CFA Institute

Introduction Traditional finance had two dominant perspectives on cryptoassets as 2022 drew to a close. Some saw bitcoin and the like as merely stand-ins for high beta equity market exposure. Others believed that FTX-related reputational damage had rendered the asset class toxic and uninvestable for the foreseeable future if not for all time. But crypto’s performance in the first half of 2023 has proven the lie to both these characterizations and revealed an asset class with resilience. Simplistic Narratives Conceal the Value The correlation between bitcoin and the S&P 500, NASDAQ, and other equity market indices has shifted conclusively from positive to negative in 2023. This confirms what we should have already known. Bitcoin and equities are fundamentally different assets. Yes, both are influenced by central bank liquidity. But unlike equities, bitcoin is not so dependent on the whims of the larger economy. It has no dividend payments, income, or yields but functions instead as a pure store of value and an alternative monetary system. As such, the perception of bitcoin as high beta equity is overly simplistic and ignores its underlying value. Bitcoin and Equity Markets Are Uncorrelated Sources: Glassnode and Sound Money Capital Cyclical Cleanse Cycle Complete The recent FTX-inspired crypto bear market served its purpose: It flushed out the speculative traders, liquidated leverage, and forced the weak miners to capitulate. As a result, long-term crypto investors consolidated their bitcoin holdings. These are not bubble chasers or “dumb” money; they are investors who understand the technology and are less prone to panic selling. Percentage of Bitcoins Held by Long-Term Investors Tends to Rise in Equity Bear Markets Sources: Glassnode and Sound Money Capital This cleansing process is typical of bitcoin bear markets. As the speculators pull back, the currency’s internal fundamentals, rather than global activity and risk appetite, drive its price movements. This has helped sever the correlation between bitcoin and the equity markets. Allergic Reaction? Look Closer The FTX debacle led many conventional investors and regulators to question crypto’s legitimacy. Many long-time skeptics were convinced that vindication had finally arrived. But investment decisions should not be based on sentiment and perception — unless we are using them as contra-indicators. Rather than initiating a crypto death spiral, the FTX collapse triggered something more akin to an allergic reaction in the investment world. This called for analysis and examination not knee jerk reactions. Those that looked deeper benefited as bitcoin has rallied more than 80% since. Indeed, given the headwinds and the added regulatory challenges, bitcoin, Ethereum, and other decentralized applications have held up extraordinarily well amid extreme volatility. Now even BlackRock is taking a closer look. BlackRock Reduces the Reputational Risk of Crypto Allocations BlackRock’s recent SEC application for a bitcoin exchange-traded fund (ETF) demonstrates that the cryptocurrency market isn’t going anywhere and that the most prestigious investors recognize its potential. Whether it receives approval or not, the world’s largest asset manager is knocking on the SEC’s door. Sooner or later, a spot bitcoin ETF will launch and another avenue for institutional crypto allocation will open up. FTX cost a lot of investors a lot of money, and many VCs were burned by the experience. As a result, reputational risk became a key motivator, or de-motivator, in crypto-related investment decisions. The thinking among managers went something along the lines of, “No one will take me seriously if I mention crypto. I could even lose my job. It isn’t worth the risk.” But with BlackRock’s potential entry into the sector, this narrative could reverse. Under the reputational cover of the world’s largest asset manager, a fiduciary obligation may emerge to consider allocation. Perhaps market participants can now focus on crypto’s use cases rather than the noise. The Use Cases As the crypto market burned off its speculative froth, the value of these assets revealed itself: Properly secured cryptoassets provide a hedge against the inherent challenges and shortcomings of the conventional financial system. During the 2022 banking crisis, for example, many depositors stared down the threat of near-total capital loss as banks struggled to cover deposits. But such illiquidity risk is a constant with traditional banks: They are eternally reliant on central bank backstops to counter potential bank runs. Bitcoin holders are not. Sudden value dilution is another threat embedded in traditional financial systems. A centralized authority can always devalue a currency. To “solve” the 2023 banking crisis, for example, the FDIC and the US Federal Reserve stepped in to raise insurance limits and guarantee all deposits. Such actions undermine the dollar’s value relative to real assets over time. Indeed, the bias toward fiscal and monetary expansion in traditional financial markets may help explain bitcoin’s remarkable 70% annualized returns since 2015. The Next Stage of the Crypto-Adoption Cycle Whatever the cryptocurrency narrative was following last year’s bear market, the negative correlation between bitcoin and equities debunks the premise that crypto is nothing more than high beta equity exposure. The subsequent winnowing process within the crypto market has renewed the focus on internal fundamentals. But as investors struggle to value cryptoassets and crypto technology more generally, volatility will remain. The pace and precise direction of crypto’s adoption cycle is uncertain and hard to predict. That’s why investors should heed last year’s lessons and look beyond initial reactions and media narratives and seek to understand the underlying technology and its potential uses. Next Bitcoin Halving: May 2024 Source: Sound Money Capital BlackRock’s interest in a bitcoin ETF is not an outlier. Crypto’s integration into conventional finance and portfolio allocation will only gather speed in the months and years ahead. There will always be skeptics. But amid changing dynamics and greater institutional interest, the value proposition is becoming clearer. As bitcoin’s supply growth is cut in half in May 2024, a more exuberant phase of the crypto adoption cycle will likely commence again. If you liked this post, don’t forget to subscribe to the Enterprising Investor. All posts are the opinion of the author(s). As such, they should not be construed as investment

