckerberg.

The Chinese Yuan PROS : Like gold, cryptocurrencies aren’t fiat currencies, so there’s

The yuan’s rise is all about the way China has transformed itself into an economic superpower to rival the U.S. China has overtaken the U.S. to become the single largest trading nation, while the IMF estimates China’s gross domestic product overtook the U.S.’s weight in the world economy in 2014, based on purchasing power parity. The nation’s policymakers are determined to raise the currency’s profile, promoting direct trade settlements with Russia and other nations and pushing to add yuan-denominated bonds to major debt benchmarks (including the Bloomberg Barclays indexes). Stock market links with Hong Kong and the Bond Connect program make it possible for global investors to purchase yuan-denominated assets. In March foreign holdings of debt and equities denominated in yuan rose to a record 4.2 trillion yuan ($600 billion). In 2016 the yuan was added to the basket that underlies the IMF’s Special Drawing Rights, an official recognition of its use as a reserve currency. Crude and iron ore futures also now trade in yuan, boosting its value on world markets.

no government with the power to print them. Unlike gold, there’s no need for physical storage, electronic transfers are easy, and encryption offers relative anonymity.

PROS :

CONS : China’s capital controls present a hurdle. Officials tightened

their grip when a shock currency devaluation in 2015 led to an accelerating exodus of funds. The yuan’s value is still closely managed by Beijing, primarily through the central bank’s daily reference rate. The People’s Bank of China’s use of a wide range of monetary policy tools makes the money markets opaque and alienating to outsiders. As a result, the yuan’s global footprint remains tiny relative to China’s economic power. The currency’s share of global payments has stagnated at about 1.8%, according to the Society for Worldwide Interbank Financial Telecommunication (Swift). The yuan makes up about 2% of global FX reserves and accounts for just 4% of foreign exchange transactions. The government is signaling change as it seeks to open China’s financial markets. The PBOC issues an annual report on the internationalization of the yuan, and the government is eager to showcase international cooperation, including its “Belt and Road” investment initiatives. While the yuan has a very long THE BIGGER PICTURE :

Cryptocurrencies have proliferated into myriad coins and permutations of those coins created by splits and forks, meaning that relatively few are being widely adopted as a means of exchange. The best known, Bitcoin, has been particularly volatile. It spiked to almost $20,000 in late 2017, only to plummet to just above $3,000 about a year later, undermining digital currencies’ claims to being a reliable store of value. Crypto’s role in criminal enterprise, where it’s prized for the anonymity it offers users, has hurt its reputation. So have hacking incidents that cost investors their digital fortunes. CONS :

Digital assets have captured the attention of policymakers around the world because of the threat they pose to governments’ power over money. Regulators fret that tokens could move a large swath of economic activity out of their view. The Chinese government, which was early to ban cryptocurrencies, now has a pilot program for an official digital version of its own currency. There are more than 5,000 tradable cryptocurrencies on Coinmarketcap.com. The largest and eldest, Bitcoin, was invented in 2008 and now has a market capitalization of more than $150 billion. Proponents say the technology has staying power, despite the volatility that plagues the currencies. “At the end of the day, trust is really getting broken in the traditional financial system—that’s the theme. The less trust you have in the dollar, the more you want alternatives,” says Tom Lee, co-founder and head of research at Fundstrat Global Advisors. “More and more people are saying, ‘You know what? It’s not such a bad idea to be decentralized.’ ” �Vildana Hajric THE BIGGER PICTURE :

Reynolds is Asia Markets Live team leader in Sydney. Van der Walt is an editor on the Markets Live Europe team in London. Carson is a senior FX/rates reporter in Singapore, and Mogi reports on FX and bond markets in Tokyo. Ainger covers bonds in Brussels. Chen covers China markets in Hong Kong. Hajric covers cross-asset markets in New York.

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Diversification

What Has This Year’s Turbulence Revealed About Cryptocurrencies? By BIANCA YSABELA ANCIANO, CATALINA OLEA, and MARK JORDAN

STOCKS HAVE BEEN on a wild ride this year. The S&P 500 reached

a record high in February, plunged 34% to a low in March, and then rose 40% by early July. If you were looking for diversification, some of the usual asset classes weren’t particularly helpful. Corporate bonds cratered alongside equities in March, and oil futures traded at negative prices in April. What about cryptocurrencies then? For many investors the introduction of Bitcoin futures by CME Group Inc. in 2017 was a key step toward legitimizing cryptocurrencies as an alternative asset class. The futures listing also coincided with the wider adoption of blockchain technology and cryptocurrencies among large retailers and banks. AT&T, Expedia Group, and Overstock.com all accept Bitcoin as a form of payment, and JPMorgan Chase in May took on two Bitcoin exchanges as clients. To monitor prices of Bitcoin and other cryptocurrencies, go to {CRYP <GO>}. The Futures section of the screen tracks trading in the CME Bitcoin contract. In January, CME announced the introduction of options on Bitcoin futures. For investors seeking exposure to Bitcoin without having to directly purchase and hold the cryptocurrency in a virtual wallet, there’s also publicly traded GBTC, the Grayscale Bitcoin Trust. Another way to get crypto exposure is to invest in companies involved with blockchain technology. For that there are

exchange-traded funds such as BLCN, the Reality Shares Nasdaq NexGen Economy ETF; and BLOK, the Amplify Transformational Data Sharing ETF. For these to offer effective diversification from the S&P 500, they’d need to be relatively uncorrelated with equity benchmarks. Is that the case? To find out, there are a number of Bloomberg functions you can use. First, the Regression Analysis (HRA) function can help you look for a correlation coefficient close to zero. (A correlation coefficient of 1 indicates that two prices move in lockstep, whereas -1 means they move in sync in opposite directions. A reading of zero indicates there’s no relationship.) Type “Bitcoin” in the command line and click on the XBTUSD Curncy item in the list of autocomplete matches. Then type “regression” and click on the HRA – Regression Analysis item. The shortcut is {XBTUSD <Curncy> HRA <GO>}. In the Indep field, enter “SPX Index” and click on the match. Click on 5Y to see the correlation over the past five years. Indeed, the correlation coefficient over the five years through July 10 was low: 0.075. How about this year? Click on YTD and you can see the correlation is slightly higher at 0.184 (FIG. 1). To learn how correlation evolved this year, click on the chart icon to the right of R (Correlation). The chart shows a big spike in March. During that month, when the S&P 500 fell 31% from high to low, the price of Bitcoin sank 46%. How about the correlation of the futures and the funds? You

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Fig. 1 To perform regression analysis of Bitcoin against the S&P 500, run {XBT <Curncy> SPX <Index> HRA <GO>}.

Since markets bottomed out in March, the correlation has been fairly low.

Click here to chart how the correlation has evolved.

Fig. 2 Go to {CFND <GO>} to use the Correlation Finder function. Here, we examine the correlation of the S&P 500, Bitcoin futures and funds, cryptocurrencies, and ETFs tracking other asset classes.

This blockchainthemed ETF was highly correlated with the equities benchmark.

can use the Correlation Finder (CFND) function to dig into that. First, create a worksheet with the securities you want to analyze: Go to {W <GO>}, click on the +Create New Worksheet button, select a template, and click on Create. Enter the securities and name the worksheet. Next, run {CFND <GO>} and use the first drop-down to select Security Worksheets. Use the next drop-down to select your worksheet. We ran CFND on a worksheet that included a number of crypto assets and some ETFs representing other asset classes (FIG. 2). Looking at daily data from the S&P 500 low on March 23 shows that the Grayscale Bitcoin Trust had a middling correlation of 0.51. By contrast, the blockchain-themed ETFs had high correlations: 0.93 for BLOK and 0.90 for BLCN. That makes sense—their underlying holdings are mainly financial, technology, and communications stocks. For that matter, this year through July 10, both ETFs significantly

outperformed the S&P 500. BLCN gained 22%, BLOK rose 17%, and the U.S. benchmark was down 2%. Finally, let’s take a look at the correlation of Bitcoin and gold. Run {HS <GO>} to open the Spread Analysis function. In the Buy field, enter “XBT Curncy” and click on the matching item. In the Sell field, enter “GLD US Equity” and click on the SPDR Gold Shares item. Tick the box to the left of Corr, then click on YTD. Before the turmoil in March, the correlation of Bitcoin and gold was about 0.05. Afterward the correlation jumped to a higher level, reaching about 0.35, which suggests that perhaps crypto is gaining legitimacy as an alternative asset class in the Covid-19 era. Ysabela Anciano and Olea are advanced specialists and Jordan is an equity derivatives market specialist at Bloomberg in New York.

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Rates

Libor’s Legacy: A Guide to the World’s New Benchmarks By BORIS KORBY, WILLIAM SHAW, and ALEXANDRA HARRIS

FOR ABOUT 50 YEARS, the London interbank offered rate has helped

determine the cost of borrowing around the world, from student loans and mortgages to interest-rate swaps and collateralized loan obligations. Libor, derived from a daily survey of bankers who estimate how much they would charge each other to borrow, was simple, effective, ubiquitous, and seemingly reliable. As markets evolved, the trading that helped inform those estimates dried up. In the wake of the 2008 financial crisis, regulators discovered that the banks trusted to set the rates underpinning hundreds of trillions of dollars of financial assets had been manipulating them to their advantage. For the past three years, policymakers around the globe have been developing new benchmarks to replace Libor by the end of 2021. The challenge has been to maintain Libor’s accessibility and functionality with a replacement that’s more trustworthy. That’s easier said than done, and some countries and regions have made more progress than others.

U.S.

The Federal Reserve is championing the Secured Overnight Financing Rate to replace dollar Libor, which underpins roughly $200 trillion of securities. SOFR is different from Libor in three key respects: It’s based on real transactions, not just bank quotes; it provides only an overnight rate, whereas Libor offers rates for seven maturities ranging from one day to one year; and it’s a secured rate, derived from repurchase agreement transactions that are collateralized by U.S. Treasuries. Regulators prefer SOFR because a vast amount of trading underpins the benchmark—more than $1 trillion on most days, vs. an estimated $500 million for three-month dollar Libor. That makes it a truer reflection of the cost of capital and less susceptible to corruption. Still, the transition has been uneven. Issuance of SOFR-linked bonds continues to increase, yet the leveraged loan and CLO markets have been slow to shift from Libor, citing the lack of a forward-looking term structure that extends beyond SOFR’s overnight tenor, a

common refrain globally. Greater trading volume in monthly and quarterly SOFR futures is expected to eventually facilitate the creation of additional tenors, producing a curve that reflects expectations for where the rate will be in the future. Another concern is SOFR’s susceptibility to periodic volatility in the market for repurchase agreements that determine the benchmark’s setting. Its lack of a credit component is also a hurdle to wider adoption, some say. Given that Libor is based on the cost of lending between banks, it also reflects counterparty risk, especially when credit conditions worsen. This feature serves an important market function in hedging and securities pricing. SOFR is also facing challengers that offer some of the features that it lacks. The Bank Yield Index was introduced by Libor’s overseer, the ICE Benchmark Administration, in January 2019. The new gauge, developed specifically as a potential replacement for lending activity tied to Libor, has multiple tenors as well as the credit component SOFR lacks. Another alternative, Ameribor, is calculated from the actual borrowing costs between the mostly small and midsize banks that are members of the American Financial Exchange. While the Bank Yield Index isn’t set to launch until later this year, Ameribor futures are already trading on the Cboe Futures Exchange.

Euro zone Euribor, a Libor-like benchmark underpinning more than €180 trillion ($206 trillion) in assets, and the Euro Overnight Index Average (Eonia), its short-term equivalent, have long dwarfed euro Libor as the dominant reference rates in the euro zone. The way Euribor is calculated has changed in recent years, giving policymakers comfort that it can continue beyond 2021. Its so-called waterfall methodology prioritizes bank contributions based on actual transactions over modeled estimates or panel judgments, while a handful of less liquid tenors have been scrapped. Regulators, on the other hand, are ditching Eonia, which had few underlying trades that were dominated by a handful of contributors, and adopting the Euro Short-Term Rate, or ESTR. ESTR draws on money-market transactions that show the

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overnight unsecured borrowing costs of euro-area lenders. It’s underpinned by an average of about 500 daily deals totaling roughly €40 billion, according to recent figures compiled by the European Central Bank, and has a broad range of participants that can include pension funds and insurance companies.

U.K. The U.K.’s Libor replacement, the Sterling Overnight Index Average, has been around since 1997. Sonia, as it’s known, has been overseen by the Bank of England since 2016 and made its debut in a reformed version in 2018. Like ESTR, Sonia measures the rate paid on unsecured overnight funds. The reformed gauge includes transactions negotiated bilaterally between banks as well as broker-intermediated loans. Other modifications included adjustments to the averaging methodology and a new publication time to give the BOE more time to process transactions. It’s used to value about £30 trillion ($38 trillion) of trades each year, according to the BOE. Sterling-denominated derivatives markets are shifting to Sonia. The share of pound-related swaps linked to Sonia is now roughly in line with those tied to Libor. Floating-rate bonds that mature later than 2021 have all but ceased to be tied to Libor. Issuers have also begun to use Sonia to set prices on securitized debt, and the first syndicated loan tied to Sonia was issued in March. British regulators are developing a Sonia term rate as well as pushing lenders and borrowers to amend Libor-based contracts to ensure a smooth transition after it’s phased out.

