The Wall Street Journal - 14.11.2019

B10| Thursday, November 14, 2019 THE WALL STREET JOURNAL.**

BANKING & FINANCE

debt from universities and

other borrowers.

The SEC proposal would al-

low such deals to be handled

by municipal advisers alone so

long as the debt is placed with

a bank, insurance company, in-

vestment firm, any other insti-

tution with at least $50 mil-

lion or a registered investment

adviser who could represent

multiple investors.

Mr. Nicholas of the Bond

Dealers of America said inves-

tors will suffer if deals don’t

include a broker-dealer with

SEC-mandated investor-pro-

tection duties. He said munici-

pal advisers who don’t trade

bonds lack “the market intelli-

gence” and other qualifica-

tions to handle even small ru-

ral bank placements. The SEC

proposal would require munic-

ipal advisers to disclose to the

investors that they don’t rep-

resent investors’ interests.

“Just by definition these are

qualified sophisticated inves-

tors so they really don’t need

another layer of protection,”

said Howard Cure, director of

municipal-bond research at

Evercore Wealth Management,

which invests in munis.

Jonas Biery, a Portland,

Ore., finance official who spent

nearly five years as the city’s

debt-program manager, said he

might want a dealer’s assis-

tance in a private sale to inves-

tors, but that sales to banks

would become simpler and

more efficient for many small

issuers. While one-fifth of the

muni debt issued through Oc-

tober came from deals of more

than $500 million, 56% of bond

issues produced $10 million or

less, according to Municipal

Securities Rulemaking Board

data.

Robert A. Tijerina, a munic-

ipal adviser with San Antonio-

based Tijerina Galvan Law-

rence, said if the proposal

takes effect, the total cost to

the borrower will drop. The

SEC is seeking comments on

the proposal by Dec. 9.

ments without a dealer. But to

avoid running afoul of rules al-

lowing only dealers to solicit

investors, he stays out of ini-

tial talks between the bor-

rower and the bank, assigning

that outreach to mayors or

school superintendents more

experienced in public safety or

student achievement than mu-

nicipal finance.

If the proposal takes effect,

Mr. King said “it’ll be a whole

lot easier because now we can

directly contact these folks.”

Private placements total be-

tween $5 billion and $20 bil-

lion a year, according to Refini-

tiv data that excludes some

smaller deals.

But they are growing, ac-

cording to the SEC. Though

they are typically small debt

sales to banks, some recent

deals have included higher-

price, more coveted securities.

Dallas-based Preston Hollow

Capital LLC in 2018 directly

purchased a combined total of

about $1 billion in municipal

the postcrisis regulatory
squeeze on major banks and
regional brokerages.
Regulators are increasingly
focused on the interests of not
only investors but also local
governments pledging tax-
payer dollars to build schools
or dig sewers. At the same
time, money managers and
other institutions are displac-
ing individual bondholders as
the biggest holders of munis
and forming closer relation-
ships with governments.
For towns or school systems
that already prefer to sell a
few million dollars in debt to a
bank over issuing bonds pub-
licly, the SEC proposal could
simplify the process. Allowing
larger sales to a wider range of
investors could have a more
significant market impact,
however, rerouting private
deals away from a longstand-
ing network of dealers and—if
it makes private debt sales
more appealing—further re-
ducing bonds available to tra-
ditional buy-and-hold retail in-
vestors. The scope of the SEC
proposal surprised dealers and
advisers.
“It could be a significant
change for how borrowers ac-
cess capital,” said Matt Fabian,
a partner with Municipal Mar-
ket Analytics.
Municipal adviser Tim King
with Kings Financial Consulting
in Monticello, Ill., facilitates
small private placements for
school districts and other local
governments in the state.
He does his private place-

Continued from page B1

Muni-Bond

Deals Shift

To Advisers

OTTAWA—The Bank of Can-

ada plans to expand its lend-

ing options with a new tool

aimed at financial institutions

experiencing short-term stress

resulting from extraordinary

events like a cyberattack or a

natural disaster.

