This week's interesting finds

This week in charts

High-yield bonds vs. US$-equivalent loans – par amount outstanding

US$ high-yield vs. Institutional leverage loans – issuance ratings

High-yield issuers by rating – public vs. private

Leveraged loan issuers by rating – public vs. private

Private credit, leveraged loans and high-yield bond issuances vs. U.S. private credit %

Syndicated vs. private credit markets

U.S 10-year bond yields – before and after Liberation Day (Apr. 2, 2025)

S&P 500 Index – historical equity risk premium (ERP)

Russell 1000 Index – growth vs. value

S&P 500 Index – Total return breakdown

S&P 500 Index – foreign sales & U.S. import exposure, by region

Is investment banking still a jewel in Wall Street’s crown?

Wall Street investors were braced for carnage this week. Analysts were forecasting a 10 per cent drop in quarterly investment banking revenues for the five largest American firms. Their pessimism came after bank chiefs had aggressively guided down expectations in May.

But the bloodbath failed to materialise. JPMorgan, for example, was expected to post a 14 per cent decline in investment banking fees. Instead, it posted a 7 per cent increase.

Overall, this marks the 14th consecutive quarter in which investment banking revenue has accounted for less than a quarter of Wall Street income. The numbers were better than feared thanks to a late recovery in mergers and acquisitions and debt underwriting, but the structural challenges remain the same.

It’s not all doom-and-gloom. Global M&A volumes are up by a quarter over last year, albeit with wide regional variations. The resurgence of activity by crypto firms and special purpose acquisition companies (Spacs) has helped. But overall, big-ticket deal flow remains patchy and subdued. According to Dealogic, investment banking revenues are up just 4 per cent year-to-date — and this follows a middling 2024.

The problem isn’t simply that revenues are lagging; it’s that the hitherto glamorous business of investment banking may be losing strategic relevance within the modern universal banking model.

Part of the stagnation reflects a hangover from the pandemic-era boom, which pulled forward several years’ worth of activity into a wildly frenetic 18 months. But that’s not the whole story. Geopolitical uncertainty, threatened trade wars, confusing policy signals and regulatory unpredictability have all created a climate in which corporate leaders are favouring caution over boldness.

Understanding the two-tier performance of trading desks and investment banking requires an understanding that, to some degree, these businesses are built for different environments. Trading operations, if well-managed, thrive in volatile and uncertain conditions. Interest rate swings and geopolitical flare-ups prompt institutional investors to reposition quickly, generating the kind of flows that banks can profit from through spreads and commissions. But these are also the very conditions that tend to stifle dealmaking.

For decades, Wall Street’s diversification strategy relied on an implicit cross-support arrangement. If investment banking revenues are soft due to slow markets, they can be offset by stronger performance elsewhere. Trading may profit from volatility, while corporate banking and wealth management provide steady income from lending and transaction services. Together, the mix can help generate consistent earnings and ensure that the disparate franchises have enough resources to ride out any slowdown in one. But that logic only holds if the weakness is temporary. Three-and-a-half years of underperformance by investment banking is starting to look less like a cyclical phenomenon and more like a structural issue.

The investment banking model isn’t broken. It still generates (relatively) capital-light, high-margin and relationship-driven revenues, along with the “soft power” of prestige and visibility. Stock market investors typically assign a premium to these revenues over those from trading. But that halo effect only stretches so far if top-line growth is petering out while costs (especially banker compensation) remain elevated.

At some point, someone or something has to pick up the slack. That could mean pressure on investment banker pay, slower hiring to compensate for natural attrition, or a rethinking of the scale and scope of investment banking operations. It may also entail reallocating capital towards trading or other higher-return areas. Yet this raises another tension, since balance sheet commitment represents a critical component of securing jumbo investment banking mandates for the large firms.