“[The fiscal theory of the price level] says that prices and inflation depend not on money alone . . . but on the overall liabilities of the government — money and bonds. In other words, inflation is always and everywhere a monetary and fiscal phenomenon.” — Thomas S. Coleman, Bryan J. Oliver, and Laurence B. Siegel, Puzzles of Inflation, Money, and Debt “Monetary policy alone can’t cure a sustained inflation. The government will also have to fix the underlying fiscal problem. Short-run deficit reduction, temporary measures or accounting gimmicks won’t work. Neither will a bout of growth-killing high-tax ‘austerity.’ The U.S. has to persuade people that over the long haul of several decades it will return to its tradition of running small primary surpluses that gradually repay debts.” — John H. Cochrane, Senior Fellow, Hoover Institution, Stanford University Inflation has set yet another 40-year high. After rising for the last year and despite multiple rate hikes by the US Federal Reserve, the latest Consumer Price Index (CPI) figures came in above estimates, at 9.1%. This suggests inflation pressure may not be easing up at all but may in fact be accelerating. So, what can be done to tame inflation in the months and years ahead? In the first installment of our interview series with John H. Cochrane and Thomas S. Coleman, the two described how the fiscal theory of the price level (FTPL) explains the inflation phenomenon from both a theoretical and historical perspective. Here they consider how the current inflation surge might be tapped down. As Cochrane wrote in his recent piece for the Wall Street Journal, a monetary policy response alone won’t be sufficient. What follows is an edited and condensed transcript of the second installment of our conversation. John H. Cochrane: What will it take to get rid of the current inflation? There’s some momentum to inflation. Even a one-time fiscal shock leads to a protracted period of inflation. So, some of what we are seeing is the delayed effect of the massive stimulus. That will eventually go away on its own, after the value of the debt has been inflated back to what people think the government can repay. But the US is still running immense primary deficits. Until 2021, people trusted that the US is good for its debts; deficits will be eventually paid back, so people were happy to buy new bonds without inflating them away. But having crossed that line once, one starts to wonder just how much capacity there is for additional deficits. I worry about the next shock, not just the regular trillion-dollar deficits that we’ve all seemingly gotten used to. We are in a bailout regime where every shock is met by a river of federal money. But can the US really turn on those spigots without heating up inflation again? So, the grumpy economist says we still have fiscal headwinds. Getting out of inflation is going to take much more fiscal, monetary, and microeconomic coordination than it did in 1980. Monetary policy needs fiscal help, because higher interest rates mean higher interest costs on the debt, and the US needs to pay off bondholders in more valuable dollars. And unless you can generate a decade’s worth of tax revenue or a decade’s worth of standard spending reforms — which has to come from economic growth, not higher marginal tax rates — monetary policy alone can’t do it. Rhodri Preece, CFA: What’s your assessment of central bank responses to date? Have they done enough to get inflation under control? And do you think inflation expectations are well anchored at this point? How do you see the inflation dynamic playing out the rest of the year? Cochrane: Short-term forecasting is dangerous. The first piece of advice I always offer: Nobody knows. What I know with great detail from 40 years of studying inflation is exactly how much nobody really knows. Your approach to investing should not be to find one guru, believe what they say, and invest accordingly. The first approach to investing is to recognize the enormous amount of uncertainty we face and do your risk management right so that you can afford to take the risk. Inflation has much of the same character as the stock market. It’s unpredictable for a reason. If everybody knew for sure that prices would go up next year, businesses would raise prices now, and people would run out to buy and push prices up. If everybody knew for sure the stock market would go up next year, they’d buy, and it would go up now. So, in the big picture, inflation is inherently unpredictable. There are some things you can see in the entrails, the details of the momentum of inflation. For example, house price appreciation fed its way into the rental cost measure that the Bureau of Labor Statistics uses. Central banks are puzzling right now. By historical standards, our central banks are way behind the curve. Even in the 1970s, they reacted to inflation much more than today. They never waited a full year to do anything. But it’s not obvious that that matters, especially if the fundamental source of inflation is the fiscal blowout. How much can the central banks do about that inflation? In the shadow of fiscal problems, central bankers face what Thomas Sargent and Neil Wallace called an “unpleasant arithmetic.” Central banks can lower inflation now but only by raising inflation somewhat later. That smooths inflation out but doesn’t eliminate inflation, and can increase the eventual rise in the price level. But fundamentally, central banks try to drain some oil out of the engine while fiscal policy has floored the gas pedal. So, I think their ability to control inflation is a lot less than we think in the face of ongoing fiscal problems. Moreover, their one tool is to create a bit of recession and work down the Phillips curve, the historical correlation that higher unemployment comes with lower inflation, to try to push down inflation. You can tell why they’re reluctant to

Private capital markets are no longer a side story in global finance. Despite the sector’s insistence that it brings many benefits to the broader economy, the growing size of private capital markets is raising concerns about the systemic risks that both private equity (PE)[1] and private credit[2] may pose. With trillions in assets now tied up in private markets, sluggish deal  activity[3] and a general sense of market saturation[4] have intensified the uneasiness, concerns that extend beyond policymakers to institutional investors whose portfolios are directly exposed. Before the global financial crisis (GFC), critics of private equity were mostly confined to trade unions and left-leaning politicians,[5] and PE fund managers could get on regardless. The anxiety is spreading, however, reaching even pro-market apostles. A recent cover story in The Spectator — the politically conservative magazine owned by hedge fund investor Paul Marshall — examined how private equity funds “ruined Britain” by mishandling many of the businesses under their custody.[6] Individual Sectors at Risk: When PE Practices Spread Whilst the debate about a proper definition for systemic risk goes on,[7] what is clear is that parts of the economy are exposed to PE’s worst management practices. When many PE-owned companies promote the same principles of high leverage and short-term cash extraction through quick flips and dividend recapitalizations in a given industry, the entire sector can become a graveyard, as fashion retail experienced on both sides of the Atlantic. Further, public services from hospitals, prisons and fire departments to airports and road tolls are now frequently targeted by PE firms. Supporters argue that PE capital can modernize outdated infrastructure and introduce greater efficiency, though evidence of lasting benefits is mixed. With so much dry powder sitting idle, financial sponsors have turned vast swathes of the public sector into their private kingdom. In the United Kingdom, many water utilities have either experienced leveraged buyouts (LBOs) or adopted the PE trade’s playbook, with short-term profit maximization leading to chronic long-term underinvestment in infrastructure.[8] In the United States, several sectors offering public services to a sticky or captured “customer base,” including healthcare[9] and higher education,[10] have experienced systemic failure. A research paper highlighted how a quasi-exclusive focus on profitability at US hospitals, many of them increasingly under PE-ownership,[11] affected care due to reduced medical staff, and led to a rise in hospital bills.