Kilde’s Fountain of Finance #10 - 03 April

In this newsletter edition, we present insights on the top ten financial trends for 2024, guidance on navigating credit opportunities during tightening spreads, and the integration of tokenization in traditional finance.

Industry buzz features discussions on how the best investors are now located outside the US, investment advice on stocks, and the potential of private credit as a lucrative avenue for diversification and growth!

We hope you enjoy the read!

Kilde’s Industry Intel: Our Favorite Industry Report Roundups

DB Top Ten Themes for 2024

Here are DB's top 10 financial trends to watch in 2024.

1. Open-Ended Economies: Rewind to the 1980s - Populist election outcomes could align countries into new trade clusters. This may hamper trade and jeopardize ties while forging closer regional partnerships. We could see more protectionist policies as governments focus inward.

2. The Consumer Paradox - Consumers keep spending despite low confidence. Generational differences are appearing. Asset owners may be cushioned while younger generations take on more debt. Consumer resilience looks set to continue but job losses could hit.

3. The Danger of High Real Yields - Higher real yields constrain governments' ability to provide stimulus. The growth vs real yield gap has narrowed, requiring smaller deficits for debt sustainability. Less room for bailouts means policymakers have a bias against stimulus.

4. A Year of Cross-Asset Mean Reversion - Equity and bond yields in the US, Europe, and EMs have room to revert after a narrow 2022 rally. This diversification could benefit undervalued stocks and cheap assets outside the US.

5. One AI Era Draws to a Close - Smaller, more efficient AI models are emerging to deliver capabilities without huge computing needs. This is because large models face regulatory scrutiny. The AI frontier is advancing via collaboration and specialisation.

6. Green Shoots in the IPO Market - Non-VC-backed IPOs may jump ahead of a US recession. But expect selective investors and modest deals. Rising rates and valuations still weigh.

7. The Winners and Losers from Higher Japanese Inflation - Persistently high inflation intersects with potential BoJ policy normalisation. This creates winners and losers between generations and fiscal and monetary policy.

8. An Odd-Looking Year for the Labour Market - Corporate layoffs are rising amid still strong union demands. Unemployment may not spike, limiting retrenchment. Worker power looks set to continue during a shallow downturn.

9. Tech Cold War: The US-China Race for Semiconductor Dominance - The US and China are making strides towards self-sufficiency in semiconductors in an escalating tech war. But production integrations, rare materials access, and IP make independence difficult.

10. The Next Asset Bubble - Easy bubbles like crypto and SPACs popped. But as bond yields fall, growth rebuilds, and complacency returns, the stage is set for the next bubble despite tight money.

Link to report - https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000531029/Top_10_themes_for_2024.xhtml?rwnode=RPS_EN-PROD$HIDDEN_GLOBAL_SEARCH

Navigating Credit Opportunities Amidst Tightening Spreads: Insights from KKR

With bank lending drying up, where can investors find opportunities in credit? According to KKR, it depends. Spreads have narrowed across credit assets, so a nuanced approach is required. Private credit remains attractive, especially asset-based lending, as smaller banks pull back. However, some direct lending is more competitive amidst spread compression. High-yield bonds are starting to offer better relative value vs loans. And CLOs provide diversification benefits.?

The bottom line - with all-in yields near peak levels, this is the time for multi-asset credit portfolios. Be ready to toggle between HY, loans, and private credit as the economy evolves. Seek higher quality and stronger protections given late-cycle risks.

Link to report - https://www.kkr.com/insights/outlook

Unlocking the Future: Tokenization in Traditional Finance

The recent JPMorgan and Apollo proof-of-concept under Project Guardian offers valuable insights into the potential of tokenization in transforming traditional finance. While tokenized assets currently represent a small fraction of the overall market, the learnings highlight several benefits this technology could unlock.?