Switzerland

Switzerland has also leaned on a benchmark born before the Libor rigging scandal. Saron, the Swiss Average Rate Overnight, is similar to SOFR in that it’s based on overnight trades, but in the Swiss francdenominated repurchase agreement market. Saron is based specifically on transactions between financial institutions. While banks are already selling Saron-based mortgages, other credit products are still overwhelmingly priced off of Libor. Until 2019, the Swiss National Bank used Libor to guide the country’s monetary policy. The central bank switched last June to a new benchmark—the SNB policy rate. The bank now implements monetary policy by managing liquidity in Swiss money markets to steer Saron and keep it in line with its benchmark, which at -0.75% is the lowest in the world.

Japan The central bank is leaning on two alternatives to yen Libor, Tibor and Tonar, as it looks to transition about $30 trillion of assets referencing the beleaguered benchmark. Tibor, the Tokyo Interbank Offered Rate, is a version of Libor— with its own rigging scandal a decade ago—that’s overseen by the Japanese Bankers Association Tibor Administration. The group implemented a series of reforms in 2017—including the introduction of a new methodology that relies on actual transaction data or, if that’s not available, refers to similar interbank market rates—to

Fig. 1 Both SOFR and Sonia dropped and then flatlined when the pandemic hit markets this year. By contrast, U.S. and U.K. Libor—the benchmarks they’re slated to replace—were more turbulent.

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Fig. 2 You can use the League Tables (LEAG) function to track issuance in Libor alternatives. Run {LEAG @SOFRISSUANCE <GO>}, for example, to dig into issuance pegged to SOFR.

bolster the reliability and transparency of the unsecured lending rate. Tonar, the Tokyo Overnight Average Rate, is Japan’s shortterm alternative based on transactions in the uncollateralized overnight borrowing market. Regulators are seeking to develop a term structure based on market data for overnight index swaps, which use Tonar as the floating leg. Quick Corp., an affiliate of Nikkei Inc., began to publish prototype reference rates in May to help lay the groundwork for additional terms. A functioning curve is expected no later than mid-2021, Masayoshi Amamiya, deputy governor of the BOJ, said in a speech earlier this year.

Singapore, Australia, Hong Kong

Libor is calculated for just five major currencies—the dollar, euro, pound, Swiss franc, and yen. Still, other countries are reforming their own Libor-like reference rates. Financial-services companies in Singapore are set to adopt the Singapore Overnight Rate Average, which is replacing the Libor-based Singapore-Dollar Swap Offer Rate, that underpins some S$3.5 trillion ($2.5 trillion) of derivative products. The new benchmark, known as SORA, is based on an average rate of unsecured overnight interbank Singapore dollar transactions brokered onshore, whereas the SOR is computed from borrowing greenbacks and swapping them into the local currency. There are signs the transition is well under way: Global

clearinghouse LCH cleared the first local currency interest-rate swaps benchmarked to SORA in May. Down under, the Libor rate for Australian dollars has been discontinued and replaced by the bank bill swap rate, commonly known as BBSW, which is referenced in about A$18 trillion ($13 trillion) of transactions. The critical difference is that the BBSW is based on actual transactions in the bank bill market. The rate was subject to attempted manipulation in recent years, which prompted reforms in 2018 when a new regulatory framework for the financial benchmark was installed. The reforms included the adoption of a volume-weighted average price methodology. The Australian Overnight Index Average, or Aonia, is also gaining traction, with the first floating-rate note tied to the benchmark pricing last year. It’s based on the rate at which unsecured funds are lent in the domestic interbank market. The Hong Kong Dollar Overnight Index Average, or Honia, has been proposed by the Treasury Markets Association as an alternative to the local Hong Kong Interbank Offered Rate, known as Hibor. Honia, like other risk-free rates, is based on unsecured lending transactions in the interbank market—and is thus considered a more reliable benchmark. Still, the Hong Kong Monetary Authority has said it plans to adopt a multirate approach where Honia and Hibor exist in tandem. Korby is a Bloomberg News senior editor in Seattle on the credit team. Shaw is an editor on the foreign exchange and rates team in London, and Harris reports on FX and rates in New York.

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ESG

The Coronavirus Put a Ding In Activism in the First Half By ADAM KOMMEL and ROB DU BOFF

Fig. 1

Top New Campaigns

Top Activists

Biggest companies targeted by activists in the first half of 2020

Biggest investors by value of stakes in campaign targets, first half

Date

Target

Market cap ($b)

Feb. 7

SoftBank Group Corp.

May 15

Activist

Value ($b)

Number of campaigns Largest stakes

$90

Elliott Management Corp., Asset Value Investors Ltd.

Harris Associates

$5.2

Credit Suisse Group AG ($2.8b)*; Daimler ($2.5b)*

$59

Concerned shareholders

Elliott Management

$5.1

Takeda Pharmaceutical Co.

SoftBank Group ($2.7b); Twitter Inc. ($1b)

Nintendo Co.

$56

ValueAct Capital Partners LP

TCI Fund Management Ltd.

$3.1

April 22

Canadian Pacific Railway Ltd. ($2.1b)*; Vinci SA ($1b)

Daimler AG

$49

Harris Associates LP

ValueAct Capital Partners

$2.8

Feb. 20

Nikola Corp. ($1.4b)*; Nintendo ($1.1b)

Feb. 24

Prudential Plc

$48

Third Point LLC

Third Point

$2.3

Prudential ($2.3b)

*Holdings disclosed prior to activist campaign Source: {MMDL 1377062696 <GO>}

ACTIVIS T S HAREHOLDERS sought fewer changes at large-cap companies during the coronavirus pandemic, but efforts to influence small-cap companies continued, according to Bloomberg’s Global Activism Market Review for the first half of 2020. You can download a copy of the review by running {MMDL 1377062696 <GO>} on the terminal. To track activist campaigns, returns, league tables, and more on the Bloomberg Intelligence ESG dashboard, go to {BI ACT <GO>}. The number of new activist campaigns slipped 5%, to 290, in the first half from the period a year earlier, while the combined value of their stakes fell 14%, to $37 billion. This largely reflected changes in the second quarter, when new campaigns declined 5% from the quarter a year earlier and their value plummeted 47%, indicating a major shift toward smaller-cap targets as the Covid-19 pandemic accelerated. The number of campaigns aimed at companies valued at more than $1 billion was down 25% in the first half globally (and 54% in the U.S.) from the first half in 2019, and the number of targets with market caps below $1 billion rose 7% (39% in the U.S.). This partly reflects a reluctance to place large bets amid market volatility.

Other notable shifts include a focus on international markets, with five of the biggest activist targets domiciled outside North America. The three largest were in Japan, and the next two were in Europe (FIG. 1). Goldman Sachs Group Inc. was financial adviser to the largest number of activist targets in the first half, defending against 32 campaigns involving activist stakes of almost $14 billion, more than double the next-closest rival in both metrics. By sector, financials were the most popular targets, with 54 campaigns— almost double the number from a year ago. Only 13 energy companies were targeted amid the rout in oil prices, down 46% from the prior year. Of the 60 total proxy fights resolved in the period, almost half ended in a settlement. Only 13 went the distance. Activists declared victory in four, management won five, and the balance ended in split decisions. Kommel is on the activist data team at Bloomberg and Du Boff is an ESG analyst at Bloomberg Intelligence in New York.

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Impact Investing

Bain Capital’s Greg Shell Says He’s Galvanized by This Moment By KAREN TOULON P H OTO G R A P H BY TO N Y LU O N G

GREG SHELL SEEMS to have been preordained for a life of finance and

civic duty. Born on Tax Day 45 years ago, he attended a school in his hometown of New Bedford, Mass., that was named after William H. Carney, who received a Medal of Honor in 1900 for his service in the all-Black 54th Regiment depicted in the Civil War movie Glory. A graduate of MIT and Harvard Business School, Shell was a portfolio manager at Grantham Mayo Van Otterloo & Co. when Bain Capital LP called in 2016 with an offer to join its new Double Impact fund. “When I got the call a little over four years ago to consider this new strategy Bain Capital was starting, it filled me with a sense of purpose because it integrated all of who I am,” Shell says. The fund, launched by former Massachusetts Governor Deval Patrick, has invested in 12 companies in its areas of focus—health and wellness, sustainability, and education and workforce development. The fund tripled its money on the sale of its first holding, Impact Fitness. Shell spoke with Bloomberg Markets in early July about his investing priorities, recruitment strategies, and life philosophy. What led you to this career path? I can remember a seminal moment in my life when I got tapped to be a part of the talented and gifted program in my elementary school, after the fourth grade. There’s no doubt that message about what I could achieve was quite important. But I had [and still have] this real nagging sense that I’m no more talented or gifted than any of my classmates. And the message that they got—that they were not talented and gifted—probably was a more enduring message. I’ve been so bothered by that, I’ve really worked my heart out on behalf of civic causes of many different types to ensure that human capital in all its forms is given a real opportunity to expand and elevate and self-actualize. I’ve tried to become an expert in the capital markets because I earnestly believe effective investment of capital can help to bring prosperity to people and communities. But as we’re seeing, societal income and opportunity are concentrating. And when opportunity is limited, growth is limited, and our economy is smaller than it should be. Prosperity is not only good for the individual; it’s good for the economy. We have an incentive to push prosperity out into society. KT: What do you make of what is going on in the world right now? The Covid pandemic, the protests against systemic racism, the pledges for change? GS: I feel galvanized by this moment, as perilous as it feels. The KAREN TOULON: GREG SHELL:

message when you read the social mood is basically this: People— even those who play by the rules, go to school, work their way up— are finding that their ability to access the American dream is slipping. The level of unrest that we see is emblematic of a real sense of desperation. And so it requires people who are civic-minded, people who want to be part of solutions, to double down on driving real opportunity further out in society. I look at our firm. If you looked in the city of Boston, you would not find a more philanthropic group or firm than Bain Capital in this community. But I think we understand that this moment really calls for even more than that. KT: I noticed that 50% of Bain Capital Double Impact management professionals are from underrepresented groups. Two of your five managing directors are from underrepresented groups. Why does that matter? GS: One of the things that I love about the culture of Bain Capital is that we feel strongly that talent can come from anywhere. We certainly have focused on it as a fund to go into places where firms don’t tend to usually go. And we found that we didn’t have to sacrifice whatsoever in our ability to field an incredibly talented investment staff. So yes, it is very intentional. So my expectations are high for the results that I think we can get as an industry going forward. KT: Where do you go to find those “best in class” recruits? GS: We’re broadening the number of schools that we recruit from. And we require the companies we work with to share our values. We’ve been clear with the search firms that we will not allow somebody to work with us unless a third of the candidates they bring to the table are from underrepresented groups. We are being more intentional about ensuring that our portfolio companies are more aggressively seeking women and people of color for their boards. KT: Tell me about how you choose your investments. GS: We’ve done 12 investments. Every single business that we’ve partnered with has at its core that duality—they are doing really important things in society, but we saw a chance to grow the business and build a valuable company. I’ll use the case of Rodeo Dental, a pediatric dental business that serves people who are Medicaid-funded instead of private pay. Medicaid-funded businesses expose you to a level of risk around not being reimbursed. That can make it hard for an investor. As a result, you have this enormous market where lots of kids, especially who are low-income or part of the working poor, don’t get access

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Shell

to dental care. That’s not the kind of country we want to live in, where just by virtue of your ZIP code or who you’re born to, or the kind of job that your parents have, you can or cannot get access to the care. There’s a tremendous correlation between oral health and overall health. We found a wonderful group of entrepreneurs who started this business with the idea that they would specialize in the servicing of this Medicaid-funded population. Our job is to support them as they continue to grow and put them in a position to serve many more kids in need. KT: What areas interest you when you look into the future? GS: Personally, I think access to clean water for human use, for agriculture, will be a signature challenge. There are places like sub-Saharan Africa, Israel, the American West, or Australia where access to water is already an acute challenge. I have a deep sense of purpose to work with an entrepreneur

or a management team who’s helping to deliver effective treatment for people hooked on opioids or narcotics of different types. That’s a deeply personal issue that has run through my family. The third example: income inequality. I think about several factors that have affected the average American worker, whether it’s trade or the march of technology and automation and robotics. Or companies just being able to be more productive with fewer employees, or many of the new businesses that are less laborintensive than a generation ago. It is difficult for people, especially young people, to hook onto the mainstream economy and to get the skills that will be required in the future to make an appropriate standard of living. Toulon is a senior writer covering equality and diversity at Bloomberg News in New York.

