“We believe Southern Europe has a significant recovery potential”, said François Gobron, fund manager of GIS European Equity Recovery, a Generali Investments‘ fund. “Clear signs point in that direction, including the economic growth in Spain and a rapidly rising employment in Italy. Furthermore, as companies in Southern Europe still trade at lower earnings multiples than their European peers, we believe their potential to outperform is meaningful. By leveraging our proven stock-picking skills, the fund will benefit from the re-rating of Southern European markets as soon as confidence in the macroeconomic environment is fully restored.”
More dynamic Southern European economies and supportive valuations at company level reinforce Generali Investments’ confidence in the recovery potential of Southern Europe and the investment theme underpinning the GIS European Equity Recovery fund, one of the few equity funds on the market specifically focused on this region.
The GIS European Equity Recovery fund invests mainly in equity securities issued by companies listed on Southern European markets. Spain, Italy, Portugal and Greece represent 99% of the total equity invested. The fund favors companies with strong operational leverage and large restructuring potential. The fund adopts a pure stock-picking investment process and selects companies based on the quality of their strategy and management. The shortlisted companies are valued through a Discounted Cash-Flow model combined with a recently introduced, proprietary and innovative Monte-Carlo model designed for highly uncertain environments. The fund invests in companies offering at least a 50% upside potential in terms of total return on a 3 to 5 years’ time horizon, leading to a low annual turnover ratio of 25%.
“Companies in Southern Europe still show higher upside potential relative to their European peers as the local financial markets have not fully recovered yet from the 2008 and 2011 crises and valuations remain lower on a relative basis”, added Gobron. For instance, the 11x median of the 2017 price-to-earnings ratio estimates of the fund’s portfolio compares with 15x for the Eurostoxx. The 1.0x median of the 2017 price-to-book value ratio estimates of the fund’s portfolio compares with 1.7x for the Eurostoxx. “We are therefore strongly convinced that the companies we decide to invest in after our careful strategic analysis have the potential to outperform peers on an operational basis going forward.” He concluded.
Recording the biggest single-tower real estate transaction in the Asia-Pacific, BlackRock agreed to sell the Asia Square Tower 1, a 43-story office building in Singapore, to the Qatar Investment Authority.
QIA will pay S$3.4 billion, or 2.5 billion dollars, for the Tower located along Marina View at Marina Bay, making this the largest-ever single-tower real estate deal in the Asia-Pacific region.
Amongst its more than 1.25 million square feet of net lettable area, the most prominent tenant in the building is Citigroup.
BlackRock was advised by real estate consultant firms JLL and CBRE. According to Seeking Alpha, the tower was on the market since last year after bids by a consortium of Norway’s sovereign wealth fund and CapitaLand, and rival bids by ARA Asset Management failed to clinch the deal.
CC-BY-SA-2.0, FlickrPhoto: KMR Photography. Old Mutual AM Acquires Majority Stake In Landmark Partners
Old Mutual Asset Management (OMAM) has reached an agreement to acquire a 60% equity interest in Landmark Partners, a global secondary private equity, real estate and real asset investment firm.
The cost of the transaction amounts to around $240m in cash with the potential for an additional payment based on the growth of the business through 2018. The deal is expected to close in the third quarter of 2016.
“The overall investment is expected to result in a purchase multiple of 8-10x economic net income generated by the Landmark transaction, prior to financing costs,” OMAM specified in a statement.
OMAM said it intends to fund the closing payment using available capacity on its existing revolving credit facility or may seek alternative sources of debt financing depending on market conditions.
The firm expects the transaction to be up to 12% accretive to 2017 ENI per share.
“Landmark is precisely the kind of industry leader with whom we seek to partner,” said Peter Bain, OMAM’s president and CEO.
“The depth and breadth of their management team are exemplary and we look forward to collaborating with them to grow their existing product set and further diversify their business into emerging secondary asset classes. Our global distribution team is excited about bringing Landmark into certain domestic channels as well as new markets outside the US”, points out Bain.
Founded in 1989, Landmark has completed over 500 transactions for a total amount of $15.5bn since its launch. The company has acquired interests in over 1,900 partnerships, managed by over 700 general partners. Landmark operates through locations in Boston, London, New York, and Simsbury, Connecticut.
CC-BY-SA-2.0, FlickrFoto: Moyan Brenn. Brexit: más que un riesgo, una incertidumbre
Over the recent weeks, hedge funds have remained broadly defensive in anticipation of key announcements in June that may disrupt market conditions. As such, explains Lyxor AM, they are definitely not adding risk to their portfolios.