[12] Since no sector is deemed out of reach, it is fair to ask what could be the long-term impact of the widespread use of PE practices on key industries or even the broader economy. Economic Contamination: How Leverage Extends Beyond the Balance Sheet Too much debt can act as a poison that strikes at the genetic material of the economy and the business ecosystem. Those who argue that overleverage in private markets is not of a systemic nature adopt the meaning given by financial regulators when describing the banking sector in the aftermath of the GFC.[13] PE managers counter that leverage disciplines management teams and enhances returns, though the broader spillovers into labor markets and suppliers are harder to quantify. Private capital practitioners contend that individual PE firms operate in closed and separate compartments. Contamination cannot therefore spread across the economy, especially because fund managers do not hold depositors’ money. While technically true, the reality is more complex. In the last half century, debt was progressively substituted for equity in corporate capital structures.[14] Modern economies are therefore confronted with a serious problem: Permanent leverage. The excessive use of debt can have disastrous consequences not just on the borrower but for its suppliers, contractors, employees and other business associates. Indeed, private capital-backed businesses do not operate in a silo. They impact other market participants. When overleverage becomes the default corporate management practice, as it is for companies under LBO, market risks pile up. This is particularly true when borrowers are weakened concurrently by a rise in interest rates. As credit became dearer in the past three years, it acted as a toxic substance. The economic effects of debt overuse are likely to be cumulative over long periods of time, spurring the zombification of the corporate landscape,[15] job insecurity in private capital-fuelled sectors and underinvestment in product R&D and infrastructure. In the hands of financial sponsors and private lenders, credit could become a no-holds-barred weapon of mass economic slumber. Even if a thorough process of deleveraging does not lead to a financial upheaval on par with the 2008 crisis, it could take many years for equity to gradually replace excess leverage through equity cures, leading to a protracted recession. This, in turn, is likely to have a prejudicial impact on investment returns. Lower yields from private capital could induce a structural downfall in retirement pots: many institutional investors making capital commitments to alternative asset classes are pension fund managers. Permanent Opacity: Why Visibility Matters for Investors Private property is a core concept of capitalism, but in modern market economies it increasingly refers to the fact that many corporations remain permanently the property of PE firms. Secondary buyouts (SBOs) frequently account for half of annual portfolio realizations, in part because few market participants other than financial sponsors are willing to bid for assets that have suffered years of overleverage. Pre-Covid vintages also hold overpriced businesses that benefited from all-time low interest rates. A large number of PE-sponsored enterprises have undergone over three LBOs, with a not meaningless number of them on their fifth or sixth iteration. It is not inconceivable that some will remain in PE hands forever, or until market turmoil forces fund managers to relinquish control. Yet, SBOs eventually proved an unreliable fix. Traditionally a fairly illiquid asset class to begin with, which explains the frequency of quick-turnover deals and dividend recaps, PE sought another solution to remedy the current weak deal environment. Continuation vehicles (CVs) were meant to provide a fitting and temporary solution to fund managers facing the uncertain climate created by the economic response of the Covid pandemic. The sharp rise in inflation and interest rates in recent years had

New US regulatory clarity is unlocking blockchain’s potential beyond theory. From tokenized collateral in Foreign Exchange (FX) trading to stablecoin remittances, institutional investors now have actionable tools to cut costs, reduce settlement times, and manage cross-border risk more efficiently. The global FX and remittance markets are overdue for disruption. Despite advances in algorithmic trading and high-speed data analytics, the backbone of cross-border capital flows still relies on an antiquated infrastructure of correspondent banks, siloed custodians, and settlement lags. With recent regulatory clarity in the United States, highlighted by the “GENIUS Act” and supportive signals from Washington, blockchain-based solutions are moving from speculative pilot to institutional-grade utility. For portfolio managers, allocators, CIOs, and risk officers, this represents more than back-office efficiency. It’s an opportunity to rethink how capital is moved, hedged, and deployed across borders. For a broader conversation about the trajectory of blockchain applications in financial services, I’ll be joining Christopher Weise — Managing Director, Education at CFA Institute — on Enterprising Investor podcast. Subscribe to the podcast and don’t miss the episode on September 1. Why FX Is Ripe for Tokenization Cross-border investing often means navigating a tangled web of currency conversions, banking holidays, time zone delays, and counterparty exposures. When I was a mutual fund manager overseeing international equities, simply establishing exposure to a Danish company like Carlsberg required setting up local custodians, managing illiquid ADR alternatives, timing trades during odd market hours, and converting dividends paid in Danish krone back into US dollars, often at sub-optimal rates. For smaller asset managers, these operational burdens are a non-starter. Now imagine a scenario where tokenized collateral enables instant FX settlement and stablecoins allow remittances to be completed in minutes — 24/7, 365 days a year. That’s no longer hypothetical. Case Study: Tokenized FX Collateral Lloyds Bank and Aberdeen Asset Management recently executed a successful pilot involving tokenized collateral for FX trades on the Hedera blockchain. As reported by Ledger Insights, the firms used tokenized representations of money market mutual funds to streamline the collateral posting process across multiple jurisdictions. This allowed for near real-time movement of capital and eliminated delays tied to traditional clearing cycles. Importantly, the use of distributed ledger technology (DLT) provided an immutable audit trail and reduced the reliance on intermediaries. For institutional investors, this development opens the door to more dynamic liquidity management. Portfolio managers can deploy capital more efficiently, risk officers can reduce exposure windows, and traders can compress bid-ask spreads by removing custodial frictions. Stablecoin Remittances: Institutional Applications Meanwhile, South Korea’s Shinhan Bank and Thailand’s SCB recently completed a cross-border remittance trial using stablecoins. The pilot proved that stablecoins can displace traditional SWIFT-based transfers, reducing costs and increasing settlement speed. This innovation has broad implications for international firms needing to move cash quickly across borders—whether to fund margin calls, distribute dividends, or execute corporate actions. Think of the advantages for a pension fund with global holdings: Instead of relying on banking wires that take days to clear and cost dozens of basis points, funds could use digital currencies to settle obligations in real time. Stablecoins also enable better FX rate visibility and reduced slippage, thanks to pre-programmed execution logic and transparent on-chain pricing. Regulatory Tailwinds: The Infrastructure Is Forming One of the long-standing