WEBVTT - Hedge Fund Strategy Warning & Geopolitical Headwinds

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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<v Speaker 1>daybaq At podcast, available every morning on Apple, Spotify or

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<v Speaker 1>wherever you listen. It's Monday, the twenty sixth of February

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<v Speaker 1>in London. I'm Caroline Hipka.

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<v Speaker 2>And I'm Stephen Carroll. Coming up today. Why the world's

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<v Speaker 2>most profitable hedge fund bet is facing a new era

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<v Speaker 2>of risk.

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<v Speaker 1>Bercher Hathaway's cash pile jumps to a record one hundred

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<v Speaker 1>and sixty eight billion dollars as Buffett bemoans a lack

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<v Speaker 1>of opportunities.

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<v Speaker 2>And from globalism to protectionism. What this week's WTO summit

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<v Speaker 2>tells us about the risks of a changing world order.

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<v Speaker 1>Let's start with a roundup of our top stories.

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<v Speaker 2>The most successful hedge fund strategy of twenty twenty three

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<v Speaker 2>is facing a more complicated future. A new era of

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<v Speaker 2>risk is threatening the models that insurance insurance link to

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<v Speaker 2>securities dominated by catastrophe bonds rely on. Bloomberg's Tea Ada

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<v Speaker 2>Bio has the details.

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<v Speaker 3>So called cat bonds issued by insurers to shield from

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<v Speaker 3>losses too big to cover. They transfer the risk to

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<v Speaker 3>investors who lose it for pre defined catastrophe hits and

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<v Speaker 3>gain big if it doesn't. But calculating catastrophic risk is

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<v Speaker 3>getting more difficult because of a growing concentration of property

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<v Speaker 3>in areas prone to weather events like destructive thunderstorms. They're

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<v Speaker 3>now outpacing the number of once in a generation natural

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<v Speaker 3>disasters which cat bonds are designed for. Climate change is

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<v Speaker 3>amongst the factors behind the shift, fueling uncertainty in the

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<v Speaker 3>cat bond market, which investors are currently unprepared for. In London,

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<v Speaker 3>Tea Ated, Baio, Bimberg, Radio.

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<v Speaker 1>Berkshire, Hathaway's cash pile jumped to a record one hundred

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<v Speaker 1>and sixty seven point six billion dollars in the fourth

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<v Speaker 1>quarter as the conglomerates struggled to find deals at attractive valuations.

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<v Speaker 1>CEO Warren Buffett use his annual shareholder letter to decry

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<v Speaker 1>a lack of meaningful deals that he said would give

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<v Speaker 1>the firm a shot at eye popping performance. The company

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<v Speaker 1>also reported a jump in fourth quarter operating earnings of

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<v Speaker 1>eight point four eight billion dollars, helped by an increase

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<v Speaker 1>in insurance underwriting and investment income.

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<v Speaker 2>Ukraine's president vladimyr Zelenski says his country has lost thirty

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<v Speaker 2>one thousand soldiers since Russia's full scale invasion began two

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<v Speaker 2>years ago. He added that there is a lack of

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<v Speaker 2>precise data on civilian casualties, though the figure is in

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<v Speaker 2>the tens of thousands. Ukrainian president also stressed the need

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<v Speaker 2>for military support from American allies as a congressional decision

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<v Speaker 2>on sixty billion dollars worth of aid for the country looms.

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<v Speaker 2>US National Security Advisor Jake Sullivan agreed, urging the House

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<v Speaker 2>to approve measures.

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<v Speaker 4>Ukraine can go further in retaking territory that Russia has occupied,

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<v Speaker 4>ensuring Russia fails, and ensuring Ukraine prevails, but it can

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<v Speaker 4>only do so if it has the tools that it needs,

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<v Speaker 4>and that is why the United States needs to deliver

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<v Speaker 4>the aid package that passed on a massive bipartisan vote

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<v Speaker 4>in the Senate.

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<v Speaker 2>The House needs to step up and pass that bill.

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<v Speaker 2>Jake Sullivan was speaking as President. Zelenski also claimed that

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<v Speaker 2>some plans for Kiev's counter offensive last year were leaked

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<v Speaker 2>to Russia.