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Alternative Data

Track Dining, Air Travel, and Covid Stats To Stay Ahead of the Markets By OWEN MINDE, TYLER BORDICK, and MICHAEL DENICOLA

equities this year caught many market professionals off guard. Much of the comeback has been attributed to the stimulus from governments and central banks, especially the U.S. Federal Reserve. So to stay on top of markets you’ll certainly need to watch fiscal and monetary policy, but you may also want to track some alternative high-frequency data. Consider the airline, restaurant, hotel, and leisure industries. These may be among the last to recover, and it’s questionable whether they’ll even get back to precrisis levels. Passenger numbers from the U.S. Transportation Security Administration and dining data from OpenTable are now available on the Bloomberg terminal. You can track the data with automated news stories that highlight changes. Let’s start with air travel. For weekly stories tracking daily passenger numbers in the U.S., run {NI TSACP <GO>}. The June 30 story reported that average daily passenger numbers rose 8% from the previous week. At about 575,000, however, the number was nowhere near the 2.57 million daily average a year earlier. To set an alert for this information, click on the Subscribe to TSA Checkpoint Updates button. Similarly, you might want to track year-over-year seated diners at restaurants on the OpenTable network. To do so, go to {NI OPENTABL <GO>}. To monitor app usage and downloads for six hotel companies, run {NI APPHOTELS <GO>}. To search for TH E PERFORMANCE OF

and subscribe to these types of stories, run {NSUB <GO>} for the News Subscriptions function. For a worksheet that includes much of this high-frequency alternative data, run {W#FFM 21 <GO>}. You can select the data you want and create a custom worksheet in a Launchpad view. For example, let’s set up a simple Launchpad view to monitor the recovery in the U.S. and the U.K., two economies heavily affected by Covid-19. First, to create a new Launchpad view, run {BLP NEW <GO>}. Next, run {W#SPEC 62 <GO>} on a terminal screen for a readymade worksheet that includes data relating to the market impact of Covid-19 in the U.S. To make a copy, click the Options button on the red toolbar, select Export, and click Export as My Security Worksheet. Rename it “US” and hit Update. Repeat the same process for a worksheet on the U.K. recovery by running {W#SPEC 59 <GO>} and saving the worksheet as “UK.” Now run {W <GO>} to view all your worksheets. Tick the boxes next to the US and UK, then right-click and select Open as a Tabbed Launchpad Worksheet to launch the worksheet with the two US and UK tabs. The maximum number of tabs in such a tabbed worksheet is 20. Next, in the <Add Component> field in the Launchpad bar, type “chart” and select Standard Chart to launch a chart. To link it to the tickers in the worksheet, click the paper clip icon at the

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Fig. 1 A custom Launchpad view includes worksheets related to Covid-19 in the U.S. and the U.K., two economies that have been particularly hard hit by the pandemic.

Click on the paper clip icon and use the grouping feature so that data you click on in the worksheet will be graphed in the chart. Click here to modify the chart to graph the net change in daily cases, such as these in Texas.

Click here to track developments in the U.K. You can add as many as 20 tabs in a worksheet.

top of the chart panel and select Create Group. Then click the staple icon at the top of the worksheet and check Group A. Now, whenever you click a ticker in the first column of the worksheet, the chart will graph that data. You can flick between the U.S. and U.K. by clicking the tabs at the top. If you want to track Covid-19 statistics, you can modify the chart to show the daily net change in cases instead of the total. To do that, in the chart component, click on Chart Content. In the sidebar, click the pencil icon to the right of Last Px. Then, in the Settings window, change Last Price to Price Change 1 Day Net. Use the drop-down to the right of Type to select Histogram and hit Update. Now, to graph the number of cases in Texas, click on the SCOVTXCA item under COVID State Stats on the US tab (FIG. 1). Texas accounts for almost 9% of U.S. gross domestic product and could become a swing state in the November elections, making it an important state to monitor. AMONG THE RISKS on market participants’ minds are a second wave

of infections and changes in the central bank and government stimulus. The terminal offers automated news stories for those topics as well. For many individual countries there are virus trackers, such as {NI CVRUSTRKUS <GO>}, which show the changes in cases and deaths in each U.S. state. At the bottom of virus tracker stories are links to additional information such as {DOCS 2093454 <GO>},

which lets you download a spreadsheet with tickers for the raw data and examples of more detailed analysis. To keep abreast of the changes in government and fiscal stimulus, subscribe to {NI VRUSPOL <GO>}. For a deeper dive into the stimulus, you can follow Bloomberg Intelligence’s analysis of the Fed at {NSN QAQIEWT0G1KX <GO>} or see Bloomberg Economics’ research at {NSN QBGCGDDWLU6O <GO>}. These pieces are updated frequently; to see the latest you can subscribe to the content or bookmark the articles by clicking the bookmark icon in the top right-hand corner and then running {BKMK <GO>} to retrieve them. To follow fiscal policy as Congress debates whether to extend more stimulus, run {BILL <GO>}. On a positive note, the market typically rallies on news of a possible vaccine success. The best way to follow this is to type “news on Covid and vaccine” in the command line and press <GO>. You can then set an alert for new stories on the topic. To follow postings on social media, type “tweets on Covid and vaccine” and hit <GO>. To launch these news panels to Launchpad, run {LLP <GO>} and remember to save your Launchpad view. Minde is an FX and economics market specialist and Bordick is an FX advanced specialist at Bloomberg in New York. Denicola is on the economics and geographical data team at Bloomberg in Princeton, N.J.

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Fund Management

For One ESG Data Hunter, The Crisis Shows Companies Profited By Doing Good By ALASTAIR MARSH P H O T O G R A P H B Y K A L P E S H L AT H I G R A

FOR MILLIONS OF BRITONS , March 24 will be remembered as the

lockdown moment when they either lost their job or were told not to come back to work for months. For Andy Howard, it was the day his workload doubled. In addition to running a team of 13 investment analysts at London-based asset manager Schroders Plc, he now found himself caring for four children under the age of 8, housebound as schools and nurseries closed. “The first challenge was, how’s this going to work?” says Howard, whose wife works for the U.K. government and continued to travel to the office. On his first day of confinement, in between mediating arguments about whose turn it was on the iPad, Howard formalized a research project his team had been toying with for a few weeks to look at how companies were responding to the pandemic and treating their workers. With the help of Schroders data scientists, his team gathered information on some 10,000 companies from their public statements, media reports, regulatory filings, and other sources.

Covid-19 revealed a lot about how companies were run and what their managers prioritized. Some laid off workers, while others guaranteed jobs; some offered extra benefits, such as covering employees’ medical costs; still others repurposed operations to assist the Covid relief effort. “There was no time to think strategically about what’s the right thing to do here,” says Howard, 44. “It was a live test of how do they instinctively respond.” As the mass of data accumulated, it revealed something surprising. Companies that responded to the pandemic by hiring staff rather than shedding workers saw an average 18% increase in their share price relative to their peers in the first six months of the year; those that offered financial help to employees did about 5% better. And the stock prices of companies that closed stores and laid off people trailed those of their peers by 10% or more. “Every so often you get events that basically expose what people really care about,” Howard says. “There was an apparently logical course of action, which was to fire everybody, shut up all

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Howard

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your shops, and refuse to pay any bills. Actually, even from Day 1, what was quickly emerging is that was the wrong long-term course of action.” saw this behavior at his own company. Some Schroders fund managers, dissatisfied by a large internet retailer’s efforts to protect its staff during the pandemic, sold their holdings in the company, which Howard declined to identify. The startling conclusions he was reaching in the spare bedroom of his North London home grew out of a career spent asking questions about the best ways for businesses to operate and looking for data, sometimes in unusual places, to find the answers. Howard, whose eclectic background included a stop at a corruption-fighting nongovernmental organization, joined Schroders in 2016 as head of sustainable research and was promoted to global head of sustainable investment in June. His rise at the £471 billion ($599 billion) asset manager coincided with the industry’s growing focus on investments that take into account environmental, social, and governance, or ESG, issues—a niche area that’s expanded into a $30 trillion-plus business. ESG is a salmagundi of often unrelated issues that fall outside the traditional parameters of financial analysis but may still have a bearing on a company’s earnings or share price. In theory, ESG investment focuses on matters ranging from health and safety to gender diversity. But in reality the big money has been drawn to climate change issues in recent years as fund managers and banks increasingly plug the warming planet into their risk calculations. The pandemic changed the ESG dynamic. Then came the Black Lives Matter (BLM) protests following the May 25 killing of George Floyd, which broke out first across the U.S. and soon around HOWARD SAYS HE EVEN

Common Good Debt issued to fund projects with a positive social impact $40b

0 2015

2020*

*Through June 24 Source: {SRCH <GO>}

the world, sharpening attention on racial injustice. Suddenly, social issues such as inequality, workers’ rights, and health-care provision rose in prominence. Fiona Reynolds, chief executive officer of Principles for Responsible Investment, whose signatories include thousands of investment firms, expressed concern in March that the “social” in ESG is “the issue that gets left behind.” That’s changing. “It’s not that the ‘e’ is now in the back seat. It’s that the ‘s’ has climbed into the front seat,” says John Goldstein, the San Francisco-based head of Goldman Sachs Group Inc.’s sustainable finance group. The sudden elevation of social issues has not only exposed ESG managers’ blind spots, but it’s also left them grappling with a familiar problem: finding data they can use to measure a company’s progress. While businesses routinely share information about their earnings, cash on hand, and assets and liabilities, disclosing ESG data isn’t mandatory, and, when the information does see the light of day, it’s often incomplete. And “s” data are hard to pin down. “I don’t think there was ever a point where investors engaged on the topic of ESG were dismissive of the social aspect,” says Steven Desmyter, co-head of responsible investment at Man Group Plc in London. “But you have materially higher challenges when it comes to data gathering, scientific proof, and standardization vs. the ‘e’ and the ‘g.’ ”

in finance as a mining analyst, an unlikely launchpad for a career in sustainability. In the late 1990s and early 2000s, first at a now defunct unit of Commerzbank and then at Deutsche Bank, he spent his days poring over the balance sheets of the likes of Rio Tinto and BHP Group, forecasting how changes in commodity prices, economic growth, and exchange rates might affect profitability. It struck him that whenever he left the bubble of the City of London financial district, he realized there were gaping holes in his analysis. He’d visit a mine, and workers there would go on and on about health and safety. Yet he could stare for hours at the financial statements of the companies he covered and see nothing that pertained to those concerns. Determined to find some answers, Howard quit the City in 2003 and spent a brief period at Global Witness, a London-based NGO that campaigns against the corrupt exploitation of natural resources, where he investigated how digging things out of the ground can unearth the worst in humans. He then did a short stint at McKinsey & Co., where he’d hoped to better understand how companies work, before jumping to Goldman Sachs in 2007, just after the investment bank launched its Sustain research team to focus on long-term sustainability issues. Howard’s work at Goldman—looking into which economic and cultural developments would have a bearing on share prices and earnings over the next 10 years—reinforced something he’d begun to suspect as a mining analyst. It seemed to him that financial markets were paying attention only to a limited set of factors that could affect a company’s stock price. For the most part, they were unable to digest other types of data, not typically found in finance textbooks, that could affect earnings and valuations. Howard quit Goldman in 2013 to try his hand at running his own business, something he’d always wanted to do. But Didas Research, his sustainability research firm, struggled to achieve commercial success. “It suddenly became quite clear, the power HOWARD GOT HIS START

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“There was an apparently logical course of action, which was to fire everybody, shut up all your shops, and refuse to pay any bills. Actually, even from Day 1, what was quickly emerging is that was the wrong long-term course of action”

of the name,” he says. Relative anonymity wasn’t without its benefits: It allowed Howard to explore things he probably couldn’t have at a firm with a big brand. Suspecting that most companies eschew long-term thinking, for example, he did some research. He found that fewer than 10% of the hundreds of blue-chip companies he studied articulated a vision or strategy that extended beyond just a couple of years. Even so, when Schroders, a big-brand fund company, called in 2016 with a job offer, Howard says he didn’t think twice. He liked the idea of tapping into the asset manager’s resources. He says it also appealed to him because, unlike others in the industry, Schroders took seriously the kind of work he wanted to do. Howard’s first undertaking at Schroders was to create a framework for assessing the sustainability of companies. His work was key to the development of a tool called Context that’s now widely used by the company’s portfolio managers. Context helps analysts and fund managers scrutinize a company’s ESG profile as rigorously as they would its balance sheet. He was also instrumental in the creation of another tool, SustainEx, which quantifies in dollar terms a company’s impact on society and the environment, positive or negative. Schroders isn’t the only company searching for “s” data. Man Group, the world’s largest listed hedge fund firm, and Boston-based Fidelity Investments, which managed $3.3 trillion as of May 31, sift through alternative data to determine how companies treat employees. Such data can, for example, illuminate discrepancies between the numbers of women and minorities a company employs and the numbers it reports publicly. Data emerging during the pandemic have been revealing, says Nicole Connolly, a portfolio manager and head of ESG investing at Fidelity. “This crisis is shedding light on the resiliency of companies in their ability to innovate, the flexibility of supply chains, and whether they are putting words to action on their ESG commitments,” Connolly says. “All of this can tell investors a great deal about the durability of a company’s business model.” Howard says the hunt for “s” data is still in its infancy. “We’ve got a long way to go as an industry and indeed as a firm,” he says. “We’ve begun the journey. I think we’re further along than most, but

the idea still feels a bit premature for me to think about this in terms of achievements or successes.” convened his sustainability analysts at Schroders’ headquarters to discuss the big trends of 2020. They identified risks associated with global political events, climate change, and employee rights and protections. While they didn’t foresee global economic lockdowns or a pandemic that would kill hundreds of thousands of people, Howard says many of the issues they singled out proved to be key in the ensuing months. “It’s not that we’re geniuses and we spotted something,” he says. “The point is more that the crisis was an accelerant for trends or pressures that were already building, rather than something which turned everything on its head.” Howard says the BLM demonstrations that erupted in May caused him to question the real-world effectiveness of promoting diversity on company boards. Intuitively, he says, the idea made sense, but he wanted to know if it was true in practice. In the three weeks following Floyd’s death, Schroders compiled data on board members at about 10,000 companies. It then applied data-science techniques to estimate which boards were ethnically mixed and to measure how they performed compared with those that weren’t. Schroders found that companies with diverse boards performed about 5% better on aggregate. One new pet project—Howard calls it “slack”—examines this hypothesis: Has the drive to optimize efficiency and profits shrunk capacity in everything from health care to supply chains so much that the world’s economies are unprepared for shocks, be they terrorist attacks or natural disasters? For Howard, as he seeks to maximize the potential of responsible investing, ESG is about asking those kinds of questions, and 2020 has already thrown up plenty of them. “The way I think about it is linking the stuff that you see on the front page of newspapers with what you see in the business section,” he says. “We haven’t built a very good frame of reference as an industry for how we translate the front-page headlines.” I N JAN UARY, HOWARD

Marsh covers ESG for Bloomberg News in London.