Key takeaways:

• Tokenized assets are estimated at only $1.3 billion, almost entirely US treasuries and private loans. This universe needs to expand significantly for tokenisation to become a meaningful part of portfolio construction.
• However, the proof-of-concept demonstrated that tokenisation could enable automated, scalable management of portfolios across public and private assets. This could allow asset managers to combine the efficiency of passive investing with the return potential of active alternatives.
• Interoperability solutions connecting various networks could also give investors seamless access to a broader range of tokenised funds and strategies.
• Overall, tokenisation shows promise to deliver better portfolio construction, access, and efficiency. However, it faces competition from other innovations like passive index trackers and actively managed certificates that offer similar benefits.

As more assets are tokenised across networks, we will get greater clarity on whether this technology can compete with or complement the ceaseless evolution in traditional finance.

Link to report - https://www.jpmorgan.com/onyx/documents/portfolio-management-powered-by-tokenization.pdf

Kilde’s latest scoop on Investing

The Best Investors Aren't in the US Anymore

In a recent interview, Apollo Global Management CEO Marc Rowan shared an interesting perspective on the evolution of investing.

Early in his career, Rowan believed the best investors were US-based. However, he says this is no longer the case. According to Rowan, institutional investors in the US have become too beholden to benchmarks, limiting their flexibility.

Meanwhile, he sees investors in places like Singapore and UAE as more dynamic and able to pursue differentiated approaches. Rowan specifically called out great things happening among family offices outside the US.

Reference: https://www.bloomberg.com/news/articles/2024-02-27/apollo-s-rowan-says-the-best-investors-aren-t-in-the-us-anymore?cmpid=BBD022724_OAS&utm_medium=email&utm_source=newsletter&utm_term=240227&utm_campaign=openasia&sref=KJhMH2ka

Getting the Size of Your Bets Right Matters as Much as Picking Winners?

As investment professionals, we often focus on researching and selecting the right stocks or assets to invest in. However, according to Victor Haghani and James White, the size of your bets is just as critical as what you invest in.

They provide examples of how getting the size wrong can turn even good ideas into bad outcomes. Haghani was a founding partner of LTCM, the large hedge fund that collapsed in 1998 after its trades went way beyond prudent sizes.

Their advice:

1. Size positions appropriately based on research and Conviction. Going "all in" on even strong ideas is risky.

2. Continuously stress-test your portfolio and adjust sizing as views evolve.

3. Avoid letting early wins lead to complacency on position sizing.

Getting the size right is a nuanced skill, but avoiding portfolio blowups when the unexpected happens pays off. As experts put it: "Rarely does anyone write a profile about the brilliant money manager who consistently gets the size of their investments right. Yet the decision of how much to wager is at least as critical as deciding what to invest in."

Unleashing the Potential of Private Credit: A Lucrative Path to Diversification and Growth

Private credit is creating significant interest among investors and advisors for valid reasons.

Here's an overview of this asset class:

• It offers attractive income and diversification. With higher rates, investors can achieve yields ranging from 10-13%, similar to equity gains.
• Private credit serves as a solution for traditional lenders to reduce their operations. It provides flexible and rapid lending options as banks decrease their lending activities.
• The market for private credit is expanding rapidly, with forecasts indicating it could reach $2 trillion by 2027. Large private credit funds are raising substantial capital levels.
• Recent performances have been impressive. The presence of high rates is expected to drive higher returns, while interval funds are enhancing accessibility.
• Even if interest rates decline, the demand and deal flow are likely to remain stable. However, the expertise of fund managers will be crucial if defaults rise on loans during peak-market conditions.

In summary, private credit offers income, attractive yields, diversification, and growth opportunities..

Reference: https://www.wealthmanagement.com/alternative-investments/why-private-credit-alternative-asset-class-everyone-covets

About Kilde’s Fountain of Finance

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About Kilde

Kilde is an investment platform tailored for individuals and institutions, providing access to private credit deals supported by cash-generating assets. We offer up to 13.5% annual returns to our investors, surpassing similar risk investments yielding around 8%. We are licensed by the Monetary Authority of Singapore. Find out more: https://www.kilde.sg/