This would align the Bank

of Canada’s lending tools with

other central banks, including

the Federal Reserve and the

Bank of England, and help ad-

dress concerns about the

risks posed by cyberattacks.

Canada’s central bank said

Wednesday that it is looking

to introduce 30-day loans to

qualifying institutions, poten-

tially saving them from paying

excessive interest rates on the

market.

Those loans would be is-

sued following nonfinancial-

market events that affect an

institution’s liquidity.

The central bank said the

30-day term would be renew-

able at its discretion.

The bank said a one-month

term should be long enough to

send a confidence-enhancing

signal to markets, while allow-

ing the borrower to avoid

more drastic measures such as

selling off assets in a fire sale

or sharply reducing its lend-

ing.

The Bank of Canada said it

would hold industry consulta-

tions over the next month to

refine the design of the pro-

posed lending instrument. At

this time, there is no specific

cap or limit on how much the

central bank would be pre-

pared to lend.

The Bank of Canada has

flagged cyber risks as a struc-

tural vulnerability to the fi-

nancial system. It warned in

its latest financial- system re-

view that a successful attack

on one financial institution

could spread across an inter-

connected system, potentially

interrupting services and dam-

aging investor confidence.

“Greater interconnected-

ness of the financial system is

beneficial in some respects,”

the central bank said in an-

nouncing the new lending tool.

“But it can increase the risk

that idiosyncratic liquidity

shocks affecting one institu-

tion could spread to other

parts of the financial system.”

Qualifying institutions must

be federally or provincially

regulated members of Pay-

ments Canada, which is re-

sponsible for Canada’s clear-

ing and settlement

infrastructure.

Lending would need to be

secured by collateral, which

could include some residential

mortgage loans, some market-

able securities and nonmort-

gage loans made to Canadian

residents.

BYKIMMACKRAEL

Bank of Canada Adds

and transportation companies To Its Lending Toolkit

and the federal government,

has agreed to lead the Univer-

sity of Toronto’s Munk School

of Global Affairs & Public Pol-

icy. Caisse said it expects to

name a new CEO early next

year.

Caisse ranks as Canada’s

second-largest pension fund,

behind Canada Pension Plan

Investment Board.

When Mr. Sabia was ap-

pointed in 2009, Caisse was

struggling to stay afloat after

announcing a C$40 billion de-

cline in net assets stemming

largely from soured invest-

ments in securities linked to

mortgages.

Mr. Sabia, who was born in

Ontario, attracted controversy

initially because he was the

first non-Quebecker to take

the helm and he advocated

spending less of the fund’s

money in the province.

In 2009, nearly two-thirds

of Caisse’s assets were in-

vested in Canada.

“Thatwasway,way,way

too much,” Mr. Sabia said. As

of December, 64% of Caisse’s

assets were invested outside

the country.

Caisse was founded in 1965

under a dual mandate to in-

crease returns and enhance

Quebec’s economy.

Unlike his predecessors,

who often propped up local

companies and financed take-

overs of businesses owned by

outsiders, Mr. Sabia preferred

to invest in Quebec companies

that sought to expand interna-

tionally.

Caisse was a longtime in-

vestor in Cirque du Soleil.

When TPG Capital successfully

bid to acquire the Montreal

entertainment company in

2015 to expand its global

reach, Mr. Sabia intervened

personally in the negotiations

to win protections for local

Quebec jobs and operations.

More recently, Mr. Sabia

has drawn attention by em-

phasizing the importance of

backing socially responsible

investments. He has publicly

chided businesses for ignoring

the impact on local communi-

ties of such issues as climate

change and globalization.

In Montreal, where Caisse

is based, the fund is financing

about half the cost of a new

C$6 billion commuter-rail sys-

tem in the city. Mr. Sabia said

he hopes the rail network, set

to start in stages beginning in

2020, will encourage more

pension funds, governments

and businesses to cooperate

on local infrastructure proj-

ects that can revitalize strug-

gling local communities.

