CFA Institute

Digital assets have had a wild ride over the last year. Several centralized crypto companies, from the hedge fund Three Arrows Capital to the crypto exchange FTX, have failed, while the SEC, the Commodities Futures Trading Commission (CFTC), and other US agencies have initiated a regulatory onslaught against crypto-related businesses. Further, amid high inflation, a banking crisis, and a potential recession, all risk assets face an uncertain macro future.  But we can’t forget the long-term asymmetric opportunity that digital assets may offer. Fundamental investors are searching for the digital projects that stand the best chance for mass adoption despite the negative overhang. With that in mind, five important themes have emerged in digital asset markets that could lead to wider blockchain adoption in the medium to long term. 1. The Big Players Are Here: Web2 Partnerships and the Next Wave of Web3 Users To date, digital asset adoption has been mostly the domain of native Web3 innovators. To continue along this curve, more early adopters need to come onboard. Several companies with pre-crypto origins made significant progress in 2021 and 2022 through initiatives that helped expand Web3’s user base beyond crypto natives. Four projects in particular have leveraged Polygon, an Ethereum-based scaling solution, to facilitate these efforts. Polygon + Projects In many of these cases, customers don’t even know they’re interacting with blockchain technology. Web2 companies have effectively abstracted the blockchain away. To date, Web3 onboarding has been fairly technical; by making it less so, brands can help encourage mass adoption. Google and Amazon have also seen the value of partnering with blockchains for node operation. Amazon Web Services has paired up with Avalanche and Google with Solana.  Why are all these brands implementing Web3 plans? To improve their user experience and customer relationships, attract Gen-Z digital natives, and unlock alternative sources of revenue, among other reasons. Amid continued positive momentum in 2023, we expect more big brands to follow their lead and develop their own blockchain initiatives. 2. Ethereum Dominates, But Must Scale to Service Mass Adoption With 60% of decentralized finance (DeFi) total value locked (TVL) and 85% of NFT transaction volume, Ethereum is the clear leader among smart contract platforms. However, should millions of people stampede to Web3, the Ethereum network could be overwhelmed and the price to transact on its blockchain could become prohibitively expensive. So, how can blockchains scale up? We see three possible approaches. Three Blockchain Types Monolithic blockchains like Solana offer execution, settlement, consensus, and data availability all in one. Apps are built directly on top of the blockchain. But this can create scalability issues — the so-called blockchain trilemma — if the blockchain is both decentralized and highly secure. Modular blockchains like Ethereum 2.0 separate the execution, settlement and consensus, and data availability layers. “Layer 2s,” in the form of sidechains and rollups, help the original “Layer 1” blockchain scale without sacrificing decentralization or security. Applications are built on top of both Layer 1s and Layer 2s. Universes of interconnected blockchains like Cosmos are ecosystems with relatively secure inter-blockchain communication protocols, so different blockchains can exchange data and value between them. Due to the Lindy effect and the current dominance of Ethereum and its Layer 2s in new project launches, we anticipate modular blockchains to prevail. Though smaller positions in the other blockchain-scaling models, especially those with solid tokenomics and attractive relative valuations, may be a good hedge.  3. Tokenization Will Bring Various Exogenous Assets On-Chain Tokenization creates digital representations of various assets, from securities and funds to artwork and other collectibles, and is among the most important current Web3 narratives. The benefits of tokenizing assets explain why this theme is gaining such traction. The Benefits of Tokenization TokenizedSecurities TokenizedFunds Tokenized RealEstate, Art, andOther Collectibles BetterAccessibility Opens upsecurities marketsto a global poolof investors Makes institutionalprivate market strategiesmore accessible toindividual investorswith lower investmentminimums, improvedonboarding, and potentially better liquidity Allows for fractionalization BetterEfficiency Increased liquidity,faster settlement,and lower costs Transforms relativelyliquid resourcesinto easily tradable goods The opportunity is massive. According to HSBC estimates, tokenized market volume will reach $24 trillion by 2027. How is this theme expressed in liquid token portfolios or non-fungible assets (NFAs)? Through smart contract platforms that provide the public blockchain and settlement infrastructure for these tokenized assets. KKR tokenized its health care fund and Hamilton Lane its $2.1B flagship fund through Avalanche and Polygon, respectively. Decentralized applications (DApps) — Maker, Centrifuge, Maple Finance, and Ondo Finance, for example — help users bridge real world assets (RWAs) to DeFi. 4. RWAs Can Help Counter DeFi’s Circularity DeFi’s “self-reference” has been a perceived shortcoming of the sector. For example, a DeFi user may take out a loan on lending protocol Aave for leveraged trading of assets on the Uniswap decentralized exchange. We are bullish on opportunities that break this circularity problem by integrating outside information and “real world” use cases onto closed blockchain networks. There are many recent examples of non crypto-native businesses turning to DeFi. Through the lending protocol Maker, users can borrow their DAI stablecoins by locking collateral in Maker’s smart contracts. Built on Ethereum, Maker determines which collateral they accept as well as the collateralization ratios for each collateral type. Most collateral on Maker today is in the form of stablecoins, like USD Coins (USDCs) pegged to the US dollar, but RWAs are a fast-growing segment. At the beginning of Q4 2022, RWAs made up only 2% of the collateral on Maker, but that has grown to 13%, and RWA income currently accounts for over half of Maker’s revenue. Indeed, RWA collateral now includes US Treasury bonds through MIP65, loans from Huntingdon Valley Bank in Pennsylvania, and investment grade asset-backed securities through BlockTower Capital. RWA Activity Built on the Ethereum and Solana blockchains, Maple Finance is another lending protocol that provides infrastructure for credit experts to run on-chain lending businesses. Earlier this year, it announced a $100 million receivables financing pool, enabling Intero Capital Solutions to borrow USDC against receivables and investors to lend their USDC for a 10%