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<v Speaker 1>When it comes to the conflict in the Middle East,

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<v Speaker 1>Benjamin Letnia, who says that he will have a plan

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<v Speaker 1>of action for evacuating civilians in Rafa soon. The Israeli

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<v Speaker 1>Prime Minister revealed that those sheltering in the southern city

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<v Speaker 1>would be directed north where fighting has finished.

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<v Speaker 2>We agree on this, I mean, we don't have to

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<v Speaker 2>be plodded it.

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<v Speaker 5>We're on the same page with the US oners because

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<v Speaker 5>that's how we do it.

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<v Speaker 1>Benjamin Lettanier, who's speaking there. He also said that his

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<v Speaker 1>plans will include how to dismantle remaining Hamas battalions.

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<v Speaker 2>The UK government is trying to revamp the way it

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<v Speaker 2>handles business investment. A new panel made up of senior

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<v Speaker 2>ministers and government officials aims to coordinate between departments to

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<v Speaker 2>bring in large projects. It was one of the key

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<v Speaker 2>plan thanks of Richard Harrington's review of the UK's FDI slump.

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<v Speaker 2>He spoke to us when the review was published last November.

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<v Speaker 5>Up to now, we've been very reactive in government in

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<v Speaker 5>London or in the regions. If a company comes to

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<v Speaker 5>us and they're interested in investing here, it's slow and

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<v Speaker 5>it's cumbersome, and often they have to go through different departments,

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<v Speaker 5>but actually eventually a package is brought up with the

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<v Speaker 5>other countries are better organized. They have a concierge service,

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<v Speaker 5>they have an investment minister at very senior level.

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<v Speaker 2>At Harrington told Bloomberg he's pleased with progress so far,

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<v Speaker 2>but some question if a concierge service can compete with

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<v Speaker 2>the US and it's Inflation Reduction Act investment plan.

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<v Speaker 1>The Conservative Party is facing accusations of racism after a

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<v Speaker 1>high profile Conservative MP was suspended for suggesting that the

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<v Speaker 1>mayor of London was controlled by quote Islamists. Lee Anderson

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<v Speaker 1>was a deputy chairman in the party until he refused

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<v Speaker 1>to apologize for the remarks, but Deputy Prime Minister Oliver

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<v Speaker 1>Dowden has refused to call the comments racist.

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<v Speaker 6>I see from my own constituents where Jewish people are

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<v Speaker 6>fearful of walking the streets showing symbols of their own religion,

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<v Speaker 6>where we have hate on marches, where the actual conduct

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<v Speaker 6>of Parliament is apparently being influenced by threats of violence

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<v Speaker 6>and intimidation.

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<v Speaker 1>Unlike Dowden, the mayor of Lonton City Cahn't, said that

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<v Speaker 1>the claim was islamophobic, racist and stokes anti Muslim hatred.

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<v Speaker 1>Anderson's suspension comes as MPs are seeing increasing threats of violence,

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<v Speaker 1>with The Sunday Times reporting that three female MP's have

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<v Speaker 1>been assigned bodyguards.

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<v Speaker 2>In the United States, even a home state advantage couldn't

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<v Speaker 2>give Nicki Haley her first winner of the Republican presidential primaries.

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<v Speaker 2>Donald Trump won South Carolina bout twenty points over the weekend.

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<v Speaker 2>That's despite Haley being the former governor there. The news

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<v Speaker 2>has spurred one of her biggest donors to withdraw their

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<v Speaker 2>campaign fund with more Hairs bloombergs at Baxter.

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<v Speaker 7>This of course comes after her disappointing loss in South Carolina,

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<v Speaker 7>and now the Charles cokebacked Americans for Prosperity Action will

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<v Speaker 7>cut funding. It has spent millions of dollars since the

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<v Speaker 7>fall on advertising and voter outreach efforts, but it says now,

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<v Speaker 7>given the challenges in the primary stage ahead, well, it

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<v Speaker 7>says it doesn't think it can make a substantial difference.

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<v Speaker 7>The pack says it will continue to endorse her, but

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<v Speaker 7>we'll focus on funding where it can make a difference

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<v Speaker 7>at Baxter Bloomberg Radio.

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<v Speaker 2>Now, at a moment, we'll dig into the day's results

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<v Speaker 2>from Berkshire Hathaway and look at some of the big

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<v Speaker 2>issues at stake at the wto Summus in Abu Dhabi.