Michael Sabia is stepping
down as head of Canada’s sec-
ond-largest pension fund, cap-
ping an 11-year run in which
he steered Caisse de dépôt &
placement du Québec out of
danger, diversified its invest-
ments and tripled its assets.
Mr. Sabia, 66 years old, said
he would leave the fund in
February because the turn-
around is complete and the
people and organization are
strong.
During his tenure, the
fund—the largest in Quebec—
went from being threatened by
financial-crisis losses to a re-
spected global investor with
327 billion Canadian dollars
(US$247 billion) under man-
agement.
“I don’t see any red flash-
ing lights, I see everything
moving along,” he said.
Mr. Sabia, who has held se-
nior executive positions with
Canadian telecommunications

BYJACQUIEMCNISH

Head of Caisse Pension Fund Leaves

Michael Sabia

said the

Quebec

investment

giant’s

turnaround is

complete.

Tim King avoids some borrower meetings with banks due to current rules.

NICK SCHNELLE FOR THE WALL STREET JOURNAL

Sweden, unlike most of the
rest of the slow-growth world,
has had enough of negative in-
terest rates.
Next month, its central bank
is expected to unwind them—
among the first of those that
dabbled in the unorthodox
stimulus measure in recent
years to do so. But investors
see other factors that will keep
the country’s downtrodden
currency, the krona—one of
the world’s worst perform-
ers—from staging a comeback.
Central bankers in the
Scandinavian country, home to
Volvo vehicles, Ericsson tele-
com equipment and H&M ap-
parel, signaled last month that
they plan to raise the bench-
mark interest rate next month
to 0%, from minus-0.25%, cit-
ing concerns that keeping
them negative any longer
could lead to distortions in the
financial system.
The move would have Swe-
den increasingly at odds with
other central banks. The Euro-
pean Central Bank lowered in-
terest rates further into sub-
zero territory in recent
months. Switzerland, Japan
and Denmark also maintain
negative rates. And while still
solidly in positive territory,
the U.S. Federal Reserve has
cut rates three times this year.
The krona has fallen more
against the dollar than other
major economies’ currencies
in the past two years, down

roughly 13% against the U.S.

dollar since late 2017. But it

didn’t receive a boost when

Sweden’s Riksbank flagged the

impending end of negative

rates. Higher rates tend to at-

tract money into an economy,

boosting its exchange rate.

After the Riksbank signaled

the rate increase at a meeting

in late October, the krona

briefly gained 0.8% against the

dollar and the euro before los-

ing strength by the day’s end.

One key reason: Negative

rates might not matter as

much as people think. What is

more important is that the

Riksbank will continue to en-

gage in bond purchases, a

form of quantitative easing.

“QE is the most potent

weapon,” said Andreas Steno

Larsen, senior global strate-

gist at Nordea.

The Riksbank in April said

it would continue purchasing

government bonds through

December 2020.

Another factor for the

krona’s weakness is Sweden’s

dependence on global trade.

Its manufacturing sector—like

those of the U.S. and Ger-

many—has been hard-hit by

global trade tensions. Its over-

all growth fell to just 0.1% on a

seasonally adjusted basis in

the first and second quarters

of the year, compared with

1.3% in fourth-quarter 2018.

“For the currency to see a

turnaround, you need to see a

turnaround in global growth

and the trade outlook,” said Petr

Krpata, chief foreign-exchange

analyst for Europe, the Middle

East and Africa at ING Bank.

The expected rate increase

hasn’t piqued the interest of

currency strategists, whose

median forecast is for the

krona to weaken slightly

against the dollar by year-end,

according to a Refinitiv poll.

One U.S. dollar buys 9.7 kronor.

Sweden is also heavily ex-

port dependent, so a weaker

currency should have bene-

fited the economy. One factor

in Sweden’s decision to insti-

tute a negative deposit rate on

banks in 2014 was to keep the

currency from strengthening.