Cross-border healthcare M&A is gaining momentum in 2025, though policy shifts and geopolitical uncertainty continue to keep dealmakers cautious. Yet even in more favorable conditions, many deals fall short after the ink dries. What separates the success stories in this highly regulated, operationally complex sector? One critical but often overlooked driver is strategic finance leadership. In cross-border healthcare deals, CFOs and finance teams are uniquely positioned to shape outcomes. In this blog, I outline a hands-on framework for aligning financial systems, delivering synergies, and bridging regulatory and cultural divides. Drawing on real-world observations across Europe, the Middle East, and Asia, I offer guidance to help financial professionals turn complexity into opportunity. Case studies in this blog are composite illustrations.   Demographic shifts, capital inflows, and strategic ambitions for scale and specialization have been the driving forces behind the uptick in global healthcare M&A this year. But the real work begins after a deal closes. Value isn’t created by signing a term sheet; it’s captured through seamless execution, cultural cohesion, and financial discipline. Mismatched systems, regulatory fragmentation, and operational divergence can and often does derail even the most promising cross-border healthcare deal. Strategic finance leadership is often the difference between smooth integration and organizational turbulence. Beyond managing the numbers, finance professionals help shape the strategy, track synergies, guide governance, and provide the clarity needed to drive performance post-acquisition.     Why Cross-Border Healthcare PMI Is Different Cross-border post-merger integration (PMI) in healthcare introduces unique challenges that extend beyond the standard M&A playbook. Regulatory structures differ dramatically across geographies. Clinical protocols, insurance reimbursement mechanisms, and data privacy rules are not only varied, but they’re also often incompatible. Cultural dynamics also present barriers. What works in a consensus-driven public hospital system might clash with a top-down, investor-led model. Moreover, healthcare systems often straddle public-private interfaces. Integrating a for-profit chain into a public-payer environment requires more than financial modeling. It requires diplomacy, trust-building, and a deep understanding of how patient care is delivered and funded. Currency fluctuations and cost structures further complicate post-deal operations. Decisions about centralizing services, optimizing procurement, or even setting performance KPIs must factor in economic realities that vary by country. These factors necessitate an approach to integration that is not only operationally robust but strategically led by finance. The Strategic Finance-Led PMI Framework A strategic finance-led integration goes beyond bookkeeping. It revolves around four key pillars: financial harmonization, synergy realization, capital discipline, and compliance alignment. Financial Systems Harmonization: Aligning financial systems starts with standardizing the chart of accounts, synchronizing ERP platforms, and establishing a common reporting cadence. Doing so ensures that leadership teams can compare apples to apples and act quickly on data-driven insights. For instance, without a common definition of contribution margin, performance tracking and investment prioritization will remain fragmented. Synergy Validation and Realization: Initial synergy estimates are just that — estimates. Post-close, finance must validate these assumptions on the ground. This includes identifying quick wins in procurement, diagnostics, and administrative overhead. Tracking synergy realization separately from business-as-usual financials enhances accountability and helps management stay focused on tangible value creation. Working Capital and Capex Governance: An integrated treasury function must be equipped to manage liquidity across borders. Establishing joint cash flow protocols, aligning vendor payment terms, and standardizing capex prioritization based on ROI are critical. Without a unified view of working capital, even well-capitalized deals can face post-close cash crunches. Risk and Compliance Alignment: Finance must also ensure alignment with local tax regimes, audit requirements, and data protection laws. This is especially critical in healthcare, where breaches of compliance, whether financial or clinical, can have reputational and legal consequences. Integrating internal audit frameworks and whistleblower policies across the combined entity helps foster a culture of transparency. From Framework to Execution To illustrate how the four pillars of strategic finance-led integration can be applied in practice, consider the following composite example  drawn from real-world observations in the Gulf and Eastern Europe. A regional hospital network based in the Gulf acquired a chain of specialty clinics in Eastern Europe. Rather than simply merging balance sheets, the organization launched a cross-border integration office with balanced representation from both entities. It rolled out a 90-day integration blueprint anchored in weekly milestone tracking and cultural exchange sessions. Financial Systems Harmonization: The team standardized the chart of accounts and unified ERP platforms across the organizations. This enabled consolidated reporting and allowed leadership to track contribution margins consistently across regions. Synergy Validation and Realization: Quick wins were identified early in areas like procurement savings on medical supplies and administrative consolidation. A separate synergy tracking dashboard was established, ensuring that value creation remained a visible and accountable priority. Working Capital and Capex Governance: Treasury operations were centralized, providing an integrated view of liquidity across markets. Vendor payment terms were aligned, and a capex committee was formed to prioritize investments based on a group-wide ROI framework. Risk and Compliance Alignment: A single internal audit methodology was adopted, and compliance teams collaborated to align GDPR, local healthcare regulations, and tax obligations, ensuring regulatory consistency across the combined entity. This structured, finance-led integration approach helped achieve an 8% operating margin improvement within the first year, alongside higher employee retention rates and improved clinical throughput. Strategic Lessons from Integration Pitfalls Many integrations falter not due to bad strategy but due to overlooked execution risks: Overestimating synergies without operational validation leads to disappointment and distrust. Planning for integration should begin during due diligence, not after the deal is signed. Finance leaders must also appreciate the soft factors — clinical autonomy, leadership dynamics, and staff morale. Ignoring these can turn even the most compelling financial model into a cultural mess. Equally, imposing uniform solutions without local context often backfires. Finance leaders should treat local management as partners, not targets of change. Recommendations for Finance Leaders In cross-border healthcare M&A, value is captured through execution, not just dealmaking. Finance leaders should engage early, stay visible, and define success beyond cost savings to include efficiency, patient outcomes, and team morale. Synergy realization must be

A portfolio manager’s job is to make decisions — all day, every day. Some of those decisions result in trades, but many more do not. So, an important question for a portfolio manager is which of their decisions are helping and which are hurting performance? Which types of decisions are they skilled at making, and which would be better made by someone, or something, else? And could they be using their own energy more efficiently by making fewer, better decisions? Enter decision attribution analysis, the largest and, for investors, most consequential area of behavioral analytics. Until recently, these questions were nearly impossible to answer. The best performance attribution analysis — the primary evaluative tool for many investors and fund managers — starts with the outcome and works backwards to explain it by comparing it to the performance of an index alternative. But that doesn’t really help the manager: While it is useful for explaining why the portfolio performed the way it did during a certain period, this analysis cannot identify what the fund manager could do differently to achieve a better result. Decision attribution analysis has been greatly