Markets have rebounded. But dealmaking revenue hasn’t. If the gap doesn’t close soon, investment banking risks becoming less of an industry crown jewel and more of a sideshow

This week’s fun finds

After learning that Churrasco Villa reopened for catering, Matilde jumped at the chance to organize an unforgettable lunch for the team. It was a trip down memory lane since they fed EdgePoint partners at our very first moai (hosted by Sarah). The food was just as good as we’d remembered and never disappoints.

Man cuts Fiat down to 19.7-inch, mind-bending ride 

Compact cars are a popular choice for drivers looking for a smaller, more fuel-efficient ride. But is there such a thing as too compact? Based on one man’s DIY project, the answer is a resounding “Yes,” at least for anyone larger than 19.7 inches wide. But even if you can fit into the shaved-down Fiat Panda, the experience may descend into an uncomfortably claustrophobic commute.

The Fiat Panda has earned itself a devoted fan base in the decades since its 1980 debut. Its name isn’t a reference to the black-and-white bear, but the Roman goddess of travelers, Empanda. By 2020, Fiat had sold approximately 7.8 million of them, and there’s even an annual festival dedicated to the city car called Panda in Pandino that’s held in an Italian castle. At just 57.5 inches wide and around 1,576 lbs, they remain popular for navigating the tight streets of European towns—but for Andrea Marazzi, that apparently wasn’t small enough.

This week's interesting finds

This week in charts

Homeowner equity

Home equity withdrawals

Leveraged loans

High yield default rates

Price to free cash flow outperformance

Entry price dictates return

Probability of negative returns – equities and oil

Active vs. passive

S&P 500 Index ownership, by institution type

Large-cap performance – growth vs. value

Trading portfolio of large banks

The double-edged sword of a strong euro

Europe is getting a little taste of a high-class problem: the downsides that come with operating a world-beating reserve currency.

For now, the continent is not quite in this luxury spot. The euro accounts for a far smaller slice of the stashes of cash maintained by central banks and similar entities around the world than the dollar, and its prevalence in global trade is puny in comparison.

The euro has been one of the biggest beneficiaries of Donald Trump’s drive-by on the dollar this year. All major currencies have appreciated against the buck, but the euro more than most, up by over 13 per cent in 2025 so far.

In part this is because of the European renaissance trade, encompassing both European Central Bank president Christine Lagarde’s “global euro moment” and the possibility of a long-awaited economic growth revival stemming from Germany’s decision to stop worrying and ramp up fiscal spending.

It has another curious cause, though. Stocks investors around the world are unusually keen to shield themselves from further weakness in the dollar — a risk they had quite reasonably previously ignored. For fund managers based in small economies, this can be expensive and awkward in their fiddly home currency. A shortcut is just to buy euros, and analysts say that is precisely what they are doing, regardless of where those investors are based.

This is all well and good for those fund managers in stocks, but in financial markets, we cannot have nice things. Someone has to feel the pain. In this case, it is corporate Europe, exporters in particular, who are stung by the euro’s ascent against the dollar and renminbi, which makes European exports appear more expensive overseas.

Researchers at Barclays point out that strength in the euro is one of the main reasons why analysts have been slashing earnings expectations for listed European companies this year. Outlooks for growth in earnings per share have dropped from 9 per cent all the way down to 2 per cent, and exporting companies lag far behind their domestic-focused peers in their share-price performance so far this year. 

Officials at the ECB are also getting a little twitchy. An overly strong euro depresses import prices while also hampering exports, dragging down inflation. This puts rate-setters in a bind. They don’t want to aim for specific exchange rates, which puts a target on their back and in any case is a mug’s game given the volatility of currency markets. But they do often want to gently massage the currency lower with a series of winks and nods. This is an awkward path, as the central bank found in the years following the great financial crisis of 2008, when the euro bobbed around between $1.30 and $1.60.

Right now, conditions in the currencies markets are orderly, the dollar is drifting lower rather than crashing, and the euro’s exchange rate is annoying rather than outright alarming. Cracking the next big round number — $1.20 — will almost certainly turn up the temperature. It feels like a question of when rather than if.

This week’s fun find

Looking for ways to embrace the heat of summer? We found it. From passionfruit to mango, these two hot sauces bring a fun mix of bold flavours and serious heat.

Blazing passion (The Botanist Alchemy)

• Bright, fresh and the perfect accompaniment to BBQ chicken

Ghost Pepper Mango Flavour (Tun Up)

• Perfect consistency for a chicken wing
• Surprisingly well balanced for a sauce that's as hot as it is

An Inside Look at the Best Snack Trends at the Summer Fancy Food Show

The Specialty Food Association’s Summer Fancy Food Show is basically a grand-scale grocery run, only it’s buyers from the grocery stores themselves, not consumers, doing the shopping. Brokers scout items to stock shelves, and start-ups sample hot new products with hopes of striking a deal. The trade show attempts to anticipate what grocery shoppers will want to eat and drink; it can also reflect the changing tastes of American shoppers.

This week's interesting finds

This week in charts

Performance and share of global equity markets

S&P 500 Index inflection points

Entry price dictate returns

U.S. public debt & Congressional Budget Office projections

Historical U.S. dollar Index performance

S&P 500 Index top-10 companies - % of total market cap

Year-to-date cross-asset returns in US$

Q2 2025 performance contribution – Morningstar US Market Index

Mergers & acquisitions

Canada’s bid to become an energy superpower

Located 150 miles from the border with Alaska in the province of British Columbia, Kitimat became a magnet for workers with its huge aluminium smelter and hydroelectric plant, its factories and paper mill. The population peaked at about 14,000 but hard times followed, factories closed and almost half the residents left.

Now, Kitimat is bidding to become an emblem of the future again. In recent months, orange flames shooting 60 metres into the sky above the coastal community have become a visible symbol of a new multibillion-dollar industry in Canada. Officials hope it can revitalise the town and insulate the wider Canadian economy against US President Donald Trump’s trade war.

Boosting the LNG trade is part of a wider strategy pursued by the Canadian government, most recently by Prime Minister Mark Carney. He has pledged to turn Canada into an “energy superpower” by exploiting its abundant fossil fuel resources and reducing its reliance on US markets.

But the strategy is not easily delivered. Canada is a top five global producer of both natural gas and oil but successive governments have failed to build enough infrastructure to enable companies to export hydrocarbons to the world. More than 90 per cent of Canada’s exported oil and gas flows south of the border, where it is sold at a discount to American products since the US can more easily ship its own output to European and Asian customers, who pay more.

Canada also faces tough competition in export markets from the US, the world’s largest oil and gas producer, which has ambitious plans to double LNG production by building a new fleet of terminals along the Gulf of Mexico coastline. Trump, who has promised to make “America energy dominant”, has called on Asian governments to buy more US LNG to avoid punitive tariffs.

Canada’s gas industry laments it is playing catch-up with the US. But executives at LNG Canada play down the risks of delays and cost overruns for local projects and are hopeful the start-up of their facility will usher in a new era of growth.

The shipping time from Kitimat to Japan is about 10 days, roughly half the time it takes to transport LNG from terminals in the Gulf of Mexico. Canada’s abundant, low-cost feed stock gas has recently traded for a fifth of the US benchmark, which is known as Henry Hub. LNG Canada can also market its gas as among the lowest carbon LNG in the world as it uses British Columbia’s emissions-free hydroelectric electricity to power its facility.

Wood Mackenzie, an energy research group, estimates that Canadian LNG can be delivered to Japan at roughly the same cost, or potentially even cheaper than rival US Gulf Coast producers. Asian customers are also seeking to boost energy security in a volatile world, it says.

But for Canada to achieve its potential as an energy superpower, the resources industry says the federal and provincial governments must sweep away regulations and support development.

Last week, his government passed legislation aimed at fast-tracking environmental reviews for the construction of projects deemed in the “national interest”. Carney hopes the bill will enable important schemes to win approval within two years by creating a new federal office to consider applications.

The expansion last year of the Trans Mountain pipeline, which transports oil from Alberta to British Columbia and thereby bypasses the US, tripled capacity along the route to 890,000 barrels of crude per day. But permitting delays and legal suits, which caused the price tag to quintuple to C$34bn, have given investors pause before considering new pipeline projects.

This leaves Canada heavily reliant on the US as a market for its oil, with exports of about 3.9mn barrels per day worth C$130bn in 2023 flowing south. Some politicians and industry leaders are pushing for an east-west oil pipeline to supply Canada’s populous east coast with domestic crude and open up new exports market in Europe. But many analysts remain sceptical due to high construction costs and political risks.

In a boost to Carney’s “energy superpower” strategy, there are signs that some indigenous communities, who have led opposition to infrastructure projects in the past, are prepared to support developments if they are properly consulted and offered equity ownership or partnerships that benefit their people. 

This week’s fun find 

Get Up Close to Frank Lloyd Wright’s Unrealized Buildings with David Romero’s Digital Models 

Among the world’s most influential architects, Frank Lloyd Wright is undoubtedly a titan of the discipline. His designs are instantly recognizable for his unique treatment of space, light, materials, and line, and he’s even responsible for entire architectural movements. The Prairie style, for example, took inspiration from the broad landscapes of the American Midwest. He also coined the term “organic architecture” to describe how experiencing a built environment should manifest as “a ‘thinking’ as well as a ‘feeling’ process.” 

For architect and 3D designer David Romero, Wright’s work has been a source of inspiration since his earliest explorations within the field. “From the very beginning, I was drawn to his ability to bridge two seemingly opposite worlds: the rational and intellectual side of architecture, and the emotional—almost spiritual—experience of space,” Romero tells Colossal. “To me, that union is the essence of what makes architecture truly powerful—and no one embodies it quite like Wright.” 

Romero’s ongoing project called Hooked on the Past explores architecture of bygone eras that nevertheless richly influences our built environment today. The Madrid-based designer has created nearly two dozen digital renderings of Wright’s unrealized concepts, from astonishing cliffside homes to an insurance company headquarters to a bank with an apparently too-ahead-of-its-time drive-thru.

This week's interesting finds

Biography book club

If you plan to be beachside, poolside, inside or on the road this summer, it’s the perfect time to explore the Investment Team’s recommended biography reading list. Whether you’re looking to be inspired, gain insights or simply looking for a great real-life story, you’ll be sure to find it here.

This week in charts

Rising cost of servicing U.S. public debt

Growth vs. value

Large cap vs. small cap

Earnings, valuation and ROE

Domestic sales exposure

Cost of goods sold (% of sales)

Japan – Share buybacks

Japan – ROE and EPS

Payment-in-kind income (% of Cliffwater Direct Lending Index)

High-grade bonds – average coupon

High-grade bonds – coupons paid

The Global A.I. Divide

Artificial intelligence has created a new digital divide, fracturing the world between nations with the computing power for building cutting-edge A.I. systems and those without. The split is influencing geopolitics and global economics, creating new dependencies and prompting a desperate rush to not be excluded from a technology race that could reorder economies, drive scientific discovery and change the way that people live and work.

The biggest beneficiaries by far are the United States, China and the European Union. Those regions host more than half of the world’s most powerful data centers, which are used for developing the most complex A.I. systems, according to data compiled by Oxford University researchers. Only 32 countries, or about 16 percent of nations, have these large facilities filled with microchips and computers, giving them what is known in industry parlance as “compute power.”

Nations with little or no A.I. compute power are running into limits in scientific work, in the growth of young companies and in talent retention. Some officials have become alarmed by how the need for computing resources has made them beholden to foreign corporations and governments.

A.I. computing power is so precious that the components in data centers, such as microchips, have become a crucial part of foreign and trade policies for China and the United States, which are jockeying for influence in the Persian Gulf, in Southeast Asia and elsewhere. At the same time, some countries are beginning to pour public funds into A.I. infrastructure, aiming for more control over their technological futures.

There has long been a tech gap between rich and developing countries. Over the past decade, cheap smartphones, expanding internet coverage and flourishing app-based businesses led some experts to conclude that the divide was diminishing. Last year, 68 percent of the world’s population used the internet, up from 33 percent in 2012, according to the International Telecommunication Union, a United Nations agency.

But in April, the U.N. warned that the digital gap would widen without action on A.I. Just 100 companies, mostly in the United States and China, were behind 40 percent of global investment in the technology, the U.N. said. The biggest tech companies, it added, were “gaining control over the technology’s future.”

The gap stems partly from a component everyone wants: a microchip known as a graphics processing unit, or GPU. The chips require multibillion-dollar factories to produce. Packed into data centers by the thousands and mostly made by Nvidia, GPUs provide the computing power for creating and delivering cutting-edge A.I. models.

Obtaining these pieces of silicon is difficult. As demand has increased, prices for the chips have soared, and everyone wants to be at the front of the line for orders. Adding to the challenges, these chips then need to be corralled into giant data centers that guzzle up dizzying amounts of power and water.

Many wealthy nations have access to the chips in data centers, but other countries are being left behind, according to interviews with more than two dozen tech executives and experts across 20 countries. Renting computing power from faraway data centers is common but can lead to challenges, including high costs, slower connection speeds, compliance with different laws, and vulnerability to the whims of American and Chinese companies.

The uneven distribution of A.I. computing power has split the world into two camps: nations that rely on China and those that depend on the United States.

The two countries not only control the most data centers but are set to build more than others by far. And they have wielded their tech advantage to exert influence. The Biden and Trump administrations have used trade restrictions to control which countries can buy powerful A.I. chips, allowing the United States to pick winners. China has used state-backed loans to encourage sales of its companies’ networking equipment and data centers.

The effects are evident in Southeast Asia and the Middle East.

Globally, the United States has the lead, with American companies building 63 A.I computing hubs outside the country’s borders, compared with 19 by China, according to the Oxford data. All but three of the data centers operated by Chinese firms outside their home country use chips from Nvidia, despite efforts by China to produce competing chips. Chinese firms were able to buy Nvidia chips before U.S. government restrictions.

Alarmed by the concentration of A.I. power, many countries and regions are trying to close the gap. They are providing access to land and cheaper energy, fast-tracking development permits and using public funds and other resources to acquire chips and construct data centers. The goal is to create “sovereign A.I.” available to local businesses and institutions.

In India, the government is subsidizing compute power and the creation of an A.I. model proficient in the country’s languages. In Africa, governments are discussing collaborating on regional compute hubs. Brazil has pledged $4 billion on A.I. projects.

Even in Europe, there is growing concern that American companies control most of the data centers. In February, the European Union outlined plans to invest 200 billion euros for A.I. projects, including new data centers across the 27-nation bloc.

Still, closing the divide is likely to require help from the United States or China.

This week’s fun find

How Do Muppets Go Outside? Find Out How Kermit and Gang Took to the Real World

Movie enthusiast and YouTuber Alex Boucher is “on a mission to watch every movie.” He dissects some of the film industry’s best-kept secrets and techniques. From practical effects to dog acting to how Spiderman’s web-swinging changed over time, he analyzes how movies are made and creates mini-documentaries about cult classics and box office hits alike. His most recent video traverses the universe of Jim Henson’s The Muppet Movie (1979) and its seven filmic follow-ups, posing the question, “How do Muppets go outside?”

Controlled by humans, the iconic puppets have been voiced by actors like Dave Goelz (Gonzo), Frank Oz (Miss Piggy, Animal, and Fozzie Bear), Richard Hunt (Scooter and Statler), among many others, and of course, Kermit the Frog is guided by Jim Henson himself. Puppet shows are typically performed in a box so that the puppeteers can hide beneath the set, but what happens when they head out into the real world, lower extremities and all?