There is a sense in Sweden,

however, that negative rates

haven’t given the economy the

boost that was expected. And

central bankers have felt that

persistently low rates could

create perverse incentives,

such as too much borrowing

by households and asset-price

inflation. Policy makers began

raising rates in December

2018, taking the benchmark to

minus-0.25% from minus-0.5%.

The central bank’s deposit

rate, or what it charges com-

mercial banks to hold money

at the central bank, is ex-

pected to remain slightly neg-

ative, rising to minus-0.10 per-

centage point from minus-0.35

point, said Olle Holmgren, an

economist at SEB Bank.

Though still negative, he said

it would have a negligible ef-

fect on monetary policy.

The Swedish stock market,

meanwhile, has risen smartly

this year—in local-currency

terms. The OMX Stockholm 30

index, which includes H&M

owner Hennes & Mauritz AB,

appliance maker Electrolux

and truck and industrial-

equipment maker Volvo AB, is

up 25% in 2019 and 6% over

the past month. But priced in

euros or dollars, as interna-

tional investors approach the

market, Sweden has lagged be-

hind both the S&P 500 and the

Stoxx Europe 600.

BYCAITLINOSTROFF

Swedish Rates to Rise, Krona Stays Down

The Swedish krona, one of the world’s worst-performing currencies since 2018, has weakened more

than expected amid global trade tensions. Analysts don't expect a likely rate increase to change that.

Performanceofcurrencies

againsttheU.S.dollar

Globalstock-indexperformance,

inU.S.dollars

RatessetbySweden’sRiksbank

Sources: Tullett Prebon (currencies); FactSet (indexes); Riksbank (rates)

Japanese

yen

Swedish

krona

Euro

British

pound

Repo

Deposit

Lending

S&P 500

Stoxx

Europe 600

OMX

Stockholm 30

2

–2

–1

0

1

%

2014 ’15 ’16 ’17 ’18 ’19

10

–15

–10

–5

0

5

%

2018 2019

25

–5

0

5

10

15

20

%

Jan. Nov.

President Al Gore, said it was

drawn to the business in part

because connecting carriers

and shippers more easily can

reduce empty miles for trucks,

potentially mitigating carbon

emissions.

U.S.-based digital freight-

matching startups drew more

than $661 million in investor

funding between 2011 and

2018, according to Armstrong

& Associates. Evan Armstrong,

president of the research firm,

said the total backing since

2011 should surpass $1 billion

this year with infusions for

Convoy and other operators.

The newer entrants are try-

ing to build scale in a frag-

mented freight-brokerage sec-

tor where even the biggest

players command a small por-

tion of the overall market.

Armstrong & Associates es-

timates the domestic trans-

portation-management mar-

ket, which includes brokerage

and other logistics services,

generated $86.5 billion in rev-

enue last year.

Analysts say competition

from startups, including ag-

gressive pricing, is pushing

traditional transportation

companies to invest billions in

technology as they build their

own digital offerings.

Digital freight broker Con-

voy raised $400 million in a

Series D funding round that

values the business at $2.75

billion.

The fundraising backs its

expansion among a growing

array of technology-focused

upstarts making inroads in the

freight-transportation sector.

Generation Investment

Management LLP and previ-

ous investor T. Rowe Price

Associates Inc. led the latest

funding round, with participa-

tion from previous investor

Alphabet Inc.’s CapitalG fund

and others.

Founded in 2015, Seattle-

based Convoy is among the

biggest operators of online

marketplaces that match

truckers with shippers need-

ing to move cargo. The start-

ups, including Uber Technolo-

gies Inc.’s Uber Freight unit,

aim to make booking ship-

ments more efficient by using

mobile apps to find available

trucks and automating trans-

actions that had traditionally

been arranged through emails

and phone calls,

Generation, a sustainable-

investment-management firm

co-founded by former Vice

BYJENNIFERSMITH

Freight Broker Convoy Gets

$400 Million in Funding