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<v Speaker 2>But another story that caught our eye this morning. Freddie

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<v Speaker 2>Mercury's Kensington home is going on the market. It's being

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<v Speaker 2>sold by his friend Mary Austin, who inherited from him

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<v Speaker 2>when he died in nineteen ninety one. She's been speaking

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<v Speaker 2>exclusively to our colleague Sarah Rappaport from Bloomberg Pursuits. It's

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<v Speaker 2>a fascinating conversation. The house itself is stunning in many

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<v Speaker 2>many senses of that word.

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<v Speaker 8>Yeah.

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<v Speaker 1>I walked past Sarah's desk last week when she had

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<v Speaker 1>got the brochure of the how I mean fabulous, absolutely amazing.

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<v Speaker 1>It had pictures of the dressing room Eddie Mercury, Yeah, amazing, as.

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<v Speaker 2>An FM carved into the marble of the after the

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<v Speaker 2>main bedroom, as well as an eight bedroom house tucked

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<v Speaker 2>away in Kensington. It's I mean, it still contains many

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<v Speaker 2>of the original design features that he put in place

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<v Speaker 2>when he when he bought the house. Sarah talks about

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<v Speaker 2>having a strong sense of personality.

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<v Speaker 1>Come on, well, thirty million pounds is it right? Okay,

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<v Speaker 1>Well we'll see who snaps that up. Very interesting story.

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<v Speaker 1>Sarah Rappaport from Bloomberg Pursuits. Of course, one of the

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<v Speaker 1>best jobs in the building with that story.

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<v Speaker 2>For us, let's get more now on one of the

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<v Speaker 2>big stories in the investing world, hedge funds. Piling inter

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<v Speaker 2>sector's top strategy from twenty twenty three investing in these

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<v Speaker 2>insurance linked to securities or catastrophe bonds. But the risks

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<v Speaker 2>get associated with them are getting harder to calculate, bimbricks.

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<v Speaker 2>Charlie Willes joins us now for more Morning to you. Charnie,

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<v Speaker 2>tell us a bit more about then this cat bond

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<v Speaker 2>strategy they're prot such a big winner for hedge funds

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<v Speaker 2>last year. Is it still such a good bet?

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<v Speaker 8>Yeah?

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<v Speaker 9>Well, I mean this is a really fascinating story because

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<v Speaker 9>it gets at how climate change is changing, how finance

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<v Speaker 9>needs to assess risk. And so last year cat bonds

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<v Speaker 9>as they're known, with these catastrophe bonds were the best

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<v Speaker 9>performing asset class for hedge funds. They brought a nearly

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<v Speaker 9>twenty percent return. And the deal here is interesting, right,

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<v Speaker 9>So they these cat bonds are used by insurers to

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<v Speaker 9>kind of insure against the big ones. So these losses

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<v Speaker 9>that are just kind of too big to cover, they

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<v Speaker 9>securitize those losses and investors, you know, bet that you

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<v Speaker 9>know the catastrophe won't come. But what's been increasingly happening

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<v Speaker 9>is these sort of secondary perils tend to happen. So

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<v Speaker 9>there's a lot of property in areas where there might

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<v Speaker 9>be more floods, more wildfires, more sort of you know,

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<v Speaker 9>not huge ones, but smaller ones, and those are actually

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<v Speaker 9>you know, reassessing, forcing investors and insurers to reassess how

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<v Speaker 9>they calculate risk. And there's more investors come to the strategy,

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<v Speaker 9>it actually could make it less profitable and just a

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<v Speaker 9>lot more difficult to invest on.

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<v Speaker 1>Yeah, absolutely, the changing picture when it comes to climate.

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<v Speaker 1>You've also been looking then at the earnings of Berkshire Hathaway.

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<v Speaker 1>Cash was king. I mean this is also something that

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<v Speaker 1>Warren Buffett has talked about before, the lack of deals

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<v Speaker 1>out there for him.

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<v Speaker 9>Yeah exactly. I mean, look, Berkshire Hathaway famous for its

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<v Speaker 9>insurance businesses as well, and yes, that was a record

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<v Speaker 9>cash pile that they reported this weekend with their annual

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<v Speaker 9>letter as well as their results, one hundred sixty seven

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<v Speaker 9>point six billion dollars in cash, which is a lot.