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Industry Focus

Race and Finance By MAX ABELSON, JORDYN HOLMAN, SIOBHAN WAGNER, WILLIAM SPADA, and DANIELA SIRTORI-CORTINA

A Broken Corporate Ladder

Banks U.S. banks have at least two race problems. First, they’ve often failed to hire or promote Black people to top positions. In some companies, Black executives have even lost ground in recent years. Second, banking has contributed to income and wealth gaps by withholding credit from Black businesses and homeowners and charging them higher rates.

The top rung of corporate America looks nothing like the country it serves. Although Black people are employed throughout the finance and insurance sector, elite roles are overwhelmingly held by White people. Across all areas of the U.S. economy, Black executives remain rare. Only in businesses involved with public administration, such as federal contractors, do Black people seem to have come close to finding fair representation in the executive suite.

Share of U.S. private industry jobs held by Black people in 2018 Job level:

Executives (includes senior officials and managers)

Middle managers

0 Use of Mainstream Credit in the U.S.

Administrative and support services*

Share of group that used the product in 2017

Transportation and warehousing

Black

Health care and social assistance

White

Public administration

75%

Accommodation and food services Retail trade

Credit card

Real estate, rental, and leasing

Store credit card

Arts, entertainment, and recreation

Finance and insurance

Educational services Mortgage, home equity loan, or Heloc

Manufacturing Wholesale trade Information

Auto loan

Utilities Funds, trusts, and other financial vehicles

Student loan

Management of companies and enterprises

Bank personal loan

Construction

Professional, scientific, and technical services

Securities and commodity contracts** No mainstream credit

Agriculture, forestry, fishing, and hunting Mining, quarrying, and oil and gas extraction

BLO O M B ERG M A R K ETS

2.6% of executives in finance and insurance are Black; 86.4% are White.

Professionals

Overall

Wall Street has been criticized for being an old boys’ club. But a look inside the U.S. finance industry and the offices of fund managers across the country shows it’s even more exclusive than that. Black men and women, who make up more than one-seventh of the U.S. population, are badly underrepresented in Wall Street’s corner offices and across the top levels of investment companies. In the following pages, we shine a light on some of the areas where inequality endures, including executive suites and business schools. What we find is a system in need of greater diversity.

Wells Fargo

Bank of America

JPMorgan Chase

Citigroup†

Goldman Sachs

Morgan Stanley ††

20%

Share of jobs held by Black people working in the U.S. for the top banks, 2012 and 2019 Executives Middle managers Professionals Overall

0 Black people are missing from the very top of Wall Street, where the chief executive officers of the major companies are still White. There was only one Black executive among the more than 80 people included on the elite teams atop the six largest U.S. banks as of mid-June. Despite some recent gains, the problem extends to Wall Street’s middle managers and professionals.

13.4% 10

of the U.S. population is black.

25%

Black people have their highest representation in administrative and support services jobs.

In finance and insurance, Black Americans are underrepresented relative to the U.S. population, as measured by the Census Bureau.

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Asset Management

Less to Work With …

… But Still Doing More

The managers holding the purse strings of America’s fund industry are overwhelmingly White men. A recent study funded by the Knight Foundation found anyone who’s not a White man manages little in the way of mutual funds, hedge funds, private equity, or real estate in the U.S. Only 1.3% of assets in these categories are in funds run by diversely owned companies, according to the study, which used a 25% equity threshold for ownership. Investors in these funds similarly lack diversity.

Smaller hedge funds may struggle to compete with heavyweights on price.

Hedge funds run by minorities outperformed in 2018 and 2019.

Hedge Fund Assets Under Management

Hedge Fund Returns

Average, nonminority managers Average, minority managers

Average, all funds Average, minority managers

2018

Average fees

2019

Performance 15.9% 15.5%

$179m

1.4%

Management

15%

-15%

$367m

2020*

1.3%

Who Runs the Funds?

For Hedge Funds, More Diversity on the Coasts

Companies owned by non-White men and women control a sliver of U.S. assets.

New York has more hedge fund managers from minority groups than any other city in the U.S., but they make up a relatively small share of the total there.

Minority-Owned Funds

Hedge Fund Managers Who Are Minorities, by Location

Share of funds or assets at minority-owned fund companies* as of 2017

Share of total managers in the city

Mutual funds

3.9%

Mutual fund assets under management

0.4%

Private equity funds

3.9%

Less than 2%

2% to 5%

San Francisco

Los Angeles

Chicago

New York

Dallas

Boston

Brooklyn

More than 5%

Little Ventured

A Divide in Investors

The VC community lacks Black investors and isn’t backing Black founders.

Black families in the U.S. are less likely to be invested in a fund.

Race and Ethnicity in Venture Capital

Families With Pooled Investment Funds

White

Asian

Black

Other

Share of group

White

Black

Hispanic

20%

Investment professionals, 2018 Private equity assets under management

3.8%

VC-backed founders, 2013-17

0 1%

BLO O M B ERG M A R K ETS

2001

2016

Room for Improvement at the Top MBA Programs

Business School

Black students are underrepresented in top MBA programs, but that isn’t the story for all minorities. Asian Americans are a significant share of MBA classes at elite schools.

Finance’s homogeneity problem starts well before the hiring process. Although a master of business administration degree isn’t a requirement for many jobs in finance, an MBA from a prestigious school can be a ticket to a high-flying career. The top financial companies in the U.S. habitually hire from the most elite schools, so the diversity of their employees reflects the ethnicity of graduates from those programs. Black men and women are among the minorities who are underrepresented.

Diversity at the Top 10 Business Schools as Ranked by Bloomberg Businessweek Race and ethnicity of noninternational students (U.S. citizens and permanent residents) in the full-time MBA classes of 2020 and 2021 White

Asian

Hispanic

Black

Other*

Stanford**

Dartmouth† (Tuck)

Harvard†

Chicago (Booth)

6% 9%

6% Virginia (Darden)

Penn (Wharton)

MIT (Sloan)

Berkeley (Haas)

Barrier to Entry 7%

A relatively small number of business school entrance exam takers are Black.

9% 9% Columbia

GMAT Takers in 2019

Northwestern (Kellogg)

White

Asian

Hispanic

Black

Other

14%

7% 6%

64%

A Racial Disparity in Financial Support for a Graduate Education On average, Black students are funding 36% of their business school education with grants, fellowships, or scholarships and only 5% from parental support, according to a 2019 survey. Those numbers are 20% and 14%, respectively, for non-underrepresented people. Average Expected Sources of Funding to Finance a Graduate Business Degree in 2019 Non-underrepresented group*

Black

30%

0 Loans

Grants, fellowships, and scholarships

Support from parents

Employer†

Personal savings

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Personal earnings

Spouse’s or partner’s earnings

Other

T H E ON LY ON E I N T H E ROOM

On Wall Street, being Black often means being alone, held back, deprived of the best opportunities.

Interviews by MAX ABELSON, SONALI BASAK, KELSEY BUTLER, MATTHEW LEISING, JENNY SURANE, and GILLIAN TAN I L L U S T R AT I O N B Y A L E X I S E K E

On these pages, Black men and women tell their stories

to tell the history of Black people on Wall Street. That’s because the finance industry shut African Americans out of its executive suites and banking partnerships and off trading floors for decades. Even now, despite diversity programs and pledges to do better, Wall Street’s highest echelons lack Black faces, with rare exceptions. ¶ Another challenge to telling the story of African Americans in finance is that the people who’ve lived it blazed wildly different paths. There is no one definitive experience. ¶ But all their stories matter. What happens inside this industry ripples out into American wallets, homes, neighborhoods, corporations, and government. Outright racism and institutional failings on Wall Street have limited Black wealth and dreams. But African-American bankers have also sometimes helped pave the way for others to succeed. ¶ This year’s corporate avowals, workplace statistics, and diversity benchmarks have risen in a cacophony that risks drowning out the very voices they’re meant to spotlight. ¶ Some of those voices, edited for brevity and clarity, speak out on these pages. They reflect decades of a Black presence on Wall Street, from just a few years after Martin Luther King Jr.’s assassination to today, amid fury over George Floyd’s death at the knee of a Minneapolis police officer. ¶ Some made it to the top, some left disenchanted. Some became rich, some were so marginalized they had to sue. ¶ Some think Wall Street is hopeless, some are more optimistic than ever. —Kelsey Butler and Max Abelson IT MIGHT SEEM IMPOSSIBLE

I. Getting There

Racquel Oden, 47, is northeast divisional director for the consumer bank and wealth management business at JPMorgan Chase & Co., overseeing 10,000 employees. She began her career in 1997 as an equity trader at Morgan Stanley and has also held roles at Merrill Lynch and UBS Group AG. I didn’t have any family who ever worked on Wall Street, so it wasn’t anything I knew. I had an unusual career in that I graduated with my MBA from Hampton University, an HBCU

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Oden

P H OTO G R A P H BY E L I AS W I L L I A M S

You’re going to be in a room with people from different walks of life. And when you find yourself in that analyst class with kids from colleges all over the country, don’t worry. You’ve worked hard. You’ve earned your spot. You are enough. You are enough.

[historically Black college or university], which is very different, and was recruited to Morgan Stanley and joined the equity division, which started my career on Wall Street. Both my parents were immigrants to this country, and I was the first to attend college and experience life here in the United States. With that, I was definitely taught to have a strong work ethic: Focus on your education. Did I ever feel [I had] to be twice as good? A hundred percent. I was a Black woman on Wall Street, so I knew that was par for the course.

Curtis Johnson, 53 Managing director in Carlyle Group Inc.’s investor relations team

Tessie Petion was an intern at Citigroup Inc. before she took a job at Deutsche Bank AG following graduation. After heading environmental, social, and governance (ESG) research at HSBC Holdings Plc, she left in May to join Amazon.com Inc. as head of ESG engagement. I was a junior in college [in the late 1990s]. I did an internship with Sponsors for Educational Opportunity [a nonprofit that offers educational and career support to young people from underserved communities]. I went down to New York for the interview. I had interviewed before but had never had a very corporate job before. I expressed a preference for consulting. SEO actually gave me an offer for investment banking. The great thing about SEO is that you had essentially 200 interns who were people of color—Asian, Black, Latino, East Asian, and South Asian, a bunch of kids who were from all over the place. I never, ever thought that I would be in banking, never considered it. I had an information systems background. Banking seemed very much like, you know, the movie Wall Street. I didn’t see a lot of me in the movie Wall Street. And so when I got the internship [at Citi] I was like, OK, well, let’s give this a shot. Definitely not a world I considered.

Jared Johnson, 30, is the co-founder of the apparel brand Season Three Inc. He became a JPMorgan Chase & Co. associate in 2015 but decided to leave in 2017. This year he graduated with master’s degrees from Harvard’s John F. Kennedy School of Government and MIT’s Sloan School of Management.

I think there’s a lot more pressure on people of color to hit the first pitch out of the park, to put it in a baseball analogy. Chris Lee, 42 KKR & Co. head of real estate in the Americas

I’m originally from St. Louis. I went to college at Purdue. I was paying a ton of money to go there, and I was going to have a ton of debt. I took this accounting class that was notorious for being the weed-out class. I did incredibly well in it. And afterward, I felt, maybe this just comes naturally to me. I was hyperdetermined and hyperfocused in a way that I’d be shocked if I could ever get back there again in life. I made everything about landing that job. I read every book. I did everything. So when I finally was placed [through SEO] in JPMorgan, I was very excited. I was like, This is my opportunity. I had a few suits at the time. I remember having this gray suit, a light gray suit, and then I probably had this black

BLO O M B ERG M A R K ETS

suit. And I remember showing up to JPMorgan, and everyone wears a dark blue suit. I didn’t know that was the Wall Street look. Dark blue suit, white shirt, black shoes. I’m remembering a room, 10 to 12 people, all the Black interns. This one [older Black colleague] would invite everybody to this meeting. He basically would explain the fact that you were highly visible as a Black employee in the bank. And everything you did, good or bad, would be magnified: “So if you’re really good here, and you shine during the summer, a lot of people will notice it. And if you’re really bad, or you mess up here and there, a lot of people will take notice of that.” One of the things he would say is that on the private-banking side “your career trajectory was limited as a Black person. And the reason why was at a certain point it becomes about who you know. It’s all personal relationships that matter. If you grew up in Greenwich, Conn., and you just happen to know a lot of people who have money, you could be successful, because you could call on your friends’ parents and hopefully get some of them to become clients.” His argument was, you don’t have that. You don’t have that luxury. So you probably won’t be able to generate business. You basically have a ceiling on your career in the private bank [and should] find roles in investment management. I get a phone call from someone in HR. If you were doing a movie, it was one of those highlights. You get the call, and you jump with joy. I made my entire college experience about getting this job. Now I had it. I invested in a closet full of dark blue suits and white shirts.

