US Interest Rates Rise to Highest Level in 22 Years, European Central Bank Follows Suit
In a much-anticipated move, the US Federal Reserve (FED) recently approved a quarter percentage point rate hike, bringing the target range to 5.25%-5.5% – the highest level in more than 22 years. Following suit, the European Central Bank (ECB) also raised interest rates by another 0.25%.
While policymakers had previously indicated that two rate hikes would occur this year, financial markets are now signaling a soft landing, with the possibility that there may not be any more rate increases in the near future. This positive sentiment can be seen in the monthly performance of the dominant US indices, with the S+P 500 up by 3.1% and NASDAQ up by 3.3%.
Turning to specific investments, Idorsia, a pharmaceutical company, is on track to gain regulatory approval for a third drug from its pipeline later this year. However, capturing clinical success and managing distribution operations can be challenging and costly. As a result, Idorsia is currently undergoing a full restructuring, reducing staff at its headquarters in Allschwil by up to 500 employees. The recent successful sale of its Asia business has contributed to the company’s financial stability. Optimism remains high that with the approval of Aprocitentan, a drug to treat resistant hypertension, Idorsia will have valuable options to pursue. To protect against potential shareholder dilutions, we have acquired the company’s convertible bonds.
In the real estate sector, concerns surrounding Credit Suisse have led to a well-known Real Estate Fund managed by CS Asset Management experiencing an 18-month decline in net asset value (NAV). As a result, the Credit Suisse Interswiss Fund is currently trading at a 20% discount to its NAV, which we believe is unjustified. In this environment, we estimate a 2-5% decrease in NAV. To take advantage of this discounted situation, we will redeem the fund as per the terms of the prospectus.
Additionally, we have established a smaller position in the Altana Credit Fund. This fund is focused on deeply discounted sovereign bonds of Venezuela, which are expected to undergo restructuring in 2024.
In conclusion, a recent interest rate hike by the FED has pushed US interest rates to their highest level in over two decades. The European Central Bank has followed suit with a rate increase of its own. While financial markets are currently pricing in the likelihood of no further rate hikes this year, a positive sentiment is reflected in the performance of US stock indices. In terms of specific investments, Idorsia is restructuring and awaiting regulatory approval for a promising drug, while we have taken measures to protect against shareholder dilution. Moreover, the real estate sector is presenting discounted opportunities, such as the Credit Suisse Interswiss Fund, and the Altana Credit Fund is engaged in investing in discounted sovereign bonds.