refined in recent years with the exponential growth in machine learning capabilities. Decision attribution is a bottom-up approach, compared to the top-down approach provided by performance attribution analysis. It looks at the actual, individual decisions a manager made in the period being analyzed, along with the context surrounding those decisions. It assesses the value those decisions generated or destroyed and identifies the evidence of skill or bias within them. To be sure, managers make different decisions in different market environments, but there’s more to it. Of course, fund managers pick different stocks at different points in the economic cycle. But the selection decision is only one of many choices that a fund manager makes during the life of a position. There are also decisions about when to enter, how quickly to get up to size, how big to go, and whether to add and trim the position as time goes on. Finally, managers make decisions about when to get out and how quickly to do so. These decisions are less conspicuous, less analyzed, and, it turns out, a lot less variable. Having studied equity portfolio manager behavior for the better part of a decade, I’ve seen proof, time and again, that while we change our picking behavior as the market environment changes, the rest of our “moves” are more habitual and consistent. Anyone who has historical daily holdings data on their portfolio has the raw material required to see where they are skilled as investment decision makers, and where they are making consistent errors. I wouldn’t want to mislead: decision attribution is a complex endeavor. Any investor who has tried to do it can attest to that.  And while it’s interesting to do as a one-off exercise, it is only really useful if it can be done on an ongoing basis; otherwise, how can we tell if our skill (and not just our luck) is improving? Only recently has technology made it possible to conduct decision attribution analysis on an ongoing basis in a reliable way. It’s particularly useful in a market like the current one: It helps managers understand what they can do not only to get a better performance result but also to prove their skills to investors when their performance is negative. None of us is a perfect decision-maker. Sophisticated allocators of capital harbor no illusions about that. But as portfolio managers, being able to show our investors — with data-driven evidence — that we know exactly what we are good at and the steps we are taking to improve goes a long way. And given the availability of the underlying data and, now, the analytical toolset, there’s really no good excuse not to do it. If you liked this post, don’t forget to subscribe to Enterprising Investor. 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/ portishead1 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

Mexico has become an increasingly attractive destination for investors. The country boasts several economic advantages, particularly its proximity to the United States. It’s also home to a youthful population that is well-equipped for the workforce — a median age of 29 with 45% of its citizens younger than 25.  The Mexican government has developed programs to upskill its young citizens and prepare them for a tech-centric future. The country’s information technology market surpassed $2 billion in 2022. Outside the workforce, Mexico’s youth are significant drivers of consumer spending, forming the bulk of 126 million Mexican consumers whose purchasing power continues to increase. Mexico also represents an excellent opportunity to invest in women’s future. For a country with a firmly embedded patriarchal culture in the form of machismo, powered by an exaggerated sense of masculinity, the country’s recent election of its first female president, Claudia Sheinbaum Pardo, who takes office this October, provides evidence of social change. Coupled with the country’s sizable youth population, this historic event could catalyze increased opportunities for women in Mexico. Investors can seize the opportunity for early investments in helping establish a gender-equal future for the country’s economy. The demographics and the country’s historical moment make Mexico an exciting opportunity for investors.  Geographic and Economic Advantages Mexico has a massive economic advantage in its proximity to the United States, the world’s most powerful and influential economy. Sharing a 2000-mile border with the United States, Mexico can boast of being America’s #1 trading partner, with more than $614 billion in trade conducted in 2022. The simplified transportation logistics between the countries and the relative ease of importing raw materials and machinery have helped Mexico attain this enviable position. Since 2020, the United States-Mexico-Canada Agreement has regulated the strong partnership between the United States and Mexico, providing a framework for generally seamless trade, reduced tariffs, and eased investment between both regions. The agreement also allows for duty-free imports, reducing logistics expenses by as much as 30%. Many companies produce their goods in Mexican facilities, taking advantage of these savings and subsequently importing their goods into the United States. Mexico also has substantial tax treaties with America, allowing for doubled tax exemptions on all income, a particularly enticing incentive for investors. Mexico boasts other competitive advantages in the form of its wages and tax benefits. The country’s wages remain significantly lower than that of the U.S., Canada and most European countries. Reduced labor costs mean lower production costs, which benefits facility construction and promotes land acquisition. Meanwhile, their government also offers benefits for foreign investors, including tax credits for research and development activities, accelerated depreciation on capital investments, and exemptions on imports of equipment used in manufacturing. These wage and tax incentives have transformed Mexico into an attractive destination for companies looking to reduce operational costs and investors looking to generate maximum returns. Startup Ecosystem Mexico is home to a thriving startup economy that includes more than 2,000 active startups as of 2024, and the Mexican government is supporting them with various initiatives, including funding programs, incubators, and accelerators. Through this assistance, Mexico hopes to instill in its next generation the entrepreneurial spirit needed to further strengthen this startup ecosystem. Already, inspiring success stories have emerged. Kavak, a used car marketplace startup, became the country’s first “unicorn” in 2020, and Bitso, a cryptocurrency exchange platform, reached a valuation of more than $2 billion in 2021. Although these represent two of the most prominent startup successes, other Mexican startups are inspiring investors with their entrepreneurship and tenacity. Startup 99 Minutos specializes in providing fast and affordable delivery service, and Flat.mx, a real estate tech startup, has become the go-to application site for real estate in Mexico and a leading data layer for residential real estate. Nearshoring Following a string of supply chain disruptions and incidents largely due to the COVID-19 pandemic, industries have seen a global shift toward “nearshoring,” the trend of production companies sourcing their inputs closer to their home countries. Mexico’s proximity to the United States has positioned it favorably for this trend. According to Morgan Stanley, nearshoring could increase the value of Mexican manufacturing exports to the US from $455 billion to $609 billion by 2030. Investment Themes and Opportunities One crucial area for investment in Mexico is