barriers to institutional adoption of blockchain has been regulatory ambiguity. But that is starting to shift. In the United States, the GENIUS Act has introduced critical guardrails for how digital assets are categorized and taxed. And central banks are beginning to coordinate their efforts. The Reserve Bank of Australia, for example, has launched trials involving wholesale CBDCs across both public and private blockchains, with a particular eye on their utility in FX markets. This matters because regulatory harmonization is the final puzzle piece needed for widespread adoption. With clear rules, financial institutions can begin integrating tokenized FX solutions into their core systems with confidence that they are operating within compliant frameworks. Portfolio Manager Takeaways: What’s Actionable Now? For CFA charterholders and institutional investors, this isn’t just a theoretical evolution. It’s a real-world shift with actionable implications: Portfolio Managers: Monitor liquidity management opportunities, use tokenized collateral to avoid overfunding accounts, and evaluate pilot projects with custodians or counterparties. Risk Officers: Model counterparty and operational risk under blockchain settlement scenarios, and track how instantaneous transfers may reduce exposure windows. Allocators/CIOs: Stress test liquidity models under tokenized settlement assumptions, assess potential cost savings from stablecoin transfers, and evaluate alignment with long-term strategy. Across all roles: Leverage blockchain’s auditability to enhance compliance and reporting workflows. The message is clear: the tools for frictionless, blockchain-based global capital movement are no longer five years away. They’re already being piloted today. A Note of Caution It’s important to avoid overstating the readiness of these technologies. While the underlying infrastructure is maturing, many implementations remain in the early stages. Not every jurisdiction is aligned on regulatory frameworks, and interoperability among networks is still developing. Early movers don’t need to overhaul systems overnight. A pragmatic entry point is testing tokenized collateral pilots or evaluating stablecoin remittance platforms with trusted partners. Those who begin experimenting now will be better positioned as the infrastructure matures. A Shift in the Market’s Plumbing We’ve seen this before. Just as electronic trading replaced the shouting pits of equity markets and internet platforms redefined brokerage, blockchain is poised to transform the infrastructure of international investing. FX and remittances are merely the next frontiers. Those who recognize and adapt to this evolution will improve efficiency, lower costs, and sharpen their strategic edge. And in a competitive environment where every basis point matters, failing to explore blockchain-based FX and remittance solutions could leave basis points on the table — an oversight no fiduciary can justify. More to Think About An Investment Perspective on Tokenization — Part I An Investment Perspective on Tokenization — Part II Valuation of CryptoAssets: A Guide for Investment Professionals CFA Institute Global Survey on Central Bank Digital Currencies source

Innovation Drives Value Creation Innovation has always propelled economic progress and wealth creation. Investors once accessed the growth of groundbreaking companies through the stock market after these innovative firms went public. But the investment landscape has dramatically shifted in recent decades. Companies today often delay their initial public offerings (IPOs) and stay private for longer or forever. From 1980 to 2000, the IPO market averaged 325 transactions per year. Since 2000, that number has dropped dramatically, to an anemic 135. To invest in the growth of innovative new companies, we need to look to the private markets. Innovation and the Private Markets  How have the public markets changed? One example of the IPO heyday is Apple Computer. Apple went public in 1980, only a few years after its launch, and raised $100 million on $117 million in revenue. Just four years later, the company clocked $1.5 billion in revenue and put more than 10x growth in the pockets of public investors. But 1980s Apple-like returns are anachronistic in today’s much-diminished IPO market. Pre-IPO investors are harvesting the bulk of the returns from the current crop of early stage high-growth companies. That’s where the transformative opportunities are. Private market investors have traditionally backed early stage, high-potential, fast-growth companies through venture equity. Though the barriers are falling, early stage equity is often an insider’s game that even the top investors can’t get in on. But venture debt has recently emerged as an attractive complement, providing investors with another way to access “innovation” as an asset class. As new firms grow, they often look to venture debt for funding to reduce their cost of capital and decrease their ownership dilution. Venture debt vehicles give market participants who missed out on the earliest equity rounds the chance to invest in the company’s future. Ultra-high-net-worth (UHNW) individuals have recognized the opportunity, and family offices have shifted their investment focus accordingly since the global financial crisis (GFC). Institutional investors have followed their lead. The numbers don’t lie. Direct investing in private transactions has increased 175% in the United States and 210% globally in the last 15 years. In August 2022, Blackstone announced plans to invest $2 billion in private technology loans, including venture debt, in a major lending push to private start-ups and tech companies. A year later, BlackRock acquired Kreos Capital, one of Europe’s largest private venture lenders. As Stephan Caron, head of EMEA Private Debt at BlackRock, observed, “Current market dynamics have made private credit an attractive asset class as investors focus on its income generation, low volatility, portfolio diversification and its low defaults versus public markets.” The potential advantages of private market investments, specifically venture equity and venture debt investing, extend to five dimensions of performance. 1. Portfolio Diversification Allocations to pre-IPO equity and debt can help diversify a portfolio and disseminate risk across sectors, stages, business models, and regions, among other factors. They can also mitigate the impact of underperforming public markets and shield us from market fluctuations. Indeed, pre-IPO companies often exhibit low correlations with stocks and bonds and improve risk-adjusted returns. This is especially critical as the ranks of publicly listed companies thin out. There were roughly 8,000 listed firms in 1980. Now there are only around 4,000. 2. Growth and Return Potential Companies often enjoy their fastest growth trajectories early in their life cycles, especially during their pre-IPO stages. That is when their value tends to appreciate the most as their market share expands.  