Anré Williams, 55, is group president of American Express Co.’s global merchant and network services unit, which handles relationships with banks and merchants that accept AmEx around the world. Williams joined AmEx’s marketing division full time in 1990 after interning at the company. I was the first person in my family to go to college, so I kind of learned as I went. [At Stanford,] I majored in economics, and I decided when I was an undergrad I wanted to work in business in some capacity. I wasn’t sure what industry. I didn’t know if it would be in accounting or in finance or in marketing or in sales or manufacturing. I wasn’t sure, but I knew I wanted to work in business. I knew that at some point I may have to get an MBA if I wanted to be able to be equipped to excel at the highest levels of business. At the time, I would often look for information, for inspiration, or for role models or people who had charted a path. I would look for books, or biographies, or newspaper articles, or magazine articles. One magazine I used to read often—cover to cover—was Black Enterprise, because it highlighted African-American executives or entrepreneurs who were successful in business. I read about Reginald Lewis, an entrepreneur who did one of the largest leveraged buyouts of the time. Or

Barry Rand, who was an executive at Xerox in the late ’80s and ’90s. Or Ken Chenault, who was at American Express. Reading about people to inspire me, to see what their paths were. Where did they go to school? Where did they work before? What industries were they in? What did they major in? Those types of things. To get a sense of how they charted their path. I ended up working for a couple of years after undergrad and went to business school at Wharton. I majored in marketing when I was there and [minored in] real estate finance. I wasn’t sure what company to join or what industry, but I knew [Wharton] would be great training. I wanted to work in product management and marketing for the summer, and American Express was one of the companies that offered me a summer internship. I joined for the summer and had a fantastic experience and ended up coming back to American Express full time, and I’ve been in the company ever since.

Chris White, 45, has worked for Salomon Smith Barney, MarketAxess, Barclays, and Goldman Sachs Group. He is the chief executive officer of advisory firm Viable Mkts LLC and BondCliQ , a centralized bond trading platform. (Bloomberg LP, the parent of Bloomberg News, competes with BondCliQ in providing bond-price information.) I often say to people, “I’m the least-educated person in my family.” My parents both have master’s degrees. My father had an MBA from Columbia that he got in the early ’70s, and my mother has probably about four master’s degrees in childhood education and in special education. So really, really well-educated. I went to [Phillips Academy] Andover for high school, and then I went to Brown University. I played basketball there. I didn’t pursue graduate school or anything like that. I found my way to Wall Street because, you know, there’s sort of a steady pipeline of Wall Street executives who played sports. I [took] the traditional Ivy League route: One of the basketball-playing alumni got me a job at Bear Stearns the summer after my freshman year. I was a horrible employee, because I’d never worked in an office before. Then my junior year, I got a summer job at Smith Barney. And it was just a magical summer. I really enjoyed the work. I was working in mortgage-backed support. The head of fixed income at that time was a Brown alumnus who’d played basketball and actually remains one of my mentors. One of the things at the time—it was a huge thing: There was a Black trader working on the trading desk, a guy named Mike Baker. And so to me, it was like, well, if he can become a mortgage trader, then I can. You have to imagine going into an industry where you are so often the only one. That already sends a signal as to what’s possible. There’s not a person today on Wall Street that is successful because they just came in and rocked it. It’s not the way Wall Street works. You come into Wall Street, and then someone takes a vested interest in your success, and they help you.

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‘My Son Is a Star Banker, But He’s Relatively Lonely’ W. Don Cornwell, 72, joined Goldman Sachs & Co.’s investment banking department in 1971 from Harvard Business School before leaving in 1988 to found Granite Broadcasting Corp. Today he’s on the boards of American International Group Inc. and Natura & Co. He is scheduled to leave the Pfizer Inc. board soon. His son, K. Don Cornwell, 49, joined investment bank PJT Partners Inc. as a partner in 2015 after an 18-year career at Morgan Stanley, where he was head of global sports investment banking. He previously worked as a consultant at McKinsey & Co. and in corporate development for the NFL.

W. Don: I’m pretty sure I was the first African American that they hired into the investment banking area. I learned about a year after I joined the firm that Goldman had been sued for discrimination by an African-American student at Stanford, an MBA student. About a year after I joined, he reached out to me. He wanted to make sure that I knew what had happened. And in the same time period, the hiring partner at Goldman Sachs also reached out to me and invited me out for drinks. He wanted to tell me what had happened. Interestingly enough, both individuals pretty much had the same story. The facts weren’t really in dispute. It was not a good or lawful interview, I think is the best way to put it, that this young man had with the hiring partner. I’m very grateful to that student for having the courage to call out an act of discrimination. It frankly probably cost him any opportunity to work on Wall Street, which he presumably wanted, and it likely got me my opportunity, even though I didn’t know it when I got hired. K. Don: Both my parents were in finance. I was a big math person, so I thought finance was a real career possibility.

K. Don Cornwell and W. Don Cornwell

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By the time I got to Morgan Stanley in 1998, there were actually quite a few Black people that I could look to as role models. There were a decent number of Black professionals who were in the prime of their careers that seemed to be thriving. I just assumed that things would continue to get better, but that didn’t happen. The Black bankers that started on Wall Street around my time period and thereafter have not stayed around. Thus, you don’t have as robust a group of senior Black people on the Street compared to when I started in 1998. W. Don: I got a boss who was personally invested in my professional development and in my career, his name was Peter Sacerdote. He became the head of the corporate finance department when I was, by coincidence, about to leave the firm, because I had become a co-single parent of my son. Peter asked me to consider taking a managerial role which he thought would help him a lot but would also provide me with much greater scheduling flexibility. So I took the job. And what really struck me was that Peter immediately began to treat me like someone he wanted to succeed. When I left in 1988, there were a decent number of young African Americans who had been recruited into the firm on my watch in different parts of investment banking. As I looked back later, I realized that virtually all of them were gone. And it really brought home to me that unless you do something that’s either structural or intentional, you’re just going to keep getting the same results. I had good relationships with many of my peers at Goldman as I left the firm, but I fault them for not having done such a great job in building a diverse talent pipeline. I also fault myself, let’s be candid. Maybe I could have been even more active and impactful during the years when I was a part of managing the corporate finance department. K. Don: When you look at African-American managing directors on Wall Street, the vast majority have come from product groups—capital markets, sales and trading, and M&A. You very rarely see any that have made it up through the system in a coverage area. Why? My theory is that there can be bias in how

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clients pick their banker, and generally clients make decisions based on their relationship with their coverage banker. One thing I always joke about is that working in the sports world I have the advantage that when I walk into a room with a team owner, I’m generally not the first person of color they’ve done real business with. They deal with Black players and agents all of the time, so they’re very comfortable doing business with somebody of color. That’s not necessarily the case in most industries. I sat in the M&A group of Morgan Stanley, and for my associate years I got to work on great things with great people. In my early vice president years, I stopped getting premier staffings. So I had to get entrepreneurial. The business of sports was becoming more relevant to Wall Street, and I knew that I had a unique network and set of experiences. I made the decision to make that a bigger part of my portfolio. It wasn’t as if there was a sports group at Morgan Stanley that I joined. I just created it. I did it, because I wasn’t getting put on the best accounts and projects and there were people who had the same skill set that were getting better projects to work on. While it was unfair, it was the best thing that ever happened, because I put myself in a position where I get to work on things that I really love and enjoy. W. Don: I’m incredibly disappointed with where Wall Street is today. As a proud father, I can say that I think my son is a star banker, but he’s relatively lonely as an African American in his field, which I think is sad. K. Don: I’ve come across very few people in my career who I actually think are blatant racists. There’s just so many people who are naive. One of the questions I like to ask people—especially over the past couple of months when people come to talk to me about the topic of racial equality—is, “How many Black people do you have in your cellphone, other than just because your corporate directory has Black people in it?” Reflecting on that is a good start to making some progress. —Gillian Tan

II. At Work Racquel Oden: Women don’t apply for jobs unless they feel like they have every qualification. Being a Black woman, I was committed to ensure there was no box I didn’t check. I could do asset management, I could do wealth management, I could do investment banking, I could do retail, I could lead large organizations, I could run strategy, I could handle a P&L [profit and loss statement], I could focus on product distribution. I was going to have all the licenses, I was going to have all the degrees. And I think that was important to me to feel like I could be successful on Wall Street. I became chief of staff to the president of a pretty large organization at UBS. It happened based on me presenting at a meeting and someone seeing the work that I did and asking me if I would join their team. It was just a normal executive update, and that day the president showed up—no one even knew he was going to be in the meeting. So it was never intentionally planned that way. But [I] was prepared for my topic, asked three or four very pointed questions, knew my numbers, knew how to respond, and he had heard about the reputation that I had and got to see it in action based on that meeting. So does that happen often? No. But I think what’s critical and important was that you had a senior person—a White male—who saw something in some way that said, “I want that person on my team.” You need to be prepared at all moments, because you never know when “that moment” is. I wouldn’t have known that that meeting was going to be “the moment.” I always bring 110%. I’m always overprepared, and I always want to make sure it’s that level of quality at all times. [That job] gave me exposure at a very senior level to understanding large organizations and running them at the executive committee level. Today, leading an organization of 10,000 people, I obviously get to leverage [that].

Tessie Petion:

One of the New York Stock Exchange archivists came up to me and said, “You are the second African-American woman in history to sign this book.” And this was in 225 years. Lauren Simmons, who turns 26 in August Became the youngest full-time female trader at the New York Stock Exchange in 2017

At my internship at Citi, the MD [managing director] of the group was a woman, but six months into my career at Deutsche Bank, I moved to London where I worked on the trading floor, and quite consistently, I was the woman of color—rather, I should say, I was the Black woman. To everyone’s credit, no one was blatantly racist to me. At one of the banks I worked at there was a forum on diversity, and there was a presentation. They pulled together all of the diverse members of the team. It was divisionwide. Literally, I’m not exaggerating when I say it was me made to look like a collage of pictures. You could spot me in the

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school, I was the only Black woman in my year—actually in both grad schools, I was the only Black woman. That’s something that’s not uncommon for the folks that end up sticking around on Wall Street. We have to be supercareful about everything, because if it goes badly with me, then maybe the next time they look at a person of color then they’re like, “Well, we tried that one, right?” The thing that I say all the time to juniors [in the office] is it doesn’t mean that you can’t have a career, but you do have to know that [being supercareful] is the case all the time. I am being candid, but, I guess, to me, being Black on Wall Street is [being] someone who’s a resilient person, who knows that they might get left out of some conversations but will find a way to get in that conversation anyway, right? Something that I actually thought was weird: You know, on all these [PowerPoint] decks, here’s my picture everywhere. But it probably helped in some ways socialize the idea that I’m the one coming in, that I’m the one that’s leading the meeting, that I’m the one that sets the pace. A big part of that was who I worked with. My bosses at the end at HSBC, if we had a meeting in the U.S., it was my meeting. If someone tried to talk to them because they were men or non-Black, they’d be like, “This is Tessie’s meeting.”

Jared Johnson: I had no connections to Wall Street. I didn’t know anyone who worked for a bank. Outside of TV shows, movies, it really was just a figment of my imagination. When I was in college, I was reading the Wall Street Journal, reading the Financial Times, trying to educate myself as much as I could. I built this construct in my mind of what it was like to work on Wall Street. That construct really was that all of my colleagues, everybody I worked with, would be exceptionally smart, because the bar to get into the door was so high. I had a concept of all the forces that would work in the opposite direction of that: structural racism, unconscious bias, nepotism in some cases. I think I had a loose idea of how those things factor into a workplace like JPMorgan. But I still expected a level of excellence and a level of intelligence. I would ask myself, Who interviewed this person? How did they get here? Because frankly they weren’t that bright. Some people wouldn’t even pass the test in my mind that they would be able to convince someone else of their brightness. And that flat-out surprised me. [But] you can’t skate by at the same level of your White colleagues. You have to be excellent in order to succeed. My expectation working there the whole time was if I’m going to walk into a room with 10 people, I’m probably going to be the only Black person there. I moved to a role that was more of a sales support role. I worked mainly with this one guy. He dressed very well, I guess, in a cheesy Wall-Street-guy way. He had nice watches and drove a Porsche. Slicked-back hair. I never liked him. And the feedback he would always give me was to be more

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class, several times. There was me, [and] an East Asian woman—she’s actually Brazilian but of East Asian descent— and a South Asian man. We played “spot each other” [on the] huge collage. I was on it at least three times, if not four. The East Asian woman was on it twice. The South Asian man was on it three times. And we said, “OK, if you’re thinking about putting together a diversity panel and you find yourself having to repeat the picture of someone, take a step back and think, OK, we might have a problem.” It was like, this is a celebration of diversity? And I just remember thinking, Do you not see the irony here? No. OK, great. Awesome. [SEO was] very good about putting us in front of senior people on Wall Street. There was a woman [Carla Harris], she works at Morgan Stanley. I think when I first met her, she was a director, and now she’s an MD, and she’s on the board of Walmart. They were very good about showing us that there are people who make it at senior levels. But at my firm, I didn’t see that. I saw that it existed. I didn’t see it every day. People assume a lot about me because I am Black. I have a friend who has worked on Wall Street for the last 17 years, does very well for himself. But people assume because he’s Black he has a disadvantaged background or he’s from some disadvantaged home in the area. None of that is true, but that’s the assumption that’s made. I think that people assume that they know everything there is to know about me because I’m a Black woman from Brooklyn, and I’m pleasantly surprised when that is not the case. Part of the moral of the story is that I am very, very, very used to being the only Black woman in places. At my first grad

vocal or more emotional. I would never have raised my voice, or showed any emotion, or cried at the office. His remark was, “I can’t even tell if you are enjoying what you’re doing, or if you’re happy, or celebrating.” “Fit” was this subjective idea about what JPMorgan’s culture is currently like. JPMorgan is very proud of the culture it has. What they were doing was almost training you to learn the language, learn the customs. We were taught and groomed how to operate in a White corporate world. People are very resistant to give up any elements, traditions of the White corporate American culture to make room for something that looks different. I landed on this team that called on independent investment advisers and ended up having a really great experience. My standing and stature grew, because I was in a position where I was highly valued. I felt I was in a space where I was given a lot of autonomy. I was respected and valued by the members on my team, and felt I was in this zone of growth. By the time I left, I had a full beard, and my hair was much longer, and I was much more comfortable being closer to what I felt was myself at the office. I felt that was something I had to earn. I certainly felt I carved out more space to be myself and built a reputation with people that gave me more latitude to take risks and bring more of my full self to work. But I don’t think, even at the end, I would be able to tell you that I felt at home.