infrastructure. The Mexican government plans to invest $44 billion in infrastructure by 2025. Much of this will go toward transportation — investments that will improve the efficiency and proximity of transportation hubs, remodeling them into major consumer centers. Mexico currently hosts 77 airports, 117 maritime ports, and 27000 km of railway line. Real estate is another key investment opportunity. With 80% of the population living in urban areas, investors are taking advantage of demand for residential, commercial, and industrial properties while the government focuses on developing affordable housing and modernizing infrastructure. Real estate is also driven by international tourism. Cities such as Tulum and Merida have become popular tourist centers sought after by investors. In Tulum alone, the price of a square meter sits at $1777. In addition to tourism, growing demand for warehouse development has prompted the government’s pledge to construct 100 new industrial facilities. Supplying power to each of them will present a challenge, but with Mexico’s investments in green energy the new government should be prepared to meet it. Finally, the fintech sector has also shown promise to investors, particularly concerning Mexico’s environmental projects. In conjunction with the country’s clean energy commitments, demand remains strong for fintech solutions that support green initiatives, and the government’s regulatory environment has evolved to foster more support for fintech innovation. In 2018, the country introduced the Financial Technology Institutions Law to promote and regulate fintech innovation and technology. Since then, Mexico has cultivated a fintech ecosystem of more than 500 active companies and more than 400 startups, becoming Latin America’s most dynamic fintech environment. Key Takeaway With its large youth sector, thriving startup and fintech ecosystems, and a close relationship with the United States, Mexico represents a significant investment

Mergers and acquisitions (M&A) are no longer just about sealing the deal — they’re about unlocking real, long-term value. Yet, with 70% to 90% of M&A deals failing, a flawed due diligence process is often to blame. In today’s evolving market, firms must move beyond risk assessment and embrace value-driven due diligence — a holistic approach that evaluates not just financials, but operational resilience, technological capabilities, and cultural fit. According to the latest data published by PitchBook, global M&A activity experienced strong growth in 2024, driven by more favorable macroeconomic conditions and stabilizing valuations. In North America, deal value exceeded $2 trillion across 17,509 deals, reflecting a 16.4% year-over-year (YoY) increase in value and a 9.8% rise in deal count. Although the market has slowed, corporate firms continue forging ahead with strategic acquisitions, owing this resilience to a lesser reliance on debt income. Whether corporate- or private equity (PE)-driven, successful M&A hinges on one thing: An accurate valuation arrived at through a strong due diligence process that uncovers detailed insights into a target company’s strengths, weaknesses, and growth potential. This process has expanded far beyond traditional risk assessment to become a more comprehensive, value-driven approach that considers operational, technological, and leadership capabilities. The Shift Toward Value Creation in M&A Due Diligence Accenture’s latest research reveals a critical shift in how firms approach due diligence. Traditionally, the focus was on identifying risks and mitigating or eliminating them. Now, forward-thinking firms are using the due diligence phase to create a detailed value-creation plan that begins pre-deal and extends well into post-deal integration. Accenture’s research proves this shift is essential, as 83% of private equity leaders believe their current due diligence practices need substantial improvement, particularly in how they align with broader investment ideas. Holistic M&A due diligence helps firms evaluate more than just financials—it includes reviewing operational capabilities, assessing leadership top-down, and analyzing the present and near-future technology landscape. For instance, generative AI and predictive analytics offer increased speed to this process so firms can uncover deeper insights in less time. How Comprehensive Due Diligence Mitigates Risks in M&A Transactions Comprehensive due diligence in M&A provides a snapshot of a company’s current state and a roadmap for future success. It ensures that both the purchaser and the seller fully understand the deal’s strengths, liabilities, and overall feasibility. This approach is essential, as 44% of leaders cite a lack of quality third-party data as the greatest barrier to effectively carrying out M&A due diligence. Due diligence in M&A mitigates risks by: Allowing a thorough examination of operational capabilities, tech infrastructure, and leadership preparedness, Identifying potential cultural clashes that could hinder post-deal integration, and Leveraging advanced technologies like AI and analytics to scrutinize large datasets, accelerating insights that otherwise would take months to uncover. Case Study: Implications of Over- or Undervaluing Assets It’s been proven time and again that a lack of due diligence leads to an M&A failure rate of between 70% and 90%. That’s staggering. Why don’t more blended companies make the cut? Most often, the company or brand isn’t promoted in a way that illustrates unity between the companies. Sometimes, it’s not clear why two seemingly unrelated businesses would be joining forces. Etablishing a clear and unified vision from the beginning is paramount. Not getting the transaction right can lead to significant losses of assets, personnel, and shareholders and, in some cases, even lead to bankruptcy. The Most Expensive M&A Failure in History The 2000 merger of America Online (AOL) and Time Warner, valued at $165 billion, eventually ended in separation in 2009 due to misaligned goals, cultural differences, and an overestimation of the synergies between the two companies. The AOL-Time Warner failure exemplifies the need for a deeper, more integrated approach to due diligence, including assessing financial performance and cultural, technological, and operational readiness for seamless post-deal integration. M&A Due Diligence Challenges Due diligence in M&A isn’t easy. Here are some of the most frequent challenges experienced and how they can be resolved: Challenge #1: Poor communication How to mitigate: •            Define clear channels of communication. •            Establish roles and correlate responsibilities. •            Send frequent updates. •            Encourage open dialogue. Challenge #2: Too much data How to mitigate:  Use a secure data integration platform that allows stakeholders to store, share, and access relevant documents. Challenge #3: Not enough experience How to mitigate:  Hire professionals with the necessary experience including financial advisors, accountants familiar with corporate accounting and taxation, and solid M&A lawyers. Challenge #4: Not knowing what you don’t know How to mitigate:  Establish a due diligence checklist for a structured approach and reminders to maintain close oversight. Challenge #5: Not enough time/Short deadlines How to mitigate:  Ensure tasks are prioritized, resources are allocated efficiently, and timelines are established that are realistic. Challenge #6: Differences in cultural norms and approaches How to mitigate: Undertake culture assessments as early as possible. This due diligence creates open lines of communication and helps all parties develop ways to bridge gaps and promote alignment. Leveraging