Venture debt meanwhile has consistently delivered annual income in the mid to high teens on top of another 3% to 5% in annual returns from equity participation. Moreover, across the industry, the annual loss rates on loans have been below 0.50% over the past 20 years. US Private Equity and Venture Capital Index Returns* Index Six Month One Year Three Years Five Years 10 Years 15 Years 20 Years 25 Years CA US PrivateEquity –5.3% 6.7% 23% 20.6% 17.8% 12.6% 14.8% 13.8% Russell 2000mPME –23.5% –25.6% 3.9% 5% 10.2% 7.1% 8.6% 7.9% S&P 500mPME –20% –10.9% 10.5% 11.2% 13.5% 8.9% 9.4% 8.3% CA USVenture Capital –13% 2.7% 30.5% 25.7% 19.3% 13.6% 11.8% 28.1% NASDAQComposite mPME –29.3% –23.5% 13.1% 14.1% 16.2% 11.6% 12% 10.4% Russell 2000mPME –23.5% –25.5% 3.9% 5% 10% 6.7% 8.7% 8% S&P 500 mPME –20.0% –10.9% 10.5% 11.3% 13.3% 8.8% 9.4% 8.4% NASDAQComposite AACR –29.2% –23.4% 12.2% 13.5% 15.4% 11.2% 11.6% 9.3% Russell 2000AACR –23.4% –25.2% 4.2% 5.2% 9.4% 6.3% 8.2% 7.4% S&P 500AACR –20% –10.6% 10.6% 11.3% 13% 8.5% 9.1% 8% * Periods ended 30 June 2022Source: Cambridge Associates 3. Early Access Start-up investing gets us in on the ground floor of high-growth companies and provides a first-mover advantage that can lead to more favorable investment terms. At such a nascent stage, a company has lower valuations and higher upside. The Apples, Alphabets, Netfixes, and other industry disruptors all began as start-ups and generated staggering profits for their early investors. What do we mean by “staggering”? Early Uber equity investors offer a good example: First Round Capital’s initial $510,000 investment turned into more than $2.5 billion when the company went public. Sequoia Capital’s $260 million investment in Airbnb became $4.8 billion 11 years later. Early SpaceX investors might soon see a similar payday: Founders Fund invested $20 million in 2008 when the company was valued below $1 billion. The most recent private funding puts SpaceX’s value at $137 billion. 4. New Ideas Investing in venture equity and debt funds and directly in start-ups can also give us insights into emerging trends and technologies and a better understanding of the broader market outlook and how it is evolving. With fewer and delayed IPOs, the public markets are only the tip of the opportunity iceberg. The bulk of business innovation is hiding unseen beneath the surface in the private markets. This gives private market investors an information advantage over those who can’t see the deal flow. Private company reporting has yet to be commoditized like its public counterpart, so informational asymmetries abound for those who

Perception does not always match reality. We suspected this may be the case when it comes to the widely held belief that Bitcoin is considerably more volatile than other asset classes. We tested our theory by revisiting Mieszko Mazur’s 2022 paper, “Misperceptions of Bitcoin Volatility.” In this blog post, we will discuss Mazur’s methodology, refresh his data, and illustrate why it’s best to approach the topic of Bitcoin volatility analytically and with an open mind. The Beginning Bitcoin began its journey as an esoteric whitepaper published in the hinterlands of the World Wide Web in 2008. As of mid-2024, however, its market capitalization sits at an impressive ~$1.3 trillion, and it is now the “poster child” of digital assets. “Valuation of Cryptoassets: A Guide for Investment Professionals,” from the CFA Institute Research and Policy Center, reviews the tools available to value cryptoassets including Bitcoin. The specter of Bitcoin’s volatility from its early days looms large and is omnipresent in any discussion about its status as a currency or its intrinsic value. Vanguard CEO Tim Buckley recently dismissed the potential for including the cryptoasset in long-term portfolios, saying that Bitcoin is too volatile. Does his perception match reality? Mazur’s Findings Mazur’s study focused on the months preceding, during, and after the March 2020 stock market crash triggered by the COVID-19 crisis (e.g., the market crash period). His key aim was to discern Bitcoin’s comparative resilience and price behavior surrounding a market crash period. He focused on three indicators: relative ranking of daily realized volatility, daily realized volatility, and range-based realized volatility. Here’s what he found: Relative Ranking of Daily Realized Volatility Bitcoin’s return fluctuations were lower than roughly 900 stocks in the S&P 1500 and 190 stocks in the S&P 500 during the months preceding, during, and after the March 2020 stock market crash. During the market crash period, Bitcoin was less volatile than assets like oil, EU carbon credits, and select bonds. Daily Realized Volatility Over the past decade, there has been a significant decline in Bitcoin’s daily realized volatility. Range-Based Realized Volatility Bitcoin’s range-based realized volatility of Bitcoin was significantly higher than the standard measure, using daily returns. Its range-based realized volatility was lower than a long list of S&P 1500 constituents during the market crash period. Do these conclusions carry over to the present day? Our Methodology We analyzed data from late 2020 to early 2024. For practical reasons, our data sources for certain assets diverged from those used in the original study and we chose to emphasize standardized percentile rankings for ease of interpretation. We examined the same three indicators, however: relative ranking of daily realized volatility, daily realized volatility, and range-based realized volatility. In addition, for carbon credits, we used an ETF proxy (KRBN) instead of the EU carbon credits Mazur used in his study. BTC/USD was the currency pair analyzed. Relative Daily Realized Volatility: An Updated View In Exhibit 1, higher percentiles denote greater volatility with respect to the constituents of the S&P 1500. From November 2020 to February 2024, Bitcoin’s daily realized volatility rank equated to the ~80th percentile relative to the S&P 1500 on average. Exhibit 1. Bitcoin’s Daily Realized Volatility Percentile Rank vs. S&P 1500 Sources and Notes: EODHD; gray areas represent Market Shocks and higher percentile = higher volatility. For subsequent market crises, Bitcoin’s relative volatility rankings had higher peaks compared to the crash triggered by COVID-19 but similar ranges for the most part. Notably, as depicted in Exhibit 2, in May 2020 and December 2022 Bitcoin was less volatile than the median S&P 1500 stock. Exhibit 2. Bitcoin’s Daily Realized Volatility Across Market Shocks Sources & Notes: Mazur (2022) and EODHD; the COVID-19 Crash ranks and daily realized volatility are derived directly from the original study. Rank of 1 = highest volatility value; percentiles are inverted such that higher percentiles = higher volatility value. Exhibit 3 shows that Bitcoin exhibited the highest volatility compared to all other selected assets during the listed market shocks with some exceptions, such as oil and carbon credits, during the commencement of the Russia-Ukraine conflict. Exhibit 3. Bitcoin’s Daily Realized Volatility vs. Other Assets Across Market Shocks Sources and Notes: EODHD, FRED, S&P Global, Tullet Prebon, and Yahoo! Finance; numbers are the maximum daily realized volatilities for the indicated time period. Absolute Daily Realized Volatility: An Updated View True to Mazur’s findings, Bitcoin’s volatility continued to trend downward and experienced progressively lower peaks. Between 2017 and 2020, there were several episodes of spikes that surpassed annualized volatility of 100%. Data from 2021 onward painted a different picture. 2021 peak: 6.1% (97.3% annualized) in May. 2022 peak: 5.5% (87.9% annualized) in June. 2023 peak: 4.1% (65.7% annualized) in March. Exhibit 4. Daily Realized Volatility over Time Source: EODHD. Range-Based Realized Volatility: An Updated View Consistent with Mazur’s findings, range-based realized volatility was 1.74% higher than daily realized volatility, though this was not entirely surprising given our chosen calculation. Bitcoin’s range-based realized volatility was in the ~79th percentile relative to the S&P 1500 on average. What is interesting, however, is that range-based realized volatility has not experienced a proportionate reduction in extreme peaks over recent years. The notably higher levels of range-based compared to daily close-over-close realized volatility, combined with media coverage that emphasizes inter-day movements over longer time horizons, suggest that this discrepancy is a primary factor contributing to the perception that Bitcoin is highly volatile. Exhibit 5. Range-Based Realized Volatility over Time and Percentile Ranking Relative to S&P 1500 Source: EODHD. Note: Rank of 1 = highest volatility value; percentiles are inverted such that higher percentiles = higher volatility value. Findings Of all of Mazur’s conclusions, the finding pertaining to Bitcoin’s relative daily realized volatility did not hold up in our analysis, because its performance relative to other asset classes during market shocks degraded. Conversely, most of Mazur’s findings, including daily- and range-based realized volatility of Bitcoin, still hold true. Relative Ranking of Volatility: Diminished in Strength With respect to the market shocks that