The Brexit referendum is the most prominent event among the near term potential disruptors. In response, several European L/S Equity managers have decided to significantly downsize their exposure to UK assets ahead of the vote. Meanwhile, CTAs and Macro managers maintain large net short positions on the GBP/USD. At the end of May, point out the firm, CTAs added to their GBP/USD shorts while Macro managers slightly reduced their short positions on the currency pair.
According to the Lyxor AM team, head by Jeanne Asseraf-Bitton, Global Head of Cross Asset Research, the mid-June FOMC meeting and the associated summary of economic projections will also be closely monitored by managers amid signals that US economic activity accelerated in Q2. As a result of such near term uncertainties, the median equity beta of hedge funds on the Lyxor platform remained below 20% during the last week of May (see chart) and edged even lower for strategies such as CTAs, Global Macro and multistrategy.
With regards to recent performance, say Lyxor AM experts, the last week of May was supportive for every strategy, with Macro and L/S Equity funds outperforming. Macro managers benefitted from their equity exposures and from the USD rally. In the L/S Equity space, variable biased managers outperformed. It is interesting to note that L/S managers with a defensive bias made the most of the market environment in May as the value rally faded. However, CTAs continued their recent underperformance. In May the Lyxor CTA Broad index was down 2.3%.
“Going forward, we maintain the preference for strategies that limit exposure to market directionality (i.e. we prefer merger arbitrage to special situations as well as market neutral and variable biased L/S to long biased managers). We also remain overweight CTAs in the midterm though tactically we advise a neutral stance as the large build up of short GBP/USD positions would cause losses if the UK opts for remaining in the EU. Finally we are neutral on L/S Credit and overweight Fixed Income Arbitrage”, conclude the Lyxor AM team.
Asian managers have chosen multi-asset/balanced and income/dividend strategies as the top product strategies to promote to distributors in 2016.
According to a proprietary survey conducted for Cerulli’s Asian Distribution Dynamics 2016 report, asset managers from Hong Kong, China, and Taiwan will put the most effort toward marketing these strategies. In Singapore and India, asset managers give their strongest vote to plain-vanilla equity funds.
Notably, equity appetite went down in most Asian markets, with a greater preference for multi-asset/balanced funds.
In Hong Kong, Singapore, and Taiwan, asset managers have seen a rotation from high-yield bond funds two to three years ago to multi-asset, and most recently, dividend-paying funds. European and Japanese equity funds were most often mentioned during Cerulli’s research rotations earlier this year.
In a separate survey for Cerulli’s Asian Fund Selector 2016 report, results showed that the product strategies that fund selectors are looking for in 2016 broadly match what asset managers are promoting. European equities, Japanese equities, and multi-asset funds were the most favored investment strategies for selectors last year, and most believe the trend will continue in 2016.
As for liquid alternatives, Cerulli notes that asset managers are jumping on the bandwagon to either start or expand their liquid alternative offerings this year, due to an increasing use of liquid alternatives among global/regional banks as part of their discretionary portfolio offerings.
CC-BY-SA-2.0, FlickrFoto: PeterRosbjerg, Flickr, Creative Commons. Jupiter Asset Management entra en el mercado italiano de la mano de Matteo Dante Perruccio
Jupiter Asset Management, active asset manager with headquarters in London and offices in Continental Europe and Asia, announces its entry into the Italian market and the opening of a branch office in Milan. The announcement follows the appointment of Matteo Dante Perruccio as Executive Adviser supporting the development of Jupiter’s strategy in Italy.
Founded in 1985 as a specialist boutique with a strong investment-led culture, Jupiter Asset Management boasts a total of €49 billion assets under management (as at 31 December 2015). Over the past few years it has initiated a phase of internationalisation through expansion of its activities in Asia and several European countries, including Italy. Jupiter Asset Management offers multi-asset, equity, fixed income and absolute return investment solutions with a total currently of 16 funds registered for sales in Italy.
Matteo Dante Perruccio, Executive Adviser for Italy, said: “With a culture characterized by active fund management and an unconstrained approach to investments, Jupiter is well positioned to meet its objectives in Italy. I am convinced that the mix of values that differentiate Jupiter from its competitors and the strong performance track record of the funds available to Italian investors will be crucial in attracting Italian clients, contributing to the development of the company in the country”.
Matteo Dante Perruccio has already served for eight years as a non-executive Director of London-listed Jupiter Fund Management plc, and has 30 years’ experience in the asset management industry, including various roles in Pioneer Investments as Global Head of Distribution, Vice Chairman Pioneer Alternatives, CEO International and CEO of Pioneer Investment Management SgR.