After [my] presentation, there were about 30 people in a room. It was a private session with three voting members and their staff members at the Bank of Japan in Tokyo. You know how they do the typical bow? It was so impactful to me. And it was so unique that I actually shed a tear. Reggie Browne, 52 A principal at GTS

Anré Williams: Seeing people who you feel are like you or are similar to you— that you feel have done what you aspire to do—shows you that it can happen for you. It’s a physical demonstration that it can be done. And I always say that if you can see it and you believe it, then you can achieve it. That’s, in a way, what Ken [Chenault, AmEx CEO from 2001 to 2018] was to me. Just imagine being 19 or 20 years old and reading about people that I didn’t know that I thought did something amazing that I aspired to. Seeing Ken, among others, on the cover of Black Enterprise magazine at that age, it was really inspiring to me, because that told me that it was possible. It was hard. It would be difficult. But it was possible. And that’s what it was. It just so happens that I was placed in the same business unit as a marketing summer intern where Ken was. And knowing that the senior leaders in our business unit reported up to him and that I was working on PowerPoint presentations that he would ultimately review and decide on with them was something that was inspiring to me. I wanted to work in a company where I felt that I would get a fair shot. And some of the other companies I interviewed at—they were top-notch companies—but I wasn’t convinced that they had enough diversity within the executive and senior ranks to make me feel that if I was there I would get a fair chance. Having Ken and others like him at American

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‘A Part of Our Society’ Dick Parsons, 72, is a senior adviser at asset management firm Providence Equity. He worked for Vice President Nelson Rockefeller and President Gerald Ford before joining the law firm Patterson Belknap Webb & Tyler. He ran Dime Bancorp Inc., then Time Warner Inc. from 2002 to 2007. As chairman of Citigroup Inc. from 2009 to 2012, he was one of the most powerful African Americans in Wall Street history. At Patterson Belknap, I became chairman of the hiring committee before I became managing partner. We made a determination to start reaching out, doing some affirmative recruitment of Black attorneys. I had a conversation once with one of the members of our committee. He was complaining that we were “fishing in the wrong pond, bringing in all these women and people of color” and so on. “They’re not going to be able to develop clients. Take Joe Bag-o-Donuts: That’s the kind of person we should be looking for. His father is a vice chairman of a Fortune 500 firm. He’s a fourhandicapper. Six foot four. Blond hair, blue eyes. A real White man. That’s what we need.” Then he looked at me: “I didn’t mean that the way it sounded.” I knew what he meant. And he knew what he meant. That’s the America he grew up in. I’m fundamentally an optimist about race in America. But I lived through this in the late ’60s. The riots, inadequate housing, inadequate education, poor-paying jobs, police brutality, uneven and unjust criminal-justice system. You could have written that three weeks ago. All that same s--- is still prevalent. It’s still a part of our society. Every corporation is now saying, “I’m throwing $10 million into the pot, we’re going to really support these social justice organizations.” And they will, and that’s good. But is that going to effect fundamental change? I don’t know. —Max Abelson

‘Don’t Just Talk About It’

Franklin Raines, 71, served in President Jimmy Carter’s administration before joining Lazard Frères & Co. in 1979, where he became Wall Street’s first Black partner in 1985. He became chief executive officer of the Federal National Mortgage Association in 1999. In 2004 he left Fannie Mae amid accusations of improper accounting. (In a 2012 civil suit ruling, a judge found no evidence of wrongdoing by Raines.) Raines has sat on the boards of several companies, including Pfizer Inc. and Boeing Co.

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Raines

I’ll tell you a cute story. When I became the head of Fannie Mae, I was elected to be a member of the Business Council. Obviously, I was the first Black member. In those days it was a very formal kind of group. Each meeting, they had a formal dinner where everyone was wearing tuxedos and the only women there were the spouses of the CEOs, because there were no women CEOs. I’m standing there and didn’t really know anybody, and one of the members comes up to me and says, “Could you get me a martini extra dry, with an olive?” And he looks at me, and he does a double take, and he says, “Oh,

you’re a member here just like me.” So that gives you an idea. If you want to have 20 more Black analysts, go find them, hire them, and train them. Don’t just talk about it. And if you want to support minority business, set up a unit that deals with minority business. Do it the same way you’d do with any other part of your business. Don’t just say, “Oh, this is our goal,” and then forget about it. I worry that this time will be like Rodney King [who was beaten by

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Los Angeles Police Department officers in 1991, sparking protests], when people talked about it but did precious little in terms of their own companies. I mean, people are doing good things in the world. I don’t want to denigrate that. It is good to support nonprofits. It’s good to support education. But what did you do in your business [to correct] racial disparities? What concrete [thing] did you do and continue to do? That’s much tougher. If firms step up to that challenge, then I’m very optimistic. �Gillian Tan

Brigette Lumpkins, 46 A director of business development at EisnerAmper LLC. Formerly at Lehman and Goldman Sachs Group Inc.

Lumpkins

Express made me feel more comfortable joining the firm. Unfortunately, there have been injustices in the world and racial problems in America for hundreds of years. It’s not anything new. And as someone who’s African American and in the Black community, the way that my generation was taught was don’t let those things get in the way of you trying to produce and excel and succeed. You can’t let outside influences deter you, because it’s a burden to carry. It’s a lot to think about. And that’s the part that’s difficult, because you’re taught to compartmentalize, to not let outside influences deter you from the path that you had inside of your corporate environment. And because of that, sometimes people don’t bring their whole self to work. Over the years, you might not want to talk about how you truly feel about things going on, because you don’t want to get into a divisive racial conversation with people in the workplace. You just want to focus on the content—the content of whatever it is that you’re doing. And it’s difficult to do that. It’s who you are and how you were born, and you’re not able to ignore it, but then you’re told to try to minimize it in some ways to try to make sure that you make people feel comfortable, that you’re not consistent with whatever their stereotypes are. So you can try to focus on performance. And that’s really the thing. So these things come up like, you know, the Rodney King beating [by Los Angeles police in 1991]. It’s not a topic that you look forward to discussing at work at all, because it gets you into a conversation with a lot of people who may not be well-informed, who may ask a lot of questions which are full of bias. It takes your energy away from the positivity you’re trying to keep to excel in your business career. That sometimes is unavoidable, because you’re in a group discussion, and it comes up, and you have to deal with it. But it’s not something that anybody that I knew, back in the early ’90s, looked forward to discussing at work, because it was just a negative reminder about how unfair things are, and how they work, and unfortunately how they still are in America. O.J. Simpson and the Bronco chase and his trial—that was another difficult time, when in America every poll said that there was a difference in the way that White Americans saw that whole episode and the way Black Americans saw it. You didn’t really want to talk about it at work in a group of people, unless you had to, because there were very different views about it.

Chris White: There’s a theme here to the problems with being Black on Wall Street. It’s a problem of perception. You’re perceived in ways that are unrecognizable from how you perceive yourself. That’s where the problem really starts. That manifests itself in two very clear ways: It manifests itself in benefit of the doubt, and it manifests itself in terms of leadership opportunities. Two people could be saying the exact same thing. In one case, someone’s given the benefit of the doubt. They’re believed. They’re trusted. In another case,

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[At Lehman Brothers] I think I sort of got rammed down their throat, frankly, as a diversity hire. They were resentful, and it didn’t matter that I was talented—frankly, just as talented, if not more so—and as ready to work as anyone on [the equities] desk. I was a good hire. But I think that I was perceived as a diversity hire. I walked into a situation where I felt very much attacked and disliked from the beginning, and it was really unwelcoming.

they’re doubted. They’re not listened to. They’re not heard. And it’s painfully obvious to you when you’re not. [At Smith Barney] it was all great until there was a merger with Salomon Brothers, and everybody I knew from that mortgage desk got fired. And then they moved me. I wanted to stay in fixed income, so I ended up landing on the municipal side of the business. By the way, a lot of Black people get put into munis. It’s the sort of unwritten rule on Wall Street, because there are minority mandates around new deals for munis. That’s always been an area of the market where you have more Black representation. So that’s where I really started to get my first taste of what it’s like to be Black on Wall Street. I was on the institutional sales desk, and I’m not blameless. I was a young kid. There’s also quite a bit of hazing sometimes, especially when I was coming up in the late ’90s. One day I responded back to someone hazing. I don’t know what I said. I probably snapped back and said something. I got pulled into a room the next day by the head of the desk, [who] told me that the person I responded to felt physically threatened by me. I’ve never been in a fistfight in my life, so to hear that somebody felt physically threatened—this is what I mean by benefit of the doubt. Physically threatened? I guess because it was coming from me, the head of the desk deemed it important to actually have a one-on-one conversation with me about it. And the messaging I got from that wasn’t, “Hey, you were physically threatening to someone.” The message I got was, “Watch the way you stand up for yourself.” It was so shocking for me. It really soured me, too. I left soon after that, because I got a job to trade at a hedge fund. That was sort of short-lived, because the dot-com bubble burst, and Sept. 11 happened, and the market became something totally different. Electronic trading and innovation in the bond market became something that I was obsessed with. I worked for a startup that then became public, and from there, I ended up moving over to the sell side, going back to traditional Wall Street. But I was going back not as a salesperson or trader. I was going back as someone who was supposed to be leading innovation. Sometimes you’re in the room, and you might be invisible. One time, I was in the room, and we were talking about a vendor, and the head of sales didn’t like the CEO of this vendor, and he said, “I wouldn’t trust that brown fork-tongued devil farther than I could throw him.” Now, I’m there, so I can’t imagine what’s being said when I’m not in the room. And it just sends a message to you. There’s locker room talk, and we all get it. But it definitely, definitely sends a message. I was lucky enough to eventually, through another major merger, work for a guy who was really well-respected on Wall Street. The business at the time had asked him to write a plan around modernization of the global credit desk. I ended up writing probably about 80% of that plan. He presented it. He ended up leaving, but before he left, he went to the business, and he said, “Listen, Chris White wrote that plan. I didn’t really write it.”