Aritificial intelligence (AI) will not replace investment managers, but investment managers that successfully integrate AI will replace those that do not. AI is surrounded by hype, but at its core it is an automation technology with the potential to power significant breakthroughs in the industry. It also has the potential to restore the primacy of active management, but in a new form. However, the reaction in the industry has so far been more about marketing than reality. So far, traditional fundamental managers have tended to be  skeptical about applying AI, while in the quant space there has been a tendency to overstate, recast or even rebrand traditional approaches as quasi-AI. In the rare cases where AI has been integrated by investment groups, it remains uncertain whether there is the necessary experience to manage these complex technologies safely. The underlying issue? A significant AI skills gap at all levels of almost all investment firms. While this presents risks to industry incumbents, for ambitious investment professionals, with the right aptitudes and drive, the AI skills gap presents a huge opportunity. The Skills Gap: A Critical Risk for Asset Owners and Allocators The AI skills gap poses its most significant risk via two key roles in the industry: manager researchers and investment managers. As the gatekeepers who approve or reject investment strategies, manager researchers need to be equipped with the skills to critically evaluate AI-driven approaches. Without these skills, they risk either overlooking superior strategies or, worse, endorsing flawed ones. Meanwhile, investment managers face growing pressure to assure clients they are harnessing AI, risking exaggeration or misapplication. However, this situation provides an opportunity for individuals with the right aptitude and drive to stand out from the crowd. One of the most accessible paths for investment professionals to close their own AI skills gaps, is the CFA’s Professional Certificate in Data Science, launched in April 2023, to which I was proud to contribute. This program is the most relevant and thoughtfully designed resource on AI for investment professionals currently available. Risk to Asset Allocators of an AI Skills Deficit by Function: Are Investment Managers Really Using AI? An AI-driven investment approach is a systematic process that should be designed to automate away much of the fundamental analyst’s role in driving security selection, and the quant analyst role in “discovering” the long-term causal drivers of return characteristics. In the recent industry survey “AI Integration in Investment Management,” Mercer recently reported that more than half of managers (54%) surveyed say they use AI within investment strategies. The authors of the report “recognize the potential for ‘AI washing’” from respondents, where firms may exaggerate their use of AI to appear more advanced or competitive. Most investment groups now use Microsoft Copilot, ChatGPT in an ad-hoc way, or data sources that use AI such as natural language processing (NLP) or LLMs. To claim AI integration in these cases is a stretch. Some more egregious “AI washing” examples include some managers simply misclassifying traditional linear factor approaches as “AI.” Exaggerating capabilities has always been an issue in areas of the industry where demand has outstripped supply, but exaggerating AI integration risks manager researchers inadvertently endorsing AI laggards or risk takers and overlooking more competitive opportunities. AI and the Revival of Active Management The rise of AI will challenge passive and factor-based investing. AI’s key advantage is that it has the potential to combine the best elements of fundamentally active investing and quant investing, at greater scale and for lower cost. Traditional, fundamentally active strategies, which rely on teams of analysts to form qualitative, bottom-up views on investments, are limited by their scalability and their subjectivity. There are only so many companies an analyst can form a qualitative view on. Conversely, quantitative strategies are almost universally factor-based, lacking the nuanced insight that bottom-up, human analysis provides. A correctly designed AI offers a unique opportunity to systematically form bottom-up views on investments and then deploy this at scale. This could revolutionize active management by reducing costs, increasing objectivity, efficiency, with the potential to generate superior return characteristics. However, the successful integration of AI into investment strategies depends heavily on the availability of the right skillsets, deep investment-AI experience, and AI- and tech-fluent investment leadership within firms. Conclusion AI is more than just another technology. It is a transformative force with the potential to redefine investment management. The industry’s most significant barrier to harnessing this power is the widening AI skills gap. Those managers who fail to address this critical challenge will fall behind, struggling to leverage AI effectively or, perhaps, safely. For asset allocators and owners, the message is clear: ensure that managers and service providers you partner with are not only adopting AI but are doing so with the right expertise at every level of their organization. For ambitious investment professionals with the right aptitude and drive the AI skills gap will be the opportunity of a generation. source

Future State of the Investment Industry draws the most clicks in 2023. The CFA Institute Research and Policy Center (RPC) focuses on four forward-looking research themes to drive content engagement, action, and outcomes. These themes are Capital Markets (Strengthening the Structural Resiliency of Capital Markets); Technology (Understanding the Latest Developments in Data Analytics, Technology, and Automation); Industry Future (Providing New Insights into the Future of the Profession); and Sustainability (Advancing the Industry’s Thinking on Sustainability Challenges). What follows are the most popular top five articles of 2023 that align with the Future of the Profession theme published on the RPC since its inception. Providing New Insights into the Future of the Profession focuses less on disruptions to the industry and more on changes from within the industry. It addresses the industry, its efforts to transform itself for the better, and its relationship to the broader investment ecosystem. Our research explores the innovation required for investment organizations and investment professionals to be positioned for future success. 