Technology in Due Diligence As Accenture emphasizes, technology is reshaping the due diligence landscape. Generative AI and machine learning allow firms to: •            Automate routine tasks like document gathering and analysis, •            Accelerate data processing, reducing the time spent on manual due diligence by up to 30%, •            Provide deeper insights into financial performance, operational risks, and leadership capabilities, and •            Continuously monitor market conditions and update diligence processes in real-time, ensuring firms remain agile in today’s fast-paced deal environments. PE firms that adopt these technologies can screen more deals, extract better insights, and ultimately make smarter investment decisions. Accenture’s survey found that 62% of PE leaders expect generative AI to transform their deal processes, and many are already increasing their investments in AI solutions. The Future of M&A Is Due Diligence The days of due diligence as a box-checking exercise are over. Today’s M&A landscape requires a more holistic, value-focused approach, where technology plays a critical role in uncovering insights and driving post-deal success. Firms embracing this evolution — leveraging AI, integrating comprehensive data sources, and aligning leadership strategies — will be better positioned to maximize value and minimize risks. Accurate and reliable

In a year marked by renewed volatility and shifting economic expectations, even the most familiar investment principles are worth revisiting. Behavioral finance concepts like loss aversion and goal framing may seem basic, but they remain essential tools for understanding how clients will actually behave, especially under stress. Financial advisors recognize that “know your client” is more than a regulatory requirement. It means understanding not just time horizons and return targets, but the emotional narratives behind the numbers. Two clients might share the same objective — say, retiring at 60 — but respond very differently when markets turn. One sees opportunity, the other sees risk. The difference lies in why they’re investing. That “why” matters. Investment objectives are often treated as planning inputs, but they also reveal deeper psychological patterns: how much risk a client is willing to take, how they interpret uncertainty, and what emotional outcomes they hope to avoid. Tapping into that context can help advisors deliver better guidance, especially when market conditions test client discipline. This is where a powerful distinction comes into play: the difference between Builders and Avoiders. Builder vs. Avoiders Most client goals fall into one of two broad categories, each reflecting a distinct emotional orientation and behavioral tendency: Builders (Aspirational, Goal-Oriented) These clients are focused on opportunity and growth. Common goals include: “I want to retire early.” “I want to build a passive income stream.” “I want to grow capital so I have freedom in how I work.” Typical behavioral traits of builders: Stay invested during market volatility Reframe downturns as buying opportunities View risk as necessary to achieve goals Avoiders (Fear-Driven, Loss-Oriented) These clients are focused on minimizing risk or avoiding worst-case scenarios. Common goals include: “I don’t want to run out of money in retirement.” “I want to avoid being caught off guard.” “I don’t want to depend on the state pension.” Typical behavioral traits: Prone to panic selling Often invest too conservatively May reduce contributions after early success Reframing Goals for Long-term Discipline Advisors can go beyond surface-level planning by exploring the emotional context behind a client’s objectives. When goals are rooted in fear, even minor setbacks can trigger outsized stress responses. But when goals are reframed around positive aspirations, clients are more likely to stay the course. For example, shifting the goal from “I don’t want to outlive my money” to “I want to live independently and with dignity” helps move the focus from avoidance to aspiration, supporting more confident and disciplined investing. How Advisors Can Apply This Insight Here are three questions to ask when evaluating client goals: Why does this goal matter to the client? Is the motivation based in fear or aspiration? How might this influence decisions during periods of stress? By identifying a client’s emotional orientation, advisors can: Provide more personalized risk guidance. Strengthen communication and trust. Encourage more consistent investing behavior. The Bottom Line Investment goals are more than technical inputs — they’re emotional signposts. Whether shaped by fear or aspiration, these goals influence how clients experience risk, respond to market stress, and define success. For advisors, the real opportunity lies in understanding not just what clients want, but why. Consider two clients: Sarah, a 45-year-old executive focused on financial independence, and Tom, a 52-year-old contractor worried about running out of money. They both describe a moderate risk tolerance and choose similar portfolios. But when markets fall, Sarah stays the course, while Tom wants to pull out. The difference isn’t their asset allocation. It’s their motivation. One is building toward a goal; the other is trying to avoid a fear. By identifying a client as a Builder or an Avoider and adjusting your communication and planning approach accordingly, you can help them navigate uncertainty with greater clarity and confidence. Because successful investing isn’t just about numbers. It’s about aligning strategy with the stories people believe about their future. source

The rise of revenue-sharing tokens is redefining the crypto landscape, bridging the gap between speculative trading and tangible value. By directly linking token holder returns to project growth, these innovative mechanisms are not only attracting investors but also reshaping decentralized finance (DeFi). As pioneers like Aerodrome, Raydium, and Bananagun showcase the potential of aligning incentives, the stage is set for a new era in crypto investment — one where sustainable growth meets progressive regulatory adaptation. In this evolving ecosystem, the opportunity for fundamental investors has never been more promising. Over the past few years, given the existential business risk brought upon by Securities and Exchange Commission (SEC) enforcement actions, the vast majority of DeFi applications chose to pause all value accrual discussions indefinitely. This decision, while logical under the circumstances of the time, was massively detrimental to the industry. Many DeFi tokens without any direct tie to the success and growth of the underlying business were deemed to be useless and underperformed the market. The election of Donald Trump and the expected regulatory easing for the crypto industry has flipped this dynamic on its head. DeFi protocols now expect that popular value accrual mechanisms will carry far less associated risk. Reluctant DeFi projects are also being forced to reckon with the benefits these mechanisms have had for the projects brave enough to implement them. In this post, I highlight three applications that have taken different approaches to deliver economic value back to their token holders. All three have been very successful, seeing huge gains in both the amount of people using their products and their tokens’ prices. The success of these projects offers examples of possible methods more reluctant DeFi protocols could implement under a more progressive regulatory framework. Aerodrome Aerodrome is the dominant decentralized exchange on Coinbase’s Ethereum Layer 2 (L2), Base. In crypto markets, governance has been challenged by