He did something very kind. He actually validated my contribution. See, that’s something that is very frustrating, that some people don’t recognize about the perception issue. I needed a White guy to validate me with other White guys, because there’s no way I could have been validated just on my contribution alone. There comes a time in any job when you want to be valued as an employee. You’ve got to take your boss aside, and you’ve got to say, “This is what my expectation is. How do I get there?” So, I took my new boss aside: “This all has to do with perception of value. I wrote the plan. I’m implementing the plan.” My ask isn’t outrageous, and [yet] he’s telling me I should probably look for another job. If I stay in a place where my boss says something like that to me, whose responsibility is it? Whose problem is it? That’s my fault. I was incredibly optimistic about the next place I was going to, because here was a big quote-unquote important dealer. They’d hired me to do a job that was on the cutting edge. I was one of the few people in the world that could do it. And I’m sitting there, and I’m saying, This is going to be great. I’m going to have a fantastic career. I’m starting out as a VP, I’ll go to MD, and who knows what’s after that. I remember saying to my wife, “This new place that I work at, I think they have more Black traders and Black salespeople than all of the other Tier 1 dealers combined.” We’re not quota people on Wall Street, [but] we are consistently viewed that way. One time, I had my boss speaking to me, and I just was drifting off because of the way he was speaking to me. I was thinking to myself, “You know what? If we matched résumés right now, in terms of just academic accomplishments and all of those things, I would trump yours. In fact, I bet you if we matched our parents’ résumés, my parents would trump your parents. And I bet you if we matched our grandparents’ résumés—because my grandfather was an appellate court judge—it would probably trump your grandparents. But you’re speaking to me as if somehow, I snuck my way in here.” There is something really maddening where people seem to judge whether or not you’re worthy of being there without ever looking at you with objectivity. If you wanted to look at me objectively, I was just like all those guys are on the floor. I was a boarding school guy. I was an Ivy League guy. There’s only one thing different [about] me [and] anybody else. I really hit my stride there. And I ended up building some really cool stuff. Not once was I ever considered for promotion or for leadership. There was a seminal moment that made me realize that no matter what I did at this bank, I was never going to move forward. This is what happened. Because of what I have built in the bond market, I developed a bit of a name. One day my phone rings, and it’s someone representing the European Union, [from] a regulatory body out of Brussels. They say, “Hey, we’ve heard about you. We know that you are an expert in bond market liquidity. We would love for you to come to Brussels and give a talk on this to our group.” Can you imagine how hard it is to become recognized

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White

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to the point where you get a cold call from the head of a f---ing European regulatory body? You’ve got to really be doing some stuff. Anyway, I bring it to whatever sort of organization internally [is required] to evaluate these things. They’re like, “This is awesome—we love doing favors for regulators, which is always good relationship building. Let’s have a meeting.” In the meeting, I’m explaining what the problem is. I’m leading the meeting. And then it seems that at the end of the meeting, the takeaway is: Chris White, can you please write up the talking points? At that time, there’s nobody in the bank on this topic of bond market liquidity that would be more informed than me. I don’t care what their title was. I don’t care how long they have been there. I write the talking points. They sent someone else. If I can’t represent this bank on a topic that not only in this bank, but probably worldwide I’m a recognized expert in, then when can I represent the bank? But it’s really f---ing hard, man, to explain to me why I didn’t get the look to go. Wall Street has a problem with Black excellence. And what I mean by Black excellence is most supersuccessful people in Wall Street or in industry are just really excellent at stuff. That’s how they got there, right? That’s how they did it. But when someone’s excellent as a Black person, as a trader, or as a salesperson, or in my role as a strategist, as an inventor, it’s not embraced. I’m randomly walking on the floor about two weeks later, and one of the few Black partners pulls me aside. I don’t know this guy. I know him by name. But I don’t really know him. And he says, “Chris, your bosses wanted me to speak to you. I actually don’t understand what the problem is. I’ve observed you being a really capable guy. I thought that maybe you would lean on me for how to navigate here as a Black person. You never seem to need me. I’ve actually found that quite refreshing. And I saw that you knew your s---. And I was like, I thought that they would love you. For some reason, they don’t like you.” Now, that said two things to me. One, it told me that my bosses perceived my issue as being a Black issue. Why? Because they sent a Black guy to randomly talk to me. Why didn’t they send one of the partners in the business that I worked in every day? They sent him. Imagine you were the only Jewish guy at a firm. Imagine you were the only gay person at a firm or the only woman at a firm. And the random person that comes to talk to you about what’s going on happens to be Jewish, or gay, or a woman. The other thing that it told me—this was a very profound thing—they don’t like me. And what they don’t like about me is the way that I make them feel. The only thing I can imagine is what they did not like from me is the level of confidence I have around my content and my natural desire and leadership abilities. They didn’t like that. Now, what’s amazing about that is like other people, depending on what they look like, those are the intangibles that they make you a partner. And so, again, I’m responsible for my own career, so I know I got to go.

VO LU M E 2 9 / ISS U E 4

[Early in my career] excellence looked like six White men at the top. Right? That wasn’t strange at all. That’s what you saw at IBM. That’s what you saw at GM. That’s what you saw at Morgan Stanley, Goldman Sachs. You pick it. So you know that if you wanted to play on this playing field, you were going to have to be comfortable in some cases being the only and being the first. That was not intimidating to me at all. That was just the way it was. Carla Harris, 57 Vice chairman of Wealth Management and senior client adviser at Morgan Stanley

‘This Is Not Going to Stop Him’

George McReynolds, 75, joined Merrill Lynch in 1983. He was one of just a few Black brokers for the company in Tennessee. In 2005 he brought a racial discrimination lawsuit that was later allowed to be a class action. In 2013, after Bank of America Corp. bought Merrill, the company reached a settlement for $160 million, then a Wall Street record, which covered about 1,400 Black brokers. McReynolds retired last year. Elaine McReynolds, his wife, was an insurance commissioner for the state of Tennessee and an administrator for the Federal Emergency Management Agency.

George: I didn’t really know what Wall Street was. I do remember seeing a TV show in which the main character was a broker. There were about 300 boys in [my high school in Kentucky], and eight African Americans within four grades. When I went home, I would go in one direction; when [the White students] went home, they would go in another direction. I ended up getting into the management training program at Sears. I met a number of people who had been with Sears for 25 years, and a lot of them were retiring with $500,000 or more, because they had the Sears stock from the beginning. That’s what got me interested in stocks and the markets. At Merrill, there were people there that didn’t want to talk to me and people there who did. And you learned real quick who you could talk to and who you could work with. Elaine: He came home and his look was different. Something was bothering him. We used to go back and recount our days. We used to do damage control before we went to sleep each night. It’s like you’re a turtle, and there are soft spots in your shell, and you have to tighten them up. You know you’re getting hit, so you just don’t want it to sink too deeply, but it hurts. That night he was telling me about these rookies that were standing over his cubicle. They were standing there having a conversation about why a Black man

couldn’t and shouldn’t be in the financialservices industry. And George is sitting right there. It hit its target. It hurt. We just wrapped around each other and said, “We’ll get up tomorrow, put on our pants, and go back out and do it again.” This is not going to stop him. There were many nights like that. George: It made me even more determined that I was going to make it. I would go in early in the morning. I was working at least 12-hour days. I didn’t get accounts handed to me like other people did. I had to get out, find people, meet people, talk to people, and convince them that they wanted to work and invest with me. I’d get handed an account of somebody who would come in and have $5,000 or $6,000 to invest. People I had a lot more experience than were being handed accounts in the millions, and they didn’t know what they were doing. The manager at that time asked me to help train a couple of White brokers, and after I got them to the point where they could halfway do something, the manager took a good part of my book from me. I don’t remember there being more than three African-American brokers at one time in middle Tennessee. Most of the time it was under three. The lawsuit just came about because I got fed up with what was going on. I was seeing a number of African Americans that were being hired into the business but

BLO O M B ERG M A R K ETS

were having trouble making it, while other people, Whites, were being given accounts and able to make it through. When a manager came in and took a lot of that business away from me and assigned it to some rookies that were having trouble making it, and then came back to me and complained to me because my business was down, that was finally the thing that forced me or made me decide I’ve got to file a lawsuit. If I didn’t do it, nobody would. Elaine: I think living as an African American in this country is a stressful life event on any day. Was this additional stress? Yeah, it was. He had a major heart attack in December 2006. So he ends up with [a] quadruple bypass. He gets out of the hospital, but then things go from bad to worse. They resuscitated him once or twice on the way to the hospital. He died four times. He lost his colon, he lost his toes, I was just praying for him not to lose his mind. The Lord answered my prayers. And he went back to work in April. George: I stuck with [the legal action against Merrill] for nine years because I was looking for change. I was looking for additional African Americans to be hired into the firm, and the only way that that was going to happen was to do it with the court’s help. After the settlement, Merrill started having all the African-American brokers come to a meeting for additional training. We would talk to people who were being hired to tell them what they would have to go through. Elaine: If anybody ever remembers George McReynolds in the future, well, that was one of the guys who got the ball rolling. And he did it with such style and grace that he worked for this company five years after he successfully sued them. —Max Abelson

George and Elaine McReynolds

P H OTO G R A P H BY J OS E P H ROSS S M I T H

III. Looking Back Racquel Oden: I call this moment hopeful. And I am superhopeful. I believe, truly believe, that this is a moment that feels so different this time, and that it can be different. I’m committed to making it real, personally. And I think that’s what we all have to say, right? We’ve got to hope and believe, and then we have to be committed to making it real. I would probably push a little further on mentors and sponsors. A mentor is that person that you can bounce an idea [off of ], get some advocacy from. But what’s really critical is sponsorship—that senior executive that’s going to be your advocate whether you are in the room or not and who is looking at you as the next talent. If you can’t find yourself in your organization, that’s why outside networks are extremely important. Certainly [that’s the case] in my own personal cabinet of senior executives that look like me, other Black females and Black males. You’ve got to be able to speak to others who understand the things that you’re going through that are specific to what they’re experiencing as well. You can’t look in one place for it. I think you have to have that circle of trust. If we think about where we were as Blacks on Wall Street, that number hasn’t improved. If you think about where we are as Black females on Wall Street, that number certainly hasn’t improved. So statistically it hasn’t changed. But is the conversation different, and do we feel this could be a turning point where we can finally change the statistics? I think that’s what’s different. And I think that’s what’s going to be really critical as we think about this moment. How do we make this moment more than a moment, where we actually have what I call sustainable change and real impact, so we’re not repeating statistics again? I would tell my younger self, “You’re going to find it harder, you’re going to work harder, you’re going to experience more obstacles, but your persistence and drive and faith are going to allow you to have a journey that will make it better for your daughter and girls that are coming behind you.” And I’d end it with, “I see you. I see you.” —Kelsey Butler

Post-financial crisis, if you are a junior and you have offers from an investment bank and a tech company, I think at this point you’re more likely to pick the tech company. Amazon is 26 years old, and nothing we do is “because we did this 20 years ago.” The whole point of diversity—the proof case of diversity—is that you have people that come to the table with different experiences. I think about systemic inequality, because maybe it’s something I might have experienced. So I push you to think about it differently. It’s hard, though. I didn’t sense the pushback was because I was a Black woman. I think the pushback is because Wall Street doesn’t historically think deeply. That’s what ESG tries to change. But 20 years ago, if I tried to have that [ESG] conversation at an investment bank, they would have laughed me out of the room. I don’t think it’s different because of who I am. I think it is because status quo works, right? Obviously, I got hired at a very senior level at Amazon. Now I am [a mentor]. And to be fair, I was that person for several people at HSBC. I can say that I think that there were lots of juniors who saw me there and thought, OK, maybe I can do this, right? Yes. And so I did think about that a lot when I left. I’m the person, and I’m leaving. What does that mean? How did they interpret that? The VP of customer fulfillment—obviously that’s a big deal for Amazon—is a Black woman. I looked at the person who does transportation, and that’s a Black man. Anyone who is a VP at Amazon is someone who could be a CEO of a smaller company. I looked and said, Can I see myself on that trajectory? I think I can. But I was really conscious of the fact that by leaving the bank, I was one less person that modeled, “This is how you can do Wall Street at HSBC.” I was lucky to only sort of bookend my career [in finance]. I was a junior, and then I came back in supersenior. And so that’s really specific to my career. For sure there have been people that have been allies that have been really helpful. At the bank, there have been people that have said, “I’m looking out for you and making sure that you have all of the [opportunities] possible.” One hundred percent that happened to me at HSBC. It’s what put me into the room. I guess my expertise did it. But also you had people that said, “Hey, I want to make sure you find this person.” You always need that first opportunity in order to get the rest of them. —Gillian Tan

Jared Johnson: Tessie Petion: Wall Street is not doing a good enough job thinking about why people fall out. We expect juniors to fall out, but midcareer? That’s the vulnerability for many people. Why are people falling out midcareer? I think that 100% can be improved. If you’re midcareer, it either means you were a junior and kept at it, or it means you came in post-business school. But either way, that’s the point in your career where you’re likely to stay somewhere for maybe five, six years.

The summer at the bank would look different than the winter at the bank, because there were a lot more young Black people [interning]. [But they] didn’t get offers. I did internalize a lot of those messages to be a nonthreatening Black person to White people. As traditional as they come: That’s the idea. Wear a suit. Present yourself this way, so people don’t feel a sense that this is uncomfortable. You don’t want to look like you’re overindulging. It was all of these rules. The way I would describe it is

BLO O M B ERG M A R K ETS

“respectability strategy.” It’s this idea of, if you can show up and show proof that you’re more professional, more buttoned-up, more polished, than your peers, then you’ll overcome whatever challenges are thrown your way. Because you don’t fit the stereotypes of what people think about Black people. —Max Abelson

I wish more people thought about Wall Street as a vehicle not to just uplift themselves but to uplift entire communities. Jacob Walthour, 52 Co-founder and CEO of Blueprint Capital Advisors

Anré Williams: People still say in the workplace, “Don’t talk about race, don’t talk about religion, don’t talk about politics.” And people try to do that. But I think what’s happened now in [the aftermath of George Floyd’s death] is that we’ve gotten to a point where people know they can’t remain silent. Remaining silent in a way is almost an implicit acknowledgment that you’re OK with the way things are and you’re just going to ignore it. And people aren’t comfortable ignoring it anymore or allowing it to be ignored. And that’s what’s different right now, I think. You want people to feel comfortable being who they are at work and being comfortable doing that. I think as the years have gone by, more and more people are encouraged to do that. Whether it’s someone’s sexual preference or orientation, whether it’s gender, whether it’s religion—I mean, people are encouraged to be a little bit more open and forthright about who they are and what their needs or expectations are. And I think that’s a good thing, because that’s a big part of their life. It’s who they are, and that shouldn’t take away from the talent and what they can produce. Over the years, I was involved in campus recruiting and making sure that—if I wanted the company to have diversity—I should be one of the people to go on campus. With what happened [this year], it just struck a chord with me that things were really, really bad. And I just didn’t feel that I could remain silent. I wanted to be able to say something to all of our Black employees [1,400 or so] in our network in the United States. And I wanted them to hear from me directly. A few people reached out to me and said they were going through a lot, and they thought it was really difficult. And so I just wanted them to hear from me. I want to share my feelings. I want them to know that I found the recent instance to be horrific, to be inexcusable, and to be maddening. But I also wanted to share personally that at times I feel terrified about the things that could happen to me or to my friends or to my relatives or to my son in a world which sometimes is completely unpredictable. You just don’t know how things can go sideways sometimes when they shouldn’t. The point I was trying to make to all of them [in an internal video] is that everybody is going through a lot emotionally, but they need to remain positive. The video ended up being shared internally by other leaders with their teams. I think people were surprised that it was personally coming from me and it was a personal perspective, because usually I stay focused on the business side and this was really how I feel about this personally.