1. Future State of the Investment Industry This report frames the most significant developments that will affect the investment industry in the next five to 10 years and provides a road map for investment professionals to navigate the changes and improve client outcomes. 2. “Gen Z and Investing: Social Media, Crypto, FOMO, and Family” This research — produced through a collaboration between the FINRA Investor Education Foundation and CFA Institute and executed in partnership with Zeldis Research Associates — examines Gen Z’s attitudes and behaviors around investing. It is based on data from a November and December 2022 online survey of 2,872 Gen Zs aged 18 to 25, Millennials, and Gen Xers. 3. “Financial Promotions on Social Media (GC23/2)” In this comment letter, CFA Institute, represented by Olivier Fines, CFA, and Serena Espeute, and the CFA Society of the UK (CFA UK), represented by Will Goodhart and Andrew Burton, respond jointly to the consultation on financial promotion on social media by the Financial Conduct Authority (FCA) of the United Kingdom. 4. “The Audit Gender Gap: Has It Narrowed?” A 2018 CFA Institute study found that women rarely run the biggest audits at Big Four accounting firms. In this report, Sandra J. Peters, CPA, CFA, examines updated data to determine whether the gap has changed and how much progress is still needed. 5. “Rhodri Preece, CFA, and Ryan Munson: Future State of the Investment Industry Podcast” In this episode of Guiding Assets, host Mike Wallberg, CFA, speaks with Rhodri Preece, CFA, and Ryan Munson from the CFA Institute Research and Policy Center about the Future State of the Investment Industry report. The report explores four potential scenarios for the industry and how it may be shaped in the next five to 10 years. They discuss the goals of the report and the underlying research process, and provide valuable insights into the major trends and disruptors affecting the investment industry. If you liked this post, don’t forget to subscribe to Enterprising Investor and the CFA Institute Research and Policy Center. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images / Allan Baxter Professional Learning for CFA Institute Members CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker. source

. We own real assets for their diversification benefits generally, and for their inflation-hedging properties specifically. Real assets’ first test in modern times started in 2021, when inflation climbed to levels not seen in more than a generation, taking more than two years to subside. A practitioner might ask, “Did real assets perform as hoped during this episode?” While dispersion among manager returns is undoubtedly high, broad-market, real-asset index data suggests that real assets failed to hedge the 2021 to 2023 inflation episode. In this blog, I review the performance of three indexes representative of asset classes that an allocator might include in a real-asset bucket: the S&P Global Infrastructure Index (SPGI), the S&P Natural Resources Index (SNRU), the Northern Trust Global Real Estate index (NTGRE), the multi asset Northern Trust Real Assets Allocation (NTRAA), and S&P Real Assets Indexes (SP_REAL). I use the period of surging inflation that began in 2021 and ended in 2023. For comparison, I include the Bloomberg TIPS (BBUTISTR, which I abbreviate “TIPS”), the Bloomberg Commodity total return (BCTR), and the S&P 500 (SPXTR) indexes. My measure of inflation is the consumer price index (CPI) and variables based on it, defined below. Returns and level changes are monthly unless otherwise noted.  R code and additional results can be found in an online R Markdown file. What an Inflation Hedge Should Do Most investors probably expect to be compensated for the drag that an inflation hedge might impose on a portfolio relative to equities in the form of a return that at least keeps up with changes in the price level. Asset allocators typically hold potential inflation hedges to a more lenient standard. We ask merely that a hedge exhibit positive correlation with inflation. That is, when the price level rises, so should an inflation hedge. By either standard, real assets faltered during the recent inflation episode. Real Assets and COVID-Era Inflation Exhibit 1 makes my main point. It shows the change in headline CPI inflation on the horizontal axis versus the multi-asset Northern Trust Real Assets Allocation index[1] (on the vertical) for COVID-era inflation, which I define as January 2021 to December 2023. The correlation is near zero and in fact slightly negative (-0.04), as the ordinary least squares (OLS) best-fit line emphasizes. Results are the same for the S&P Real Assets index. Of course, these results aren’t significant — the sample size (36) is small. But it’s the actual values, not hypothesis testing, that are of interest. The returns of broad, real-assets benchmarks did not move in the same direction as inflation from 2021 to 2023. Exhibit 1. Headline CPI and a broad, real-asset benchmark index were uncorrelated during the COVID-era inflation. Sources: FRED, YCharts, Author’s calculations Table 1 is a correlation table. It shows that during the COVID-era inflation period, real-asset index returns were negatively associated with headline CPI inflation (third row), as were TIPS and equities. Real assets moved in the wrong direction, on average, in response to changes in inflation.   Also shown in Table 1 are measures of underlying inflation: median and (16%) trimmed mean CPI as calculated by the Federal Reserve Bank of Cleveland. These proxy for persistent inflation, generally associated with a rising output gap or inflation expectations (as captured in the modern-macro Phillips curve). Because they filter out supply shocks from various sources, they are measures of trend inflation (Ball and Mazumder, 2008). And I include traditional core, or ex. food and energy inflation, another measure of inflation’s trend or underlying tendency. By any of these definitions of trend inflation, real assets were even less of an underlying-inflation hedge than a headline-inflation hedge during the 2021 to 2023 inflation episode. Table 1. Select asset-class and inflation-measure correlation from 2021 to 2023 (n = 36). NTRAA SP_REAL SPGI SNRU TIPS BCTR NTGRE SPXTR median_cpi -0.3 -0.34 -0.17 -0.21 -0.35 -0.3 -0.35 -0.33 trimmed_mean_cpi -0.2 -0.23 -0.11 -0.11 -0.26 -0.11 -0.23 -0.28 cpi -0.03 -0.07 -0.01 -0.02 -0.17 0.03 -0.04 -0.09 core_cpi -0.17 -0.15 -0.14 -0.16 -0.08 -0.09 -0.14 -0.17 headline_shock 0.11 0.09 0.06 0.08 -0.01 0.17 0.12 0.06 Sources: FRED, YCharts, S&P Global, Author’s calculations Finally, I define headline shocks in the usual, modern-macro way: the difference between headline and underlying inflation, where the proxy for underlying inflation is median CPI. The result is a variable that shows episodes of supply shock inflation and disinflation, as shown in Exhibit 2. Exhibit 2.  Headline shocks can be positive as in 1990 and the early 2020s and unfavorable, or negative and favorable, as in the mid-1980s. Sources FRED, Author’s calculations Real assets respond slightly better (positively) to headline shocks than to underlying inflation —  the coefficients for real assets variables are generally higher than those for the broad equity market (SPXTR and TIPS). Expanding our sample to the longest common period (2016 to 2024, n = 108), reinforces these conclusions (Table 2). Table 2. Select asset-class and inflation-measure correlation for longest common period (12/2015-12/2024, n = 109). Sources: FRED, YCharts, S&P Global, Author’s calculations Using this longer data set, I can calculate inflation betas in the traditional way, by regressing returns on CPI inflation (using OLS). These betas are insignificant, both statistically and economically, as shown in Table 3. Results from regressions on median CPI are worse for real assets: coefficients are of the wrong sign, smaller (more negative), and estimated with greater certainty as shown in the online supplement. Table 3. Inflation beta estimates and their uncertainty (n = 109). * R-squared is zero in each case. Sources: FRED, YCharts, S&P Global, Author’s calculations An investor is probably less concerned with correlations and betas than with actual out- (or under-) performance of real assets during an inflation episode. Here the story is also a discouraging one for those expecting inflation protection from real asset classes during the COVID inflation period. As shown in Chart 3, among real assets, only natural resources (SNRU, the light-green line) grew by more, cumulatively, than CPI inflation (the orange line), but only just

