Hedge Fund Titan Daniel Loeb Worries About Fed Hikes

Activist investor thinks aggressive short-term rate increases 'heightens' recession risk.

Billionaire hedge fund operator Daniel Loeb usually looks at company fundamentals instead of the macroeconomic picture in plotting his strategy.  But the activist investor is leery that the Federal Reserve will make a mistake and “kill the patient” by over-doing interest rate increases.

While the founder and chief executive of hedge fund Third Point believes the odds of a recession next year are low, he cautioned in a letter to investors that “the calculus is more fragile than a year ago.”

Loeb noted that, at its current pace, the Fed will push short-term rates above 3% by the end of 2019—with two more hikes expected in 2018 and perhaps three more next year. Add in the impact of unloading bonds bought during quantitative easing, and that puts the effective impact at 4%, he reasoned.

“Tightening of that magnitude has always resulted in recession,” Loeb wrote. “While we believe this well-seasoned Fed understands exactly the tightrope it is walking, the risk of destruction action is not zero.”

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CDPQ Fund, AMP Capital Invest $500 Million in Tillman’s Cellular Towers in US

The deal is the second major construction project for the huge Canadian pension fund.

Canada’s $298.5 billion La Caisse de dépôt et placement du Québec (CDPQ) pension fund and investment manager AMP Capital ($146.8 billion) have joined forces to build new cellular communications towers in the US, with an initial $500 million investment in tower owner Tillman Infrastructure.

CDPQ, Canada’s second-largest pension fund, is known for investing in mature infrastructure assets. Some $16.2 billion of its portfolio is in infrastructure. Recently, it announced it would build a local railroad in conjunction with Montreal’s transit authority. The towers deal is the second time it is involved in a major construction project, although it has invested in smaller projects such as a hospital and wind farms.

AMP has developed a number of retail and commercial buildings in its native Australia. It erected Sydney’s first skyscraper in the 1960s.

The Tillman deal will see the construction of new telecommunication towers in the US, which will boost service in areas lacking in coverage. The contract between the two institutions and the telecom developer states the total investment may reach $1 billion depending on “future growth needs.”

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Tillman Infrastructure, which was founded in 2016, builds, owns, and operates cell towers essential for wireless carriers and everyday cellular phone use. Its first building sites popped up late last year. Tillman is building cell towers in more than three dozen US states.

Mobile service providers are expected to spend between 15% and 20% of their revenue on capital expenditure in the coming years, boosting the demand for construction of next-generation networks, which are called 5G network. A 2017 report from Analysys Mason predicts 5G spending will be one of the main drivers of a 23% capex spending increase.

The move is the second telecommunications infrastructure deal for AMP since it closed its infrastructure debt fund last year.

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