participants prioritizing short-term gains over the long-term health of the business. Aerodrome addresses this with a system in which token holders are incentivized to be long-term active participants in the network. To have maximum impact on governance matters, holders must lock their tokens for a long duration, providing them with greater voting power. With this voting power and continued participation in governance, this group of token holders are entitled to 100% of the revenue the exchange generates from trading fees and bribes. This design solves the problem of creating long-term alignment between token holders and the project. Aerodrome’s design provides the most control to the most committed holders. To give you an idea of how impactful those revenue distributions can be, in Q4 2024 the application generated $100.7M of revenue, for an annualized run rate of > $400M. This type of design also creates a virtuous cycle for the business, where as volume and revenues increase, token dividend yields spike to access these yields, market participants need to purchase and then lock their tokens, effectively reducing supply in circulation and benefitting all token holders. This design and the secular growth of DeFi on Base have made Aerodrome one of the biggest winners in DeFi this year, with its native token AERO up ~13x since the token launched in February 2024. Creating long-term buy-in amongst holders and giving them direct exposure to the success of the application no doubt has played a major part in the success of Aerodrome in 2024. Raydium Raydium, a decentralized exchange built on Solana, was among the first DeFi applications to achieve success on Solana after its launch in early 2021. Over the last two years, as Solana has recovered from the fallout surrounding the collapse of FTX, Raydium has cemented its position as a top decentralized exchange. To share economics with its token holders, Raydium implements a buyback program, instead of directly paying out fee revenue. Through this system, 12% of all fees earned by the protocol are used to purchase RAY tokens in the open market. This creates systematic demand for the token that is directly tied to increased usage of the application. In 2024, as meme coin trading on Solana exploded, so did trading volume on Raydium, which in December was up more than 13x YoY. Volume growth begets fee growth, and in December Raydium crossed 45M RAY tokens repurchased through the buyback program. This amount represents more than 10% of all RAY tokens and circulation and has created ~$360M in buy pressure for the token at current prices. This type of buyback program has the benefit of being more conservative from a regulatory risk perspective, since no fees are being paid out, and creates a direct tie-in between the growth of the application’s fundamentals and demand for the token. This design element differentiates Raydium and its token from its competitors on Solana, many of which are issuing tokens to incentivize usage, resulting in high inflation rates. Raydium is a great example of how a value accrual mechanism can significantly improve the investment case for a token. Raydium’s token delivered a +289% return in 2024. Bananagun Bananagun provides sophisticated trading tools to its users and allows them to execute these complex strategies via chat on the popular social media platform Telegram. Bananagun charges a fee ranging from 50-100 bps based on the type of trade being executed. While the application could have kept all these revenues to pay expenses and salaries, Bananagun developers instead directed 40% of all fees to token holders through direct dividend payments. To restrict access to this program to long-term investors, Bananagun decided that users should be required to purchase and stake a minimum of 50 tokens (~$3,000 at the time of writing) to be eligible to receive rewards. Once those tokens are acquired and locked, users receive programmatic payments in the project’s native token (BANANA) or ETH at the end of every epoch. Currently, these dividends provide an annual yield of 19% to holders, making a Bananagun a bona fide income-producing asset. Much like Raydium’s buyback, these dividends fluctuate with the total fees earned by the

“If exchanging money [interest-paying reserves] for short-term debt has no effect, it follows inescapably that giving banks more money is exactly the same as giving them short-term debt. All that quantitative easing (QE) does is to restructure the maturity of US government debt in private hands.” — John H. Cochrane, Senior Fellow, Hoover Institution, Stanford University “Keynesian, New Keynesian, and [Milton] Friedman’s quantity theories predict that pegging the interest rate at zero leads to unstable inflation or spiraling deflation. The quantity theory of money predicts that massive quantitative easing results in large inflation. None of these outcomes happened [after the global financial crisis]. Inflation was positive, low, and stable.” — Thomas S. Coleman, Bryan J. Oliver, and Laurence B. Siegel, Puzzles of Inflation, Money, and Debt The fiscal theory of the price level (FTPL) lays out a new model for understanding inflation. John H. Cochrane and Thomas S. Coleman discussed the FTPL’s logical framework and how it explained past inflation episodes in the first installment of this series. In the second, they considered what sort of countermeasures the FTPL might prescribe for addressing the current inflation episode, among others. Here, they take our investigation into the nature of the FTPL a few steps deeper. In particular, they address the disconnect between how many finance academics and finance practitioners view the inflation phenomenon in general and quantitative easing’s (QE’s) effect on it in particular. They also consider whether QE contributed to the pandemic-era bull market in equities and to inflation in asset prices across the board. Below is a condensed and edited transcript of the third installment of our conversation. John H. Cochrane: Quantitative easing is one area where academics and professionals differ loudly. Wall Street wisdom is that QE is immensely powerful and is stoking financial bubbles. Academics say, “I take your $100 bills, I give you back 10 $10 bills. Who cares?” Thomas S. Coleman: If you look at the Federal Reserve’s balance sheet, reserves exploded on the liability side, but on the asset side, bonds — either Treasuries or mortgages — offset it. And so the Federal Reserve was taking the bonds with one hand and giving people the dollar bills with the other. But it was kind of a wash. Olivier Fines, CFA: The S&P 500 rose 650% from 2009 through January 2020. Clearly, this outpaced the economy. Has inflation occurred in financial assets? Because there’s only so much toothpaste I can use as a consumer. The excess liquidity went to the financial markets. We asked our members, and a great majority thought that stimulus actually benefited the investor class because that money had to go somewhere and it went into equity markets. Cochrane: The price-to-dividend ratio from the dividend discount model is 1/ (r – g). That’s a good place to start thinking about stock prices. So, higher prices come when there are either expectations of better earnings growth [g] ahead or when the discount rate, the rate of return, the required return [r], declines. In turn, the required return consists of the long-term real risk-free rate plus the risk premium. So, why are price-to-earnings ratios so high? The first place to look is long-term real interest rates: They are absurdly low and declined steadily from the 1980s until right now. They’re still incredibly low. Why is the stock market going down? The number one reason is we all see that we’re