Multi-asset strategies are the supreme discipline in investment management. Managers of these strategies consider all asset classes worldwide as part of their investment universe. For more than 20 years, multi-asset’s rise in popularity has been one of the success stories in our industry. In this post, we discuss a key challenge for multi-asset managers — accurately and plausibly benchmarking their performances — and share the latest trends on the most representative multi-asset-benchmark, the Global Capital Stock (GCS). Multi-asset assets under management (AUM) rose from less than $2 trillion in 2003 to about $16 trillion in 2023 (FTSE Russell, 2024). These assets now represent approximately 13% of the $120 trillion global asset management industry (BCG, 2024). Momentum toward multi-asset has cooled since the COVID 19 pandemic, however. It turns out that these strategies are not only challenging to manage, but also challenging for investors to monitor. Unlike single-asset strategies, the lack of well-curated, representative multi-asset indices makes it difficult for advisers and investors to assess how their funds compare the broader market (Vanguard, 2023). Second-tier approaches like peer group analyses lack appeal and accuracy due to incentivized self-selection biases. Measuring the Global Capital Stock Benchmarking multi-asset strategies was under-researched until we started in 2014 to investigate the potential of measuring the capital stock, including all financial and nonfinancial assets (Vacchino, Gadzinski, Schuller, 2016 and 2018). Our aim was to offer a Global Market Portfolio for investors based on a measurable benchmark of the Global Capital Stock (Vacchino, Gadzinski, Schuller, 2021), including both physical and financial capital that could be traded in the market regardless of whether these assets are used or not. While the size of financial assets are publicly available, it is less trivial to determine the weights of non-financial assets. We used data from the most reliable public international sources from 2005 onward to minimize the data precision gaps between traditional and alternative assets, thus giving a more accurate picture of the relative weights of each asset class at one point in time (Vacchino, Gadzinski, Schuller,2018).  Relevance A reliably representative benchmark for multi-asset strategies addresses the main issue investors expressed. Timing difficulties, higher fees and related issues pose to be a derivative of having lacked such representative benchmark, prior to the availability of the Global Capital Stock measure. Those issues need to be addressed to further strengthen the momentum of the multi-asset segment growing into a larger nominal and relative share of the global asset management industry. Due to the nature of their portfolios, multi-asset managers adhere to an advanced toolbox of assessment techniques that is needed in today’s markets to deploy capital efficiently. Why is that so? Capital markets have become more challenging to navigate since the global financial crisis, despite numerous regulatory measures having standardized and derisked processes. Markets are, in fact, less efficient and more complex today. Exemplarily, passive strategies, momentum trading, and short-term trading in the intersect of algorithmic trading have disrupted and delayed the price adjustment mechanism. This is particularly evident in fundamental approaches, where investment horizons have significantly lengthened before fundamental undervaluation begins to correct. Investment management has counterintuitively turned into a defensive box-ticking exercise, while explorative behavior would be required to exploit increased market inefficiency. In parallel to this financial oxymoron, markets have seen the rise of passive investing, factor investing, and multi-asset investing over the last 20 years. The latter two aim to extract alpha from exploiting opportunity sets, with multi-asset being most flexible in utilizing passive replication and factor investing in its portfolio construction. This makes it the Swiss knife among investment management strategies, and a supreme discipline at the same time. The Global Capital Stock in Charts Our most recent update of the Global Capital Stock index concluded on the following nominal aggregates and relative weights by the end of 2023: Global Capital Stock per Asset Class in Trillions of US Dollars Global Capital Stock per Asset Class by Percentage The Global Capital Stock in Trends The aggregate nominal US dollar value of the GCS by the end of 2023 was $795.7 trillion, and the average annual growth rate was 4.94% from 2005 to 2023. The GCS more than doubled between 2005 and 2023. The natural diversification effect — derived from real economic growth and risk factors being causally heterogeneous on an idiosyncratic level — leads to a nominal appreciation with minimal overall volatility over time. Per asset class, the volatility can be significant. In 2008, for instance, the global stock market value halved to $32.42 trillion from $60.46 trillion in 2007. Some recent trends can be observed: Equities: A Rollercoaster Ride: The global stock market capitalization has experienced significant volatility over the years. After reaching a peak of $111.16 trillion in 2021, it declined to $93.69 trillion in 2022, reflecting the impact of economic uncertainties and market corrections.  Debt Securities: Steady Growth: Public debt securities have steadily increased from $20.34 trillion in 2005 to $68.02 trillion in 2022, indicating a growing appetite for fixed-income investments. Similarly, financial institutions bonds and non-financial corporate bonds have also experienced consistent growth, reaching $46.55 trillion and $18.65 trillion, respectively, in 2022. The growth in public debt is marked by significant regional disparities. Public debt in developing countries is rising at twice the rate of that in developed countries. Cash and Liquidity: Surge in Uncertainty: The data show a significant increase in cash holdings, from $13.14 trillion in 2005 to $56.78 trillion in 2022. The change in the definition of M1 in May 2020 to include savings accounts, given their increased liquidity, may have also contributed to the observed increase in cash holdings. This suggests that the surge in cash holdings is not solely due to investor uncertainty, but also reflects a change in the way cash and liquid assets are measured. Real Assets: Gaining Prominence: The private equity and real estate sectors have experienced substantial growth, with private equity assets reaching $194.31 trillion and real estate assets reaching $130.27 trillion in 2022. This trend highlights the increasing popularity of alternative investments as investors seek to diversify their portfolios and