Mick Mulvaney’s new fund to focus on investment strategy he says market lacks
If you follow politics, you’ve probably heard of Mick Mulvaney, a key member of President Donald Trump’s administration. Mulvaney headed the Office of Management and Budget from February 2017 to March 2020. During this time he also served as Acting Director of the Consumer Financial Protection Bureau (CFPB) and Acting Chief of Staff of the White House. He left the latter role in March and is currently the United States’ special envoy to Northern Ireland.
But Mulvaney also took on a new role. He is teaming up with Andrew Wessel, a former portfolio manager at Sterling Capital Management who focuses on the financial sector, to launch a new finance-focused fund called Exegis Capital. On a recent S&P Global Talk about the street podcast, Wessel described Exegis as a fund “seeking to take advantage of regulatory and legislative changes impacting the financial services industry both long and short.” Let’s take a look at this investment strategy.
Mulvaney said the Talk about the street that his tenure in Washington led him to believe that the market is no longer influenced by fundamentals, but is much more dependent on regulation, a revelation unmasked by the coronavirus pandemic.
This is something that investors interested in the financial industry should definitely keep in mind. With so much that has happened since the start of the pandemic, it’s easy to forget that the financial services industry is one of the most, if not the most heavily regulated, industries. Banks and Insurance companies need to hold regulatory capital to guard against unexpected losses. There are also all kinds of reporting and licensing requirements for most financial companies.
I think Mulvaney’s point is even more relevant right now when you consider that many financial stocks, especially those that grant loans to consumers, are even more dependent on regulation than normal. For example, government intervention at the start of the pandemic, such as $ 1,200 stimulus checks, the paycheck protection program, and enhanced unemployment benefits, helped prevent borrowers from defaulting immediately. .
Now, many industry players are watching if Congress will pass another bill with improved unemployment benefits, and where those benefits will fall. The hope is that government intervention can put people back into unemployment. If this happens, banks, credit card companies and other lenders could see more of their current loan deferrals come back in good standing.
Then there is the next presidential election. “It’s going to work in a way under a Biden administration and I think we understand how it works. It would work in a different way under a second term from a Trump administration and I know how it works,” Mulvaney said. .
Although the financial sector is not at the center of the campaign of the two presidential candidates, Biden clearly indicated that it would do things like increase the corporate tax rate and also seek to increase the capital gains tax rate. He could also bring politicians like Senator Elizabeth Warren into his cabinet or administration who seek to more heavily regulate the industry.
So a Biden presidency sets up potential short bets on financials, depending on where they’re trading at the time. But the other side of the equation is that four more years of Trump could continue a strained relationship with China that could create more volatility and uncertainty in the market than a Biden presidency would. Because the banks are so closely linked to the economy, it could have a negative impact on them as well, so there is a lot to follow right now and consider as you invest.
Look where there is less regulation
Maybe that’s why Wessel says he doesn’t anticipate traditional bank stocks to be a major focus of the fund. Rather, he said he sees a lot of opportunity in financial industry tech companies such as Duck Creek Technologies (NASDAQ: DCT).
Duck Creek, a software as a service company which sells its core systems to some of the largest property and casualty insurance companies in the country, launched its initial offering slated for mid-August and saw its shares rise immediately. The first trade was done at $ 42 per share after the IPO at $ 27 per share. Currently, the stock is trading at over $ 37 per share.
Not only have many of these companies created technology that is, in many cases, easier for financial companies to buy instead of creating themselves, but these companies are not yet regulated as heavily as financial technology is. yet another new territory. “I don’t think Washington has caught up with crypto, caught up with blockchain; caught up with fintech, and the maturity of these industries is one of the things we’ll be watching very closely,” Mulvaney said. “I think as these rhythms mature, the way Washington interacts with them is going to be very interesting and provide opportunities for people who understand how these two things will react.”
The majority of fintech regulations are still under development. Many states have different fintech laws, and there are constant legal battles between the state and federal regulators over licensing requirements for fintech companies. Various regulators are also experimenting with fintech sandboxes, which essentially allow a fintech company to test their product or service without going through a full launch. The way regulators treat fintech companies will certainly have an impact on fintech stock prices.
What does all this mean?
In an industry like finance, Mulvaney and Wessel certainly reinforce the fact that regulation cannot be ignored. There is money to be made if you can understand what regulation might come up in the future and how it will affect the business you are considering. Also, the fintech industry offers some really good opportunities right now, but the industry might not be like that forever. So, as Mulvaney suggested, watching Congress, regulatory agencies and the presidential election is very important right now, and retail investors should keep this in mind when evaluating financial stocks in which invest.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.