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<v Speaker 9>And I mean, look, this is something that Berkshire has

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<v Speaker 9>long done, right because of their insurance business, they have

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<v Speaker 9>to keep a lot of cash on hand. They invest,

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<v Speaker 9>you know, one of the most famous value investors in

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<v Speaker 9>the entire world, but you know, in a higher rate environment.

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<v Speaker 9>And I think having a lot of that cash on

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<v Speaker 9>hand is bringing a lot less scrutiny than I think

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<v Speaker 9>it probably would otherwise.

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<v Speaker 2>These earnings are always very closely watched as being a

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<v Speaker 2>proxy for US economic health because it's such a diverse

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<v Speaker 2>business as well. What sort of signals did we get

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<v Speaker 2>then from this report about the wider economy?

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<v Speaker 9>It was interesting. So operating earnings, which are the metric

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<v Speaker 9>that Buffett prefers because they don't take into account the

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<v Speaker 9>unrealized losses and gains on his investment portfolio. At Berkshire Hathway,

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<v Speaker 9>they were up from last year in the same period,

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<v Speaker 9>so eight point four to eight billion versus the same

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<v Speaker 9>period last year six point six three billion, and you know,

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<v Speaker 9>on trend this morning. They were aided by insurance, so

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<v Speaker 9>the insurance companies in the Berkshire Hathway portfolio were able

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<v Speaker 9>to increase premiums, but the claims were lower at some

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<v Speaker 9>of the businesses, but they were dragged down the earnings

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<v Speaker 9>overall by some difficulties in rail and some difficulties in utilities.

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<v Speaker 9>Those were mentioned in Buffett's annual letter, which is you know,

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<v Speaker 9>famously parsed by investors. He interestingly meant some difficulties with

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<v Speaker 9>regulation and wage negotiations at rail, which is a little

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<v Speaker 9>bit unusual for Buffett because he tends not to criticize

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<v Speaker 9>some of the regulatory moves coming from Washington.

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<v Speaker 1>Okay, that's interesting. It was also the first annual letter

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<v Speaker 1>since berusha's vice chairman, Charliemonga passed away, so also very

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<v Speaker 1>interesting moment in terms of change at Berkshire Hathaway. Thank

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<v Speaker 1>you so much shat Charlie Wells for being with us

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<v Speaker 1>then taking us through the latest on hedge funds and

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<v Speaker 1>the results from Berkshire Hathaway.

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<v Speaker 2>Now, global trade ministers are gathering in Abu Dhabi for

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<v Speaker 2>the World Trade Organizations Summit, amid a tide of trade

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<v Speaker 2>protection and questions over the WTOS relevance. Our trade reporter

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<v Speaker 2>Eric Martin joins us now from Abudabi. From Morgan morning

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<v Speaker 2>to you, Eric, how big are the stakes then at

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<v Speaker 2>this meeting? Does the organization still have the power and

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<v Speaker 2>the cloud to be able to secure global agreement?

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<v Speaker 8>Well, that absolutely is an open question. You know, we've

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<v Speaker 8>seen the WTO kind of losing a slowly voting relevance

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<v Speaker 8>over really the last more than decade. It's been more

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<v Speaker 8>than ten years since the Doha Development Round bailed in

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<v Speaker 8>twenty eleven, and we've seen a real absence of global

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<v Speaker 8>agreements through the WTM since then. What we have seen

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<v Speaker 8>is more regional agreements, things like are set in Asia

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<v Speaker 8>or like the CPTPP, also in the Indopacidic, which of

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<v Speaker 8>course Donald Trump withdrew the US from in his first

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<v Speaker 8>days in office in twenty seventeen. But so the WTO

0:12:36.640 --> 0:12:40.040
<v Speaker 8>really is under pressure to show that it can still

0:12:40.080 --> 0:12:44.320
<v Speaker 8>produce global agreements or even preserve the status quo in

0:12:44.400 --> 0:12:50.520
<v Speaker 8>terms of preventing greater fragmentation in trade.

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<v Speaker 3>Yeah.

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<v Speaker 1>Absolutely, So what do you think the key issues then

0:12:55.000 --> 0:12:56.840
<v Speaker 1>will be that they will try to focus on and

0:12:56.960 --> 0:12:59.560
<v Speaker 1>find some some agreement and momentum on.

