State Street Assumes the Swiss AVS Fund; J.P. Morgan Experts Navigate Global FX Volatility as Investors Pour $27.1 Billion into AI Startups

The financial landscape is undergoing significant transformations, driven by key developments in fund management, foreign exchange markets, and technological investments. The Swiss AVS fund has now come under the responsibility of the American bank 美国道富银行 , signifying a strategic shift in its oversight and future direction.

Concurrently, the global FX markets are poised for potential volatility as central banks are likely to cut interest rates in the coming months. Addressing these impending changes, James Nelligan , FX Strategist of J.P. Morgan Securities Plc., and Adam Margolis , Head of Direct Access Clients for EMEA and Asia, have provided valuable insights during a series of breakfast talks held in Switzerland. Their expert analysis highlights the implications for various currencies and investors exposed to these markets, underscoring the need for strategic navigation through the anticipated fluctuations in 2024 and beyond.

Amidst these financial shifts, the technology sector is experiencing a remarkable trend. Investors are defying economic downturns by pouring a substantial $27.1 Billion into AI startups. This surge in investment reflects a robust confidence in the future of artificial intelligence and its transformative potential across industries.

This comprehensive overview delves into the strategic management transition of the Swiss AVS fund to State Street, the expert insights from J.P. Morgan on navigating global FX volatility, and the significant investments flowing into AI startups. Together, these developments offer a detailed picture of the current financial environment, highlighting the challenges and opportunities that lie ahead for investors.

Disclaimer: the Newsletter Investors Board is not an investment advice. The sole purpose of its publication is informative.

Swiss AVS Fund now under the Responsibility of The American State Street

In a significant shift, the Swiss AVS fund, which has been under the administration of UBS for 26 years, is now managed by the American bank State Street . This change was reported by the Tribune de Genève on Monday, signaling a new chapter for the management of the compensation fund for AVS, disability insurance, and APG (loss of earnings allowances). The reserves of these social insurances, totaling over 40 billion francs, have been transitioned to State Street's responsibility.

Background and Decision Process

UBS had long been the custodian bank, holding control over the management of these substantial funds. However, the autonomous public-law institution of the Swiss Confederation overseeing these funds, decided to re-evaluate the mandate. Following a competitive tender process, State Street, headquartered in Boston, emerged victorious, surpassing UBS.

Reasons for the Change

The decision by the Swiss Federal Social Security Funds - compenswiss to transition the mandate to State Street was driven by a combination of specific competence and economic considerations:

1. Technical Competence: State Street is widely recognized for its expertise in this specialized area, positioning itself as a heavyweight in the financial sector. This specific competence was a key factor in compenswiss' decision, as the institution sought a manager with a proven track record in handling complex financial assets.
2. Economic Efficiency: The American institution offered a more economical solution for managing the fund compared to UBS. Although specific figures were not disclosed, the cost-effectiveness of State Street's proposal played a crucial role in the decision-making process.

It is noteworthy that this change is unrelated to the recent forced merger between UBS and Credit Suisse , as the call for tenders was initiated back in 2021.

UBS as Sub-Custodian Bank

Despite the management shift to State Street, UBS remains involved in a significant capacity. The Swiss bank has been appointed as the sub-custodian bank, ensuring that the funds remain technically in the same place. This arrangement provides a layer of continuity and security. In a worst-case scenario, such as State Street facing bankruptcy, compenswiss would retain control over the fund's assets. This is because a custodian bank is not the holder of the assets, ensuring that the funds are safeguarded against any institutional failures.

Implications and Future Outlook

The transition of the AVS fund management to State Street marks a strategic move aimed at enhancing the efficiency and security of these critical social insurance reserves. By selecting a globally recognized institution with specialized competence, compenswiss aims to ensure the robust management of over 40 billion francs in reserves.

This change underscores the evolving dynamics in the financial sector, where competence and cost-efficiency drive decision-making processes. For UBS, remaining as the sub-custodian bank provides continuity and reassurance to the stakeholders involved.

As the AVS fund embarks on this new phase under the stewardship of State Street, the focus will be on maintaining stability and maximizing the returns on these vital social insurance reserves. The collaboration between compenswiss, State Street, and UBS is set to play a pivotal role in achieving these objectives, ensuring that the funds are managed with the highest standards of expertise and security

https://www.rts.ch/info/economie/2024/article/le-fonds-avs-desormais-sous-la-responsabilite-de-la-banque-americaine-state-street-28556330.html

J.P. Morgan Experts Predict FX Volatility Amid Central Bank Rate Cuts

In a series of breakfast talks held in J.P. Morgan 's Switzerland offices, James Nelligan , FX Strategist of J.P. Morgan Securities Plc., and Adam Margolis , Head of Direct Access Clients for EMEA and Asia, shared their insights on the global FX markets (fx-markets.com ). As central banks are likely to cut rates in the coming months, Nelligan and Margolis discussed the implications for various currencies and exposed investors, highlighting potential FX volatility in 2024 and beyond. Here is a detailed overview of their perspectives and strategic recommendations for investors.