Photos: Old Mutual's Conference in Punta del Este, Uruguay. Old Mutual: "The High Levels of Political Risk Are the Key Driver behind the Pessimistic Sentiment in the Market"
The second Old Mutual Global Investors investment conference in Latin America began in mid-May. On the 12th and 13th of May, Chris Stapleton, Head of Distribution in Americas, Andrés Munho, Head of Sales in Latin America, Florida and Texas, and Santiago Sacias, Regional Manager in Southern Cone, met with more than 60 investment professionals from Uruguay, Argentina, Chile, Colombia and Peru, in Punta del Este under the banner “Global thinking, Local understanding”.
Following an overview of the capabilities and strategy of the British fund management company, a discussion panel among the five fund managers attending the event, was moderated by renowned Uruguayan economist Michele Santo. Major themes for the evening were China, the stimulus policies of the European Central Bank, market sentiment and its divorce from fundamentals and political risks which threaten markets with the arrival of Bréxit, as well as the presidential elections in the United States.
The first round of questions began with concerns about the continued low oil prices and a weaker dollar, and how these two factors could have affected the Chinese economy. Josh Crabb, Head of Asian Equities and Principal Portfolio Manager at Old Mutual Pacific Equity and Old Mutual Asian Equity Income, commented that the fact that oil prices remain low is positive for Asia: “The fact that oil prices have stabilized at these levels is also important because investors use the price per barrel as a measure of risk. As per the US dollar, whatever happens with the path of rates in the normalization process, I believe this is already taken its toll in the market and that investors have adjusted for that. If you go to Indonesia and India, you can pick up the best part of 10 cents bond yield around the world, as pretty impressive as it is in Brazil, and I think, once you start seen currency stability, people are going to start chasing those yield down again”.
Ian Ormiston, fund manager at Old Mutual European Smaller Companies (Ex UK), added his insight into the behavior of oil following interviews with the management teams of oil service companies: “Because we have a very deep deflation in the cost curves, decisions have been deferred. One of the companies with whom we met last week is very confident that they will see a sudden recovery in the projects, but at the same time they are telling their clients that they may get the same project next year 20 % cheaper. So as I putted to the company’s CEO, ‘if you can get it a 20% cheaper, why not do that?’ to what I really received no response.” Ian is confident that the industry related to shale oil will recover if the oil price continues to strengthen; and he believes it is conventional crude oil which will face more challenges, once it reaches a threshold where there is a risk of delay in project margins.
What is the outlook for the Chinese economy?
On returning to the China issue, as a major player in the global economy, Josh Crabb revealed the two factors which in his opinion are most relevant in order to understand what is happening in the Asian giant’s economy: “Ironically, not as much is happening in China as people think. I think the reality is everything happens at a much slower path that people gives a credit for. From my perspective, there are a couple issues to consider: the first is the currency, let’s put what actually happened into context, we had a currency that was pegged to the dollar. Chinese authorities announced that, going forward, the Renmimbi would be linked to a basket of currencies, but did not really specify what currencies would make up this new basket, the only two options were the yen and the euro, both of those currencies depreciated suddenly, authorities made a one-time adjustment, and the whole world panicked.” Josh is confident that from now on, greater communication by the Chinese government will provide more clarity and intra-day variations, so this problem will disappear with time, now that the levels of speculation in the yen and the euro have drop off.
Josh Crabb’s second concern is the real economy and the excess credit perceived by a large part of the market’s participants: “Many people believe that the Chinese economy is back to a debt driven disaster because they are only looking at the credit data, but considering how credit works in China, where banks receive a quota on how much lending they can do over the course of a year, if they can lend at the beginning of the year or at the end of the year at the same interest for the whole year, the more likely is that they are going to try to lend at the beginning of the year, and as a result there is seasonality at the beginning of the year, and then comes back off again “. In relation to where the government’s stimulus measures are being directed, Josh insists that it’s not being spent on building ghost cities or bridges that lead to nowhere, but on real projects: “The stimulus is being directed at things as simple as metro systems, and the question that arises is, ‘how many metro systems can be built?’ That is because people do not appreciate that there are 190 cities with a population of over one million people in China, which involves the construction of 190 metro systems, a very significant figure”.
Another factor that is changing Chinese society is concern about pollution, five years ago nobody cared, they are now more aware about the high levels of pollution and require large investment amounts.
The subject of the conversation then changes, beginning a discussion regarding the return of high levels of volatility to markets, Justin Wells, Investments Director on the Global Equities team, who is involved in the management of the fund Global Equity Absolute Return (GEAR), a Market Neutral strategy that is the one flagship funds of Old Mutual, among other strategies,commented: “One of the areas which is more difