This week's interesting finds

This week in charts

Trading composition

10-yr U.S. Government bond returns

S&P 500 Index valuations

Labour intensive sectors

U.S. Civilian labour force

U.S. Labour force participation

Foreign sales exposed to retaliatory tariffs

Government investment by region

MSCI World Cyclicals vs. MSCI World Defensives

Fund flows - U.S. large cap vs. U.S. small cap

Private equity firms flip assets to themselves in record numbers

Buyout groups used so-called continuation funds — in which a private equity group sells assets from one of the funds they manage to a fresher fund also managed by the firm — to exit $41bn of investments in the first six months of 2025, according to a report by investment bank Jefferies.

That was equal to a record 19 per cent of all sales by the industry, and 60 per cent higher than a year ago.

Private equity groups sit on more than $3tn in unsold deals and are nearing four consecutive years in which they have returned only about half the cash investors traditionally expect.

Continuation funds give investors the choice to roll over their investment or to cash out. For their private equity sponsors, they allow the firm to keep portfolio companies beyond the typical 10-year life of a fund, and to crystallise performance fees on the assets sold while collecting a steady stream of management fees from the new fund buying the investments.

In the first half of the year, PE groups such as Vista Equity Partners, New Mountain Capital and Inflexion used multibillion dollar continuation funds to sell down some of their largest investments.

Vista raised a record $5.6bn continuation fund to sell a large existing stake in IT firm Cloud Software Group to a newer fund it manages, while Inflexion sold stakes in four deals, including industrial company Aspen Pumps and Rosemont Pharmaceuticals, a UK pharma business, for £2.3bn. Both deals locked in large gains for investors choosing to sell their stakes.

The report from Jefferies found that the secondary market, where both buyout firms and their institutional investors can trade stakes in existing assets, exploded in the first half of this year.

More than $100bn of sales took place, an increase of almost 50 per cent from the same period last year. Slightly more than half of that came from fund investors — known as limited partners — selling their holdings.

Continuation funds have drawn concern from some investors as a tactic for recycling capital, even as their popularity has surged, with an increasing number of institutional investors opting out of them.

But a recent report from Bain & Co, considered an authority in the industry, still showed that almost two-thirds of investors in private equity funds would prefer groups sell down investments the conventional way through sales to companies or initial public offerings. Just one-sixth of investors said they preferred continuation funds.

This week’s fun finds

Investment intern, Zane Balkissoon, treated the team to Japanese rice bowls and cake from a couple of his favourite local spots. It was comforting, packed with flavour and the perfect choice to kick off the long-weekend. Definitely a crowd pleaser. Thanks for all your hard work Zane, job well done!

Dennis Lehtonen Documents a Pair of Immense Icebergs Paying a Visit to a Small Greenland Village

From rocky outcrops overlooking modest, brightly painted houses, photographer Dennis Lehtonen captures an astonishing nordic phenomenon. Innaarsuit, Greenland, which sits more than 430 miles north of the Arctic Circle, sets the stage for a series of images highlighting dramatic visitors to the area’s waterways.

This week's interesting finds

Second quarter commentaries are now live!

This quarter, Sydney Van Vierzen discusses how we believe EdgePoint and our partners can benefit from artificial intelligence, while Steven Lo talks about how investing with a margin of safety helps us avoid permanent loss of capital.

This week in charts

Daily prices indices by country-of-origin

U.S. high-yield credit rating composition

Speculative trading indicator

S&P 500 Index stock participation

Special purpose acquisition company (SPAC) capital raised

U.S. housing market activity

U.S. housing construction

S&P 500 Index vs. U.S. 10-year bond correlation

Historical valuation percentile – equities vs. bond yields

Growth stock outperformance

Investors beware the dangers lurking in private credit

Back in 2007, just before the global financial crisis, Chuck Prince, then the ill-starred head of Citigroup, famously told the FT that “as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Or in plain English: when an asset class is booming, competitive pressures force financiers to keep peddling deals — even if they fear the bubble will burst.

It is a mantra that might haunt Jamie Dimon, head of JPMorgan, right now. In recent months, Dimon has repeatedly warned about risks lurking in private credit, which has recently had such a “meteoric rise”, to cite the Boston Federal Reserve, that it has been one of the fastest-growing finance sectors.

Dimon has noted that while there are plenty of good deals, bad ones exist too — and credit ratings are so unreliable that the sector is creating a potential “recipe for a financial crisis”.

“I’ve seen a couple of these deals that were rated by a rating agency. And . . . it shocked me what they got rated,” he observed. “It reminds me a little bit of mortgages [before the GFC].” Then this month he doubled down, suggesting we “may have seen peak private credit”.

But this year JPMorgan has also raised its allocation to private credit from $10bn to $50bn The reason? Its rivals are rushing into this space, as US President Donald Trump seeks to open the asset class to pension funds and retail investors. The financial “dancing” is intensifying.

So what should investors conclude? The first point to stress is that there are sound reasons why some investors might want to diversify their portfolios into private credit, since it has historically been a well-performing asset class with fairly stable returns (albeit high fees).

There are also good reasons why the sector exists. Post-crisis regulatory reforms have curbed bank lending in the past decades, and tariff uncertainties have damped lending again this year. However, a decade of ultra-loose monetary policy has left the system awash with liquidity, some of which has gone to private capital funds.

It is thus no surprise that when Meta recently decided to raise finance for artificial intelligence investments it looked at private credit — even though it can easily issue bonds. “Push” and “pull” factors are both at work in this boom, which has driven the global sector to almost $2tn in size, of which roughly three-quarters is in North America.

However, what concerns some observers is that the sheer speed of this rise evokes nasty historical comparisons. After all, history is full of examples of new(ish) financial products that have expanded at breakneck speed, delivered big profits for early smart-money players, but then produced large losses when retail money or unsophisticated institutional investors finally rushed in.

However, there is another lesson from history that Wall Street should heed: when other sectors have been forced to clean up their standards in the past, this has almost invariably occurred after, not before, a big crisis hits. Painful losses are what usually sparks reform.

This week’s fun find

A WWII Tale of Parachuting Beavers

In 1948, Idaho faced a very unusual animal problem: beavers were taking over towns. The solution? One of the most bizarre and brilliant ideas in wildlife history. To protect these cute animals and restore balance, conservation officer Elmo Heter came up with a plan: parachute dozens of beavers into the remote backcountry using surplus WWII parachutes and wooden crates. What followed was a skydiving mission like no other. 76 beavers were dropped from the sky, led by one fearless test jumper named Geronimo. This true story isn't just a quirky moment in history; it's a story about creativity and the wild lengths humans will go to protect even the smallest, furriest members of the animal kingdom. Let's see how this archive footage shows us the kooky side of the 1940's for this history deep dive!

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.