going into a period of higher interest rates. So, let’s track stock price to earnings and think about the level of real interest rates there. In fact, up until recently, quantitatively, the puzzle is that stocks were too low. The price-to-earnings ratio relative to long-term real interest rates tracked beautifully till about 2000. And then long-term real interest rates kept going down and the price-to-earnings ratio didn’t keep going up. If you’re in Europe, where long-term real interest rates are negative, price-to-earnings ratios should be even larger. As you decompose the price-to-earnings ratio, you need a higher risk premium to compensate for that lower real interest rate. Stocks may not offer great returns, but they are a heck of a lot better than long-term bonds. So, it’s not even clear that risky assets are particularly high. Why are stocks going down? I think we see long-term real interest rates going up. And it’s perfectly reasonable to think the risk premium may be rising. We’re heading into riskier times. Coleman: There’s also growth. If you look at the United States versus Europe, there might be differences in expected growth in that as well. Cochrane: That’s a good point. We do see some tailing down of growth as well, and Europe’s growth has been terrible since the financial crisis. So, right now value stocks are doing great, and growth stocks are doing terribly. Tech stocks are doing terribly as well. Where the dividends are pushed out way into the future, if those dividends are discounted more as we go into higher real interest rates, then value stocks, which have high current earnings, do well amid higher discount rates. Rhodri Preece, CFA: Many practitioners believe that through large-scale purchases of government bonds, QE has pushed down yields and diverted flows into equities and other risk assets as investors search for higher expected returns. It also created the expectation that the central bank will underwrite the financial markets, the so-called Fed put. And this has led to a tidal wave of rising asset prices across a number of markets in the post-2008 period. Not much discernment among or within asset classes — just generally prices have gone up. Many practitioners attribute this largely to the central banks and their QE programs. You said earlier that academics don’t see it that way. Could you unpack that and explain the discrepancy? Cochrane: So, let’s define the terms a little bit. QE is when a central bank buys a large amount of, let’s say, Treasury debt and issues in return interest-paying reserves, which are overnight government debt. So, an academic looks at that

As the second quarter of 2025 approaches, the global economy advances with a mixture of resilience and unease. Though inflation is easing and growth has tentatively resumed, 2025 is unfolding beneath the weight of mounting geopolitical risks and structural divergences. Still, the outlook remains in flux. With recent tariffs and trade frictions just beginning to take effect, their long-term impact on global markets is far from clear. Economic Fundamentals While the United States continues to display surprising economic strength, Europe struggles to find momentum, and China confronts a new slowdown. At the same time, trade frictions, sanctions, and military conflicts threaten to reshape global flows of capital, goods, and influence. The International Monetary Fund (IMF) forecasts global growth at 3.3% in 2025 — steady compared to last year but below pre-pandemic trends (IMF). The United States remains the standout, with 2.7% growth projected after a 2.8% expansion in 2024, driven by robust consumer spending and capital investment (IMF). In contrast, the euro area is forecast to grow by just 1.0%, with Germany teetering near recession and France and Italy showing limited recovery. China, after reaching its 5% target last year, is slowing again: its 2025 growth is expected to decelerate to 4.5%, facing property market fragility, aging demographics, and a renewed wave of US tariffs (Reuters). India continues to expand rapidly at around 6% to 7%, while other emerging markets such as Mexico and Eastern Europe are feeling the effects of weaker global trade demand (Reuters). On inflation, a clear turning point has arrived. In the United States, consumer prices have eased to 2.8% year-on-year as of February — the lowest in more than two years (BLS). The euro zone has also seen relief, with inflation at 2.4%, nearing the European Central Bank’s target (Reuters). In China, however, inflation has slipped below 1%, raising deflationary concerns amid subdued consumer demand. The IMF anticipates global headline inflation to fall to 4.2% in 2025 (IMF). Policy Divergence and Rising Trade Frictions Monetary policy responses remain fragmented. The US Federal Reserve has kept its policy rate at 4.25% to 4.50%, signaling it is in “no rush” to cut rates despite market expectations and political pressure. Chair Jerome Powell warned that fresh import tariffs and industrial policies from Washington are raising “unusually elevated” uncertainty and could simultaneously push inflation up and dampen growth (Reuters). In Frankfurt, the European Central Bank (ECB) cut its deposit rate to 2.5% in early March, citing stagnating output. ECB President Christine Lagarde emphasized the fragility of the situation, highlighting the risks posed by a looming trade war with the United States and surging defense expenditures (Reuters). In contrast, China’s central bank has begun modest easing, including a 10 basis point cut and additional liquidity to support growth amid rising capital outflows (Reuters). In early April, the Trump administration imposed new tariffs, including a 10% global tariff and up to 50% duties on 57 countries (Holland & Knight). The average tariff on Chinese products has increased to 54%, which has resulted in an increase in trade tensions. The EU and China are preparing retaliation, while Canada and Mexico have secured partial exemptions under USMCA. The economic allies are divided, and the markets are wary, which is causing concerns about a prolonged global trade war due to these protectionist measures. Central bank policy and global economic stability are both put to the test by the circumstances. (​Gibson Dunn) Markets Navigate Turbulence The US stock market has experienced significant volatility in response to recent tariff announcements. Following the April 2 declaration of new tariffs, major indices such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite saw substantial declines. The S&P 500 fell more than 10% in two days, marking its worst performance since World War II. (​Reuters) In a subsequent policy reversal, President Trump announced a 90-day pause on certain tariffs, leading to a temporary market rebound. The S&P 500 surged 9.5% on April 9, 2025, its largest single-day gain since 2008 (​Reuters). However, this relief was short-lived as concerns over escalating trade tensions, particularly with China, continued to unsettle investors. The S&P 500 and Nasdaq Composite dropped by 4.6% and 5.4%, respectively, on April 10. (​Reuters) Volatility remains elevated. The VIX index, Wall Street’s “fear gauge,” has climbed back to levels not seen since 2023, reflecting nervousness about policy missteps and geopolitical escalation. Many firms have delayed capital expenditures, citing unclear outlooks on tariffs and regulation. In Europe, bank and energy stocks have underperformed, reflecting both fiscal pressures and the threat of new windfall taxes related to defense spending and energy price volatility. The meteoric increase in gold prices has been one of the most remarkable financial developments of early 2025. Gold has reached record levels as a