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Keeping Tabs — office return, economists relearn, vol strats burn

CanaryWharf_PA_575x375_26June2020
By Burhan Khadbai, Frank Jackman, Jasper Cox
26 Jun 2020

Each week, Keeping Tabs brings you the very best of what we in the GlobalCapital newsroom have found most useful, interesting and informative from around the web. This week: remote working challenges and opportunities, rethinking discrimination in economics, and how volatility strategies fell apart in the market crash.

As lockdowns are eased, James Kemp, managing director at the Association for Financial Markets in Europe (Afme), a trade body, writes about the return to the office in investment banking. He reckons banks will need to factor in how long the pandemic is likely to make “normal” working routines impossible. If operational disruption will last longer than six months, he says banks will need to make further revisions to internal processes.

He addresses a number of issues GlobalCapitalraised recently in a special report, including bringing on the next generation of juniors when you can't actually make them go and get the coffees in person.

“For instance, this could include redeveloping processes to train graduates remotely or rolling out new ‘hybrid’ surveillance systems,” he says. “Moreover, if the company is in the process of a business-wide technology transformation, this might need to be catered for with staff rotational patterns that enable teams to be gradually on-boarded.”

Meanwhile, the Brookings Institution writes about easing the lockdown from a US perspective, using research from four academics: David Baqaee, Emmanuel Farhi, Michael Mina and James Stock.

The academics believe it would be most best if restrictions are weighted towards people’s personal lives rather than their economic output. Key to the argument is that business shutdowns may not actually be so effective at reducing deaths.

“Our modelling strongly suggests that shutting down the economy is neither necessary nor desirable. It just creates unemployment but doesn’t stop the deaths,” Stock told Brookings. “The focus of policy responses to a second wave should be on doubling down on mitigation measures outside work.”

As for those mitigation measures, the authors call for limitations on large-group gatherings; widespread use of masks and maintaining social distancing in public; increased testing and contact tracing; and special protections for the elderly.

Incidentally, a firm called Direxion has launched a “Work From Home” ETF, designed to provide exposure to “firms at the forefront of the worldwide, societal transformation towards greater adoption of flexible work”.

In economics, where practitioners of the subject in the US have been grappling with how it treats the issue of racial discrimination, especially given its own lack of diversity. Chris Fleisher of the American Economic Association interviewed Harvard professor Mario Small about shortcomings in how economic theory treats racism.

He says that economists tend to view discrimination as a matter of deliberate individual choice. This could either be from the perspective that people “discriminate to the extent that they’re willing to pay a price in order to not associate with people of a particular race”; or from the perspective that “people, for example employers, mak[e] inferences about the characteristics of a particular individual on the basis of the characteristics of the group on average”.

However, he points to work on implicit bias and also to the presence of institutional racism. “It is possible for people to experience discrimination not because of anything a particular individual did, but because of something that was codified into the law or because of something that an organisation did,” he says.

Limiting an economic understanding of racial discrimination to conscious, personal choices therefore could result in a very flawed understanding of how it plays out.

Elsewhere, Leanna Orr at GlobalCapital's sister title Institutional Investor has written about the performance of volatility trades during the market crash earlier this year, and how many people got burnt from taking on exotic risk.

She focuses in particular on hedge fund Malachite Capital Management and on AIMCo, which manages pensions and government funds in Alberta, Canada.

Elsewhere, George Soros and José Manuel Barroso — former Portuguese prime minister and president of the European Commission and now non-executive director at Goldman Sachs International — were on the BBC’s World at One radio programme (from about 28 minutes in) on Thursday, touching on the topics of special drawing rights and perpetual EU bonds. The BBC’s own Simon Jack was sceptical about the political collaboration needed for grand financial schemes, however.


By Burhan Khadbai, Frank Jackman, Jasper Cox
26 Jun 2020