Central Bank Rate Cuts: Setting the Stage for FX Volatility

As central banks around the world prepare to cut rates, the FX markets are poised for significant shifts. Nelligan and Margolis underscored that these rate cuts are expected to stimulate economic growth, which in turn will impact currency values. The anticipation of a new rate-cutting regime has already started to influence market sentiment, and investors should brace for heightened volatility in 2024 and beyond.

Currency Forecasts: Swiss Franc in Focus

Swiss Franc (CHF)

• Short-term Outlook: J.P. Morgan's strategists maintain a bearish stance on the Swiss Franc in the short term. The expected global economic recovery, driven by central bank rate cuts, is likely to reduce the demand for safe-haven currencies like the Swiss Franc. Consequently, the CHF may face downward pressure.
• Long-term Outlook: Despite the short-term bearish outlook, the Swiss Franc is anticipated to gradually reassert its upward trend in the longer term. This projection is based on Switzerland's strong economic fundamentals and the potential for a more favorable economic environment post-recovery.

U.S. Presidential Election: A Key Driver of FX Volatility

The upcoming U.S. presidential election is rapidly becoming a focal point for investors. The election's outcome will have profound implications for the FX markets, potentially driving significant volatility. Nelligan and Margolis emphasized that political uncertainty and shifts in fiscal and monetary policies could lead to abrupt movements in currency values. Investors are advised to closely monitor the election developments and consider hedging strategies to manage potential risks.

Commodities: Continued Demand and Strategic Opportunities

Gold

• Gold remains a commodity of interest, primarily driven by robust central bank demand. As central banks diversify their reserves, the demand for gold is expected to stay strong, providing a safe haven for investors amid market uncertainty.

Copper and Natural Gas

• The development of artificial intelligence (AI) technologies is anticipated to drive demand for copper and natural gas. As AI continues to evolve and expand, these commodities will play a crucial role in supporting the necessary infrastructure and technological advancements.

Strategic Considerations for Investors

Given the insights shared by J.P. Morgan's experts, investors should consider the following strategies to navigate the anticipated FX volatility and capitalize on market opportunities with:

Volatility Management

• Hedging Strategies: Implement hedging strategies to protect against potential FX volatility. Consider using options, futures, and other derivatives to mitigate risks associated with currency fluctuations.
• Risk Diversification: Diversify currency exposure across a basket of currencies to spread risk and reduce the impact of any single currency's volatility.

Commodity Investments

• Gold: Allocate a portion of the investment portfolio to gold as a hedge against economic uncertainty and potential currency depreciation.
• Copper and Natural Gas: Explore opportunities in copper and natural gas markets, driven by the growing demand linked to AI development. These commodities offer potential for long-term growth as technological advancements continue.

Monitoring Political Developments

• U.S. Election: Stay informed about the U.S. presidential election and its potential impact on currency markets. Political developments can lead to rapid changes in market conditions, necessitating agile and responsive investment strategies.

The insights provided by James Nelligan and Adam Margolis offer a comprehensive outlook on the FX markets, highlighting key factors that will influence currency movements and investor strategies in the coming months. As central banks gear up for rate cuts, the Swiss Franc faces short-term bearish pressure, while the U.S. election looms as a significant driver of FX volatility. Meanwhile, commodities like gold, copper, and natural gas present strategic opportunities for investors. By implementing robust risk management strategies and staying attuned to market developments, investors can navigate the challenges and seize the opportunities presented by the evolving FX landscape

https://www.dhirubhai.net/posts/jpmorganprivatebank-us_with-central-banks-likely-to-cut-rates-in-activity-7206688815485218816-0BmI/?utm_source=share&utm_medium=member_ios

Investors Pour $27.1 Billion into AI Startups, Defying a Downturn

Despite a challenging environment for many tech startups, the artificial intelligence (AI) sector continues to thrive. Investors have poured $27.1 Billion into AI startups in the United States from April to June 2024, marking a significant investment surge that contrasts sharply with the broader startup downturn.