0:13:01.559 --> 0:13:04.800
<v Speaker 8>Well, one key test will be whether in a WTO

0:13:05.160 --> 0:13:09.400
<v Speaker 8>can renew what's called the e commerce moratorium. This is

0:13:09.440 --> 0:13:15.080
<v Speaker 8>a prohibition on countries applying tariffs on digital trade. So

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<v Speaker 8>think of a movie that you would download in Bali

0:13:19.480 --> 0:13:24.160
<v Speaker 8>from Netflix, or a book that you would would download

0:13:24.200 --> 0:13:27.240
<v Speaker 8>when you're abroad right now. All of these kinds of

0:13:27.280 --> 0:13:33.200
<v Speaker 8>digital trans first are prohibited from facing duties customs duties,

0:13:33.440 --> 0:13:37.200
<v Speaker 8>but some countries like Indonesia as well as some indication

0:13:37.320 --> 0:13:40.280
<v Speaker 8>from India and South Africa, that there's interest in being

0:13:40.280 --> 0:13:43.560
<v Speaker 8>able to raise revenue from these kinds of sales in

0:13:43.559 --> 0:13:46.160
<v Speaker 8>this kind of trade. So that's one key thing to

0:13:46.240 --> 0:13:49.480
<v Speaker 8>watch is whether this will be preserved and rolled over,

0:13:49.920 --> 0:13:52.560
<v Speaker 8>renewed as it always has been every couple of years

0:13:52.600 --> 0:13:55.440
<v Speaker 8>since nineteen ninety eight, or whether we're going to finally

0:13:55.480 --> 0:14:00.880
<v Speaker 8>see a breakdown in that consensus there. Remember, WTO operates

0:14:00.920 --> 0:14:03.800
<v Speaker 8>by consensus. It only takes one out of one hundred

0:14:03.800 --> 0:14:07.360
<v Speaker 8>and sixty six members to prevent agreement on any topic. So,

0:14:07.600 --> 0:14:12.079
<v Speaker 8>especially in today's charged geoplitical world and rivalry between US

0:14:12.120 --> 0:14:13.920
<v Speaker 8>and China and fragmentation, that.

0:14:14.320 --> 0:14:17.600
<v Speaker 2>Is a tall arnor Yeah, that's a really interesting point actually,

0:14:17.640 --> 0:14:20.160
<v Speaker 2>because the WTO is a sort of a forum for

0:14:20.240 --> 0:14:23.800
<v Speaker 2>these geopolitical differences. We were hearing from China's Commerce ministry

0:14:23.800 --> 0:14:27.760
<v Speaker 2>only today disputing claims from the US that it's flouting

0:14:27.960 --> 0:14:29.080
<v Speaker 2>WTO rules.

0:14:29.720 --> 0:14:32.720
<v Speaker 8>Absolutely. This is a report that we saw on Friday

0:14:33.000 --> 0:14:36.040
<v Speaker 8>from the US Trade Representative talking about how in the

0:14:36.160 --> 0:14:40.880
<v Speaker 8>US view, China continues to have practices that allowt the

0:14:41.000 --> 0:14:47.360
<v Speaker 8>WTO requirement that member nations be market based economies and

0:14:47.440 --> 0:14:51.040
<v Speaker 8>saying wto excuse me, China continues to be non market economy,

0:14:51.440 --> 0:14:52.200
<v Speaker 8>and we.

0:14:52.120 --> 0:14:54.480
<v Speaker 2>Saw strong pushback from Beijing.

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<v Speaker 8>Saying that it is not in violation of global trade

0:14:58.640 --> 0:15:02.200
<v Speaker 8>rules from in their opinion, of course, the US maintains

0:15:02.800 --> 0:15:07.080
<v Speaker 8>tariffs one hundreds of billions of dollars of Chinese exports annually,

0:15:07.520 --> 0:15:11.480
<v Speaker 8>and so certainly we see spillover from this rivalry and

0:15:11.600 --> 0:15:14.960
<v Speaker 8>list tension between the world's two largest economies into the

0:15:14.960 --> 0:15:16.240
<v Speaker 8>rest of the UK WTO.

0:15:17.880 --> 0:15:20.640
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