This week's interesting finds

This week in charts

Corporate bond ownership

Global Corporate Bond market, by issuance currency

Sector inflows and outflows

Large cap inflows

Europe-focused equity fund flows

Europe-focused equity fund inflows by year

Growth expectations - S&P 500 Index vs. S&P/TSX Composite Index

FTSE250 Index vs. MSCI World Index

Dividend yield by region

U.K. mergers & acquisitions

Private equity sits on US$1 trillion amid uncertainties, M&A stalls, PwC says

Private equity firms are holding about US$1 trillion in unsold assets, PricewaterhouseCoopers (PwC) said on Wednesday — capital that, in a typical market environment, would have been returned to investors.

High interest rates in the United States, President Donald Trump’s on-again, off-again approach to tariff policy, and geopolitical uncertainties have eroded company valuations and contributed to firms holding onto portfolio firms far longer than expected.

The capital tie-up is playing a role in the slowdown in dealmaking. Mergers and acquisitions, a key barometer of global economic health, have stalled this year.

Despite entering 2025 with high hopes for an M&A rally under Trump, deal volume and value have remained largely flat year-over-year, with 4,535 deals totaling $567 billion through May, PwC said. 

Private equity firms, which deploy LP capital into businesses across industries, currently have $3 trillion invested in 30,000 companies, according to PwC, with 30% held for longer than five years.

That is above the traditional timeline by which funds expect to have a profit on their investments.

So, now, PE firms need to be creative to squeeze profit from assets - often bought at peak prices, said Liz Crego, PwC’s industry markets leader. That includes selling a small portion of a business that can be more valuable as a separate entity, she said.

A more uncertain market has also led to a decline in cross-border deals to 16.9% of total activity, down from 18.7% in 2021. China-related deals, in particular, face heightened scrutiny and strategic reevaluation, PwC said.

Cautiously optimistic

The initial public offering (IPO) market has shown signs of life, with 31 traditional IPOs raising $11 billion through May. While April saw a pause due to tariff shocks, activity resumed in May and June, with fintechs like Chime, valued at $18.4 billion at its Nasdaq debut, leading the charge. 

Special purpose acquisition companies (SPACs) are also making a modest comeback, with over 50 of those publicly traded shell companies created to raise capital through IPOs.

To unlock the $1 trillion held by PEs, the recession cloud over the U.S. would have to recede, Washington would need to provide clarity over tariffs and interest rates must decline, Smigel said.

Nevertheless, PwC expects M&A activity to improve in the coming quarters, with pressure from the LP funds looking for returns and as assets are repriced.

This week’s fun finds

Several EdgePoint partners from Québec came to visit and brought presents – locally made hot sauces from Britannia Mills. They were très épicées, but more importantly they were also délicieuses.

• Chaude Boucane (Hot Smoke) – a smoky sauce

• La Déraillée (The Derailed) – flavourful and creamy, with a hint of mustard

• La Grande Faucheuse (The Grim Reaper) – featured on Hot Ones, it’s Britannia Mills’ hottest sauce. The main ingredient are the Carolina reapers that give it its name. Not the hottest we tasted, but the hint of maple syrup saves us from the heat

How to Get Rid of Sunburn Fast, According to Dermatologists

So you got too much sun and didn’t apply (or reapply) your SPF. Now you’re wondering how to get rid of sunburn fast so you can get some relief for the lobster red, irritated skin. As diligent as we all are about wearing sunscreen, sunburns do happen, even to the best of us. Though you can’t get instant relief from a sunburn, there are plenty of ways to help your skin heal as painlessly and quickly as possible, according to our experts, board-certified dermatologists Flora Kim, MD, and Amy Ross, MD, and honestly, that counts for something.