The AI Boom: A Strong Counterpoint

The AI boom that began in late 2022 has become a robust counterpoint to the overall decline in the startup ecosystem. Unprofitable tech startups have been cutting costs, selling themselves, or going out of business. However, those focusing on AI have seen a dramatic influx of investment. According to PitchBook , which tracks startups, AI startups attracted nearly half of all US startup funding during this period, with total US startup funding reaching $56 Billion, up 57% from the previous year and marking the highest three-month total in two years.

Significant Funding Rounds

Several notable AI companies have raised substantial funding rounds:

• CoreWeave : A provider of cloud computing services for AI companies, raised $1.1 Billion, followed by $7.5 Billion in debt, valuing the company at $19 Billion.
• Scale AI : A data provider for AI companies, raised $1 Billion, valuing it at $13.8 Billion.
• xAI : Founded by Elon Musk, raised $6 Billion, valuing it at $24 Billion.

These massive funding rounds have boosted the industry’s overall deal-making by dollar amount and number of deals. Kyle Stanford, CAIA , a research analyst at PitchBook, noted, "It’s not declining anymore. The bottom has already fallen out."

Shifting Investor Sentiment

The surge in AI investment has prompted some venture capital investors to change their messaging. Last year, Tom Loverro , an investor at IVP , predicted a "mass extinction event" for startups and advised them to cut costs. Recently, he declared that era over, calling this period the "Great Reawakening" and encouraging companies to "pour gas" on growth, particularly around AI. He emphasized on X, "The AI train is leaving the station & you need to be on it."

The Catalyst: OpenAI’s ChatGPT

The startup downturn began in early 2022, exacerbated by rising interest rates that pushed investors towards less risky investments. In response to dwindling funding, startups slashed staff and scaled back ambitions. However, the release of OpenAI , ChatGPT chatbot in late 2022 reignited interest in the sector. Generative AI technology, capable of producing text, images, and videos, set off a frenzy of startup creation and funding.

AI’s Cost and Growth Dynamics

While AI creates efficiencies, it is costly to build. AI startups require substantial investments in powerful computer chips and cloud storage. An analysis by Kruze Consulting revealed that AI startups spent an average of 22% of their expenses on computing costs in the first quarter of 2024, more than double the 10% spent by non-AI software companies. Healy Jones , Kruze’s vice president of financial strategy, explained, "No wonder VCs are throwing money into these companies. While AI startups are growing faster than other startups, they clearly need the money."

The Upside of AI Investments

For investors, the potential upside of backing AI startups is enormous. The hype around AI’s potential is significant, with prominent investors and executives predicting that the market for AI will surpass those of the smartphone, personal computer, social media, and the internet.

Conclusion

The AI sector’s continued growth and substantial investments highlight its resilience and potential in an otherwise challenging startup landscape. As AI technology evolves and its applications expand, the sector remains a beacon of opportunity and innovation for investors and entrepreneurs alike.

https://www.business-standard.com/world-news/investors-pour-27-1-billion-into-ai-startups-defying-a-downturn-124070301277_1.html

Conclusion

The financial landscape is undergoing significant transformations driven by strategic shifts in fund management, anticipated FX market volatility, and substantial investments in the technology sector.

The transition of the Swiss AVS fund management to State Street represents a pivotal move aimed at enhancing the efficiency and security of critical social insurance reserves, ensuring robust oversight and potential for optimized returns.

Concurrently, J.P. Morgan experts have highlighted the potential for increased FX volatility amid anticipated central bank rate cuts, emphasizing the need for strategic navigation and hedging strategies for investors.

Amid these developments, the AI sector stands out as a beacon of opportunity, with investors pouring $27.1 Billion into AI startups despite broader economic downturns. This investment surge reflects strong confidence in AI’s transformative potential, marking it as a pivotal growth area within the technology industry. As AI technology continues to evolve, it presents both significant opportunities and challenges, necessitating strategic investment approaches to capitalize on its growth potential.

Collectively, these developments underscore a dynamic financial environment where strategic decision-making, risk management, and innovation play critical roles. Investors and stakeholders must stay informed and agile, leveraging expert insights and market trends to navigate the evolving landscape and seize emerging opportunities.

Disclaimer: the Newsletter Investors Board is not an investment advice. The sole purpose of its publication is informative.

Sources: rts.ch , jpmorgan.com , business-standard.com

State Street Swiss Federal Social Security Funds - compenswiss UBS Credit Suisse fx-markets.com PitchBook CoreWeave Scale AI xAI IVP Kruze Consulting OpenAI J.P. Morgan Private Bank Tribune de Genève

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