VO LU M E 2 9 / ISS U E 4

My vision for my firm is that I have a safe, safe space for Black women who are in the industry to learn and grow. Because a lot of times we get pigeonholed. We can have all of these certifications and multiple degrees and still get assigned to client service. We’re not given an opportunity to actually be a financial planner or a financial adviser. Zaneilia Harris, 49 President of Harris & Harris Wealth Management Group

Having three children, having a family and watching them grow up and experiencing this [inequality] with them has made it very clear to me that I have an obligation to help other people in this industry. Curtis Johnson, 53 Managing director in Carlyle Group Inc.’s investor relations team

My advice to Black people: Don’t go in. Honestly, I’m less concerned with making these institutions more palatable to Black people and more concerned with informing Black people about what actually happens at these institutions. Jibril Jackson, who turns 40 in September Founded Hyve after working at Citigroup and Guggenheim

Williams

P H OTO G R A P H BY SC H AU N C H A M P I O N

It’s not like this has never happened before, as if there’s no one that’s ever lost their life as a result of law enforcement being too forceful. It happened with Eric Garner here in New York City. It happened with Philando Castile [in Falcon Heights, Minn.] . It’s happened before. But I think the difference this time is that you’re in the middle of a global health crisis, a global pandemic where everyone in most large cities around the world was required to shelter at home. So, parents are having to be at home with their kids in the house, sheltering, not sure what’s next. In that environment, we have a lot of emotion, a lot of anxiety, a lot of stress, a lot of uncertainty. Everyone’s watching television, watching the news, on social media and online. And then we see these incidents that are happening, and they just get people really upset. It just reminds you that there is racial inequality. That was where I think people finally said enough is enough. And the demonstrations and the protests didn’t just happen in Minneapolis where it started. They had gone global. And when you look at the images of the people who were demonstrating, they weren’t just Black Americans, right? That was the key to me. The key was it wasn’t just Black Americans. It was all races, all ages. And it wasn’t just U.S. It was global. And to me, that’s so different than anything we’ve ever experienced before. This time just felt very, very different. —Jenny Surane

Chris White: It’s 2020, and you’re like, “Wait, how many Black MDs are there at this global investment bank?” And you’re shocked by the number. That’s because during ’08 or ’09—or any year you can pick that wasn’t such a good year—we definitely feel more susceptible to being let go. I’ll tell you something I observed. One of the biggest accounts on Wall Street for fixed income as a salesperson is an annuity, because they’re just so big in the volume that they do that you always look like a big producer. Most of the people who are running sales desks or are MDs and things like that, they’re people who cover those accounts. This young African-American guy wasn’t young—he was like 26, 27—he was the backup coverage on this account. The lead coverage got moved to a different desk. And so they

hadn’t figured out who the new coverage was going to be. As the backup coverage, he’s doing all of the work. And here’s the thing: This is what I mean about when the leadership opportunities come. Here, through natural circumstance, [is] a leadership opportunity where this 27-, 28-year-old kid could be covering this account. That would make him the biggest producer on the desk. Do they let him cover the account? No. They pulled [in] some partner, like out of semiretirement, and that partner covers the account with him remaining as the backup. Here’s how the story would have been different: They let him cover the account. He knocks the cover off the ball. He then gets fast-tracked to MD. He then becomes the head of the desk at 33 or 34, because he looks like such a frickin’ superstar. It’s a little butterfly effect, things like that. When people ask me, how come there’s so few desk heads or MDs in this space that are Black? It’s stuff like that. Why everyone’s interested in this topic right now is George Floyd and police brutality. That’s a perception issue, too. That’s perceiving someone as a threat or being violent or as a criminal just on sight. On Wall Street, it’s being perceived as not being competent or being too aggressive or not being worthy of leadership based on sight, not on any of the other evidence around you. As a Black professional on Wall Street, you have to figure out how to deal with that. Here’s the last thing: So I’m very happy with my career. I’m not angry about any of this. Are there times where it makes me slightly frustrated hearing some of the bulls---? Yes, of course. But this is not isolated within Wall Street. So now I’m a tech entrepreneur. Look at my résumé. I worked for one of the most successful fixed-income startups in the history of fixed-income startups. I worked at some of the most prestigious dealers. I have patents in my name for platforms that I’ve built as the lead inventor. The problems with perception definitely impact my ability to raise money. No question about it. You have to ask yourself a question, and this is a real question: If Mark Zuckerberg was Jamal Zuckerberg, would Facebook exist? It goes back to that benefit of the doubt. Is it possible that someone could have seen a Black kid who didn’t graduate from Harvard in a hoodie and sneakers and jeans and looked at him and said, “I believe that he’s really onto something here”? —Matthew Leising

Butler covers private credit in New York. Tan, Abelson, Surane, and Basak cover finance in New York. Leising covers market structure in Los Angeles.

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Leaders With Lacqua / Backstage

Life in 2020 By FRANCINE LACQUA

JOHN STUDZINSKI Vice chairman of Pacific Investment Management Co.

SHEILA PATEL Chairman of Goldman Sachs Asset Management

What was the first thing you did when you came out of lockdown? I would love to say I will be going to the theater sometime soon, but that’s clearly not in the cards. We need the energy, intensity, and excitement of the performers’ interaction and their chemistry with the audience. What did you learn about yourself? The experience has reaffirmed the value of relationships. Thanks to daily prayer and meditation, it’s also given me a greater sense of how my faith anchors me. Where’s the first place you’ll travel to for fun/with your family? I will be disappearing off to my bolthole in Extremadura in western Spain, near Trujillo. It’s an 8th century fortress which has a rich and complex history, recalling the times of the conquistadors and the Spanish Civil War.

What was the first thing you did when you came out of lockdown? It was my birthday, so my husband and I went to dinner with another couple in an actual restaurant the first night they reopened. What did you learn about yourself? I realized how often I rush, with travel and meetings from one thing to the next. Just being in place for a while gave me time to reconnect with some favorite activities—reading and photography, for example. Where’s the first place you’ll travel to for fun/with your family? While on lockdown we have been watching WildEarth’s SafariLive broadcast on YouTube, and it made us yearn for an African safari. What will 2020 be remembered for? I hope we remember some of the good—particularly the extra time with family and the extraordinary efforts of

DAMBISA MOYO Economist and author What was the first thing you did when you came out of lockdown? I went for a long outdoor run to give my Peloton treadmill a break. What did you learn about yourself? It is possible to be even busier than I was before. Which says a lot. Where’s the first place you’ll travel to for fun/with your family? Wherever the next tennis Grand Slam is held with fans. What will 2020 be remembered for? The great purge of our beliefs on how and where to best live, work, engage, and assemble.

Lacqua is co-anchor of Bloomberg Surveillance and host of Leaders With Lacqua.

BLO O M B ERG M A R K ETS

STUDZINSKI: JASON ALDEN/BLOOMBERG. PATEL: BRENDON THORNE/BLOOMBERG. MOYO: DAVID LEVENSON/GET T Y IMAGES

health-care professionals and other essential workers. Recent tragic events have also brought equality and social justice to the top of the agenda. I hope that 2020 is remembered as a turning point.

Cheat Sheet

A Compendium of Functions— New or Featured In This Issue

FEATURED IN THIS ISSUE

NEW ENHANCEMENTS TO TRY RIGHT NOW

Displays Bloomberg Hedge Fund Indices

22, 23

HFS

Search Bloomberg’s database of hedge funds and liquid alternatives strategies

22, 23

FED

Find data related to the Federal Reserve’s Covid-19 response Chart a fund’s premium or discount

ETF

Find exchange-traded funds

HLDR

View the composition of a selected ETF

PORT

Dig into the holdings of an ETF

FIW

Perform relative value analysis on a list of bonds and see how spreads have changed 26, 27, 31, 32

EQS

Screen for stocks that match criteria you specify 30, 31

DRIV

Displays factors driving stock performance

FTW

View historical backtests of factors

SRCH

Search for bonds that match your criteria

CRYP

Monitor Bitcoin and other cryptocurrencies

HRA

Perform regression analysis

CFND

Analyze correlations

Create and manage worksheets

RES

The Research Home Page has been redesigned to provide a one-stop destination for research tailored to your interests. Run {RES <GO>}. To ensure you get the research content most meaningful to you, click the Settings button and choose your role, list of securities, industries, and geographical focus.

LLD

The Loan Level Detail function has been updated with new Hardship and Hardship Type columns. Run {SCRT 2019-4 B <Mtge> LLD <GO>} and scroll to the right, and you can see which loans are claiming hardship because of the Covid-19 pandemic.

BHUB

Bloomberg Launcher is a new Launchpad component that makes it easy to discover terminal functionality relevant to certain Asia-Pacific countries and market focuses. Run {BHUB <GO>}.

24, 26, 27 24, 27

30, 31, 33 31, 33

40, 41 41 41, 46

Discover, preview, and subscribe to news

Track U.S. federal legislation

Trading Analytics is a new function that enables users of FXGO—Bloomberg’s electronic trading platform for foreign exchange—to compare, analyze, and share dealers’ performance statistics. Go to {FXTA <GO>}.

BILL

FXTA

24, 25

BI ACT Displays Bloomberg Intelligence data and research on activist investor campaigns

BKMK Bookmark news and research

Bloomberg’s official League Tables have been enhanced with revenue and wallet share data that you can view alongside deal and issuance rankings. Run {LEAG @USIG <GO>}, for example, for a ranking of U.S. investment-grade managers. LEAG now wakes up to “Combined” under the Table view feature, enabling you to quickly benchmark a company’s performance in markets including bonds, preferreds, and syndicated loans. The Revenue column shows a sum of revenue earned by an involved party, while the Wallet Share (%) column displays each bank’s revenue expressed as a percentage of the total revenue earned in the market.

24, 25, 26

NAV

NSUB

LEAG

49 49

Faster, better answers—24/7. <Help><Help> for Bloomberg Analytics

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The FFM Quiz

Digging Into Diversity By KIMIHIKO TAKAMATSU, KEITA MIMURA, and ESTHER JANG

has racial inequality been in the news this year than at any other point in the past 20 years? What Twitter storm did Adidas AG get embroiled in? Did gender equality policies translate into superior performance this year? Which U.S. technology giant employs the most women? Test your knowledge with Bloomberg’s Functions for the Market quiz. Then follow the steps to see if you had the correct answer. (And learn a bit about how to tap into diversity-related data and analytical tools in the process.) HOW MUCH MORE

How have companies with best-in-class policies and practices on diversity performed against the S&P 500 index this year? Outperformed Underperformed About the same

Scroll to the right using the bar at the bottom of the screen to see 1 Yr Total Return for social indexes compared with the S&P 500 index.

For an annotation that shows percentage change, right-click on the chart, select Annotate and % Change. Click the high in June 2013 and this June.

Click on Benchmarks in the navigation bar on the left. Then click the Social tab. Type “Bloomberg Intelligence ESG” in the command line and select BI ESG Bloomberg Intelligence: Environmental, Social and Governance Analysis. The shortcut is {BI ESG <GO>}.

Change the start date to 01/01/00 and set Period to Monthly. Type “NT news on diversity” in the command line and hit <GO>. This News Trends Chart shows the count of stories from Bloomberg News and other key sources on the topic of diversity.

2. Which incident caused the biggest spike in negative tweets mentioning Adidas in 2020? June 9: Adidas-owned Reebok breaks ties with Crossfit over a George Floyd tweet. June 30: Adidas pulls Facebook ads for not addressing hate speech. July 1: Human resources head quits after criticism from Black employees.

Which tech giant has the highest proportion of female staff? Facebook Twitter Netflix

To see the percentage at peers of the social network, click on the Range chart. Repeat for Twitter and Netflix.

1. How much more news coverage of diversity was there on the Bloomberg terminal in June than during the previous record high in June 2013, when the U.S. Supreme Court struck down a provision of the 1965 Voting Rights Act and overturned the Defense of Marriage Act. 0% to 10% 10% to 20% More than 20%

Click on the biggest red bar to display tweets from that date in the bottom panel. Click YTD in the periodicity bar.

Facebook’s percentage of women employees is shown to the right of Women Employees %.

Type “Adidas” in the command line and select ADS GY Equity in the matches. Type “twitter activity chart” and select GT. The shortcut is {ADS GY <Equity> GT <GO>}.

Type “Facebook” in the command line and select FB US Equity. Then type “ESG” and select Environmental, Social and Governance Analysis. The shortcut is {FB US <Equity> ESG <GO>}.

BLOOMB E RG MA RKE TS

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