Week of September 9, 2024

Dec Mullarkey, CFA , Managing Director, Investment Strategy and Asset Allocation

In July 2012, then-European Central Bank (ECB) President Mario Draghi delivered one of the bank’s most consequential promises, declaring the ECB would do “whatever it takes” to preserve the euro. That pledge was enough to help arrest Europe’s debt crisis, allowing the eurozone and its currency to survive.

Draghi has since moved on and now faces a different challenge, of proposing how the EU can reboot its productivity and competitiveness. After toiling for months, he delivered his 400-page report this week. Stacked with charts and data, Draghi’s report recommends the region needs a “new industrial policy.” He estimates the EU would need almost 5% of its annual GDP to be spent on investment.

Draghi sees boosting innovation as key and recommends pooling research funding and decisions across the region. Risk taking also needs to be better supported by deeper capital markets.  Currently, most corporate debt comes from banks who prefer well established companies. To accelerate entrepreneurship and growth, Europe needs to build out its venture and public capital markets, in his view.

The essential message is if Europe is going to compete with the U.S. and China, it needs to scale better and act like a single market in nurturing and funding world class industries. Now the hard part: Draghi once tamed markets with just three words. Will 400 pages be enough to convince 27 EU members, with disparate local interests, to band together for their collective benefit?

Sources: Bloomberg, Financial Times, 2024.

Andrew Kleeman , Senior Managing Director, Co-Head of Private Fixed Income

More firms than ever are accessing investment grade (IG) private credit through managers with established teams in the asset class, based on our examination of data from the two largest secondary trading firms. This growth from external clients has changed the liquidity profile of the asset class.

Generally, the trading of smaller positions has become more common. We have consistently seen portfolios of IG private credit with bonds smaller than $5 million on offer from these large secondary trading firms, StoneCastle Securities and Seaport Global. StoneCastle reports that trades for bonds smaller than $5 million have grown from 15% of their trades by count in 2017 to 44% of their trades by count year to date in 2024. For trades of less than $3 million, the percentages are 6% by count in 2017 growing to 30% year to date in 2024. The trend is similar with Seaport Global.

Liquidity demands in the market have increased as third-party clients are more likely to undergo strategy shifts over time, occasionally from merger and acquisition activity. We have also observed that available liquidity has been enhanced by other firms trying to ramp up external client portfolios to fill new mandates.

Sources: StoneCastle, Seaport Global, 2024.

Kevin Quinlan, MBA , Senior Director, Climate & Client Strategy

This past summer has seen several catastrophic weather events take place in Canada. Wildfires burned swaths of Jasper, Alberta, and flash floods put cars underwater in Toronto. But from a damage perspective, it was a one-day thunderstorm in Calgary – producing giant hail – that cost the most. The damage highlights the challenges that governments and insurers face in dealing with extreme weather events, with infrastructure not built for a heating climate.

In early August, a severe thunderstorm in Calgary led to hail the size of golf balls, damaging homes, planes and vehicles. Abnormally large hail is becoming more common, and even now has a name: gorilla hail. Almost one in five homes in Calgary were impacted, with more than 130,000 claims.

Initial estimates released this week put the cost at C$2.8 billion in insured losses. That makes the thunderstorm the second most expensive weather event in Canadian history, after the 2016 wildfire in Fort McMurray. For comparison, the Jasper wildfires – which destroyed 30% of the town – cost C$880M in insured damages.

Currently, there are more than 220,000 insurance claims in Canada from four catastrophic weather events this summer, a rate that is 406% higher than the 20-year average.

Sources: Insurance Bureau of Canada, New York Times, Calgary Herald, 2024.

The information may include statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. All opinions and commentary are subject to change without notice. SLC Management is not affiliated with, nor endorsing, any third parties mentioned within this article.

Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here.

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