result of the increasing geopolitical uncertainty and the apprehension of investors regarding inflationary pressures from tariffs. Spot gold reached an all-time high of $3,167.57 per ounce on April 3. It has increased by approximately 15% since the beginning of the year, and as of April 10 it was still above $3,100. (​Mint) Despite volatility, credit markets remain orderly. Corporate bond spreads have widened modestly, but most indicators suggest that investors are not pricing in a deep recession. Emerging markets have underperformed, especially those tied to global trade flows and sensitive to dollar strength. One notable exception: commodity-exporting nations, particularly in the Gulf and parts of Africa, have benefited from elevated resource prices and investor rotation into perceived value markets. As the IMF notes, global financial conditions have tightened, but not dramatically. Central banks in advanced economies, including the Bank of England, are choosing to hold steady for now, while signaling vigilance. Policymakers remain deeply aware that a single escalation — be it in trade, energy, or conflict — could quickly shift the macroeconomic trajectory. Conclusion: What This Means for Analysts and Investors For financial analysts and investors, 2025 demands careful attention to more than just fundamentals. While inflation is cooling and growth persists in pockets, escalating trade frictions and geopolitical uncertainty are reshaping risk in real time. Traditional models may underweight the impact of policy shocks, especially around tariffs and capital flows. As macro conditions grow more fragile, understanding cross-border dynamics — and adjusting forecasts and allocations

The invention of market cap-weighted indices has been beneficial for the average investor by providing a simple and efficient way to gain exposure to equity markets. However, hidden beneath the surface of some market cap-weighted indices lies levels of concentration rarely observed in history. In this post, we examine how elevated concentration levels have historically impacted returns, valuations, and long-term investor outcomes — and why today’s market dynamics may be setting the stage for a familiar ending. The US stock market has reached its highest concentration level in more than 50 years, with the top 10 stocks comprising a weighting of 36%. Several problems may arise when a few companies dominate the market. The concentration in the top 10 stocks necessitates that performance will be heavily influenced by these handful of companies. Strong performance from these stocks can drive the entire market higher, while any significant declines may disproportionately drag the market down. This dynamic can sometimes mask the performance of the remaining 490 stocks, leading to a skewed perception of overall market health. While there is always an urge to proclaim, “this time is different,” market history tells us that while the plot may change, the story often ends the same. In this post, we utilize the top 500 US stocks, weighted by market cap (Top 500), to examine how the top 10 stocks have historically performed based on levels of concentration and valuations, and why market participants may be unprepared for the aftermath of current events. A stock’s placement in the top 10 may be short-lived and volatile or it may last for decades (Figure 1). The 1970s and 1980s were dominated by industrial giants and energy companies. IBM and Exxon Mobil spent multiple decades in the top 10. The 1980s and 1990s also saw a few pharmaceutical and telecommunications stocks enter and exit the top 10. Even tobacco producer Altria made a brief appearance in the top 10. By 1999, the rise of technology/growth companies was in full swing as the weight to the top 10 stocks rose to multi-decade highs. The 1998 to 2000 Technology/Growth Bubble was the last great cycle of market concentration prior to our current extreme levels. The 2000s saw a decade of strong performance by value names as several energy and financial companies rose to the top 10. This came to a crashing halt during the 2008 financial crisis. The 2010s to present saw a resurgence of technology or technology-related companies that increased the level of market concentration beyond that of the late 1990s and early 2000s. Figure 1: Largest Stocks Change Frequently Decade to Decade. Represents the top 10 largest stocks based on market cap from the 500 largest US stocks. Source: Compustat. Calculation: Hartford Equity Modeling Platform. Market Cap Weight vs. Earnings Contribution The weight of the top 10 stocks is currently 37% and has increased at a far higher rate than their earnings contribution, which currently stands at only 28%. This has created a large gap between their earnings contribution and weight (Figure 2). The current gap between the market cap weight and the earnings weight is one of the widest since 1970. There have been two other occasions of a gap close to this magnitude. In August of 2020, a gap appeared as the largest stocks led the way after the Covid bear market, ahead of the expected earnings that were projected following the “stay at home” shift in spending. In this case the weight to the top 10 remained steady as the market continued to rally and earnings contributions caught up. In 2000, the weight to the top 10 also remained steady and earnings contributions caught up, but in this instance company earnings had collapsed, and the market lost 49%. It is impossible to predict how the current gap will be resolved, but the recent gap formed due to the weight of the top 10 going parabolic while their earnings contribution has remained steady. It would take a herculean effort for earnings contribution to catch up, but it is possible. Figure 2: Weight to Top 10 Has Increased While Earnings Contribution Has Been Steady. Date Range: 12/31/1964 to 12/31/2024. Represents the top 10 stocks based on market cap from the largest 500 US stocks. Source: Compustat. Calculation: Hartford Equity Modeling Platform. Is it possible for today’s top 10 stocks to maintain their market leadership? Figure 3 is a hypothetical illustration of the growth of each stock in the top 10 if their past 10-year return is extrapolated forward. If the last 10-years repeats itself, the top 10 would increase to a weight of 73%. It may be sufficient to say that the current performance trajectory of the top 10 stocks is unsustainable. Figure 3: Current Trajectory of Top 10 is Unsustainable. Top 500 based on the 500 largest US stocks. Chart uses current weights and past 10-year returns and applies them for 50 years into the future. Past performance does not guarantee future results. Source: Compustat. Calculation: Hartford Equity Modeling Platform. Now that it has been established that the top 10 have reached extreme levels of concentration, we will consider whether concentration has influenced forward returns. We divided the Top 500 US stocks into the top 10 and Bottom 490. Both were equal-weighted and rebalanced monthly. Next, we used the weights in Figure 2 and combined them with the forward five-year return differential between the Top 10 Equal Weight and Bottom 490 Equal Weight. For the entire analysis, the Bottom 490 Equal Weight outperformed the Top 10 Equal Weight in 69% of rolling five-year periods. When we divided our observations equally into thirds, the highest levels of concentration still led to Bottom 490 Equal Weight outperformance. The third of the time the market was most concentrated, the top 10’s weight ranged from 23% to 39%. The Bottom 490 Equal Weight’s forward five-year return outperformed after 88% of those periods (Figure 4). In the middle third of concentration levels, the Bottom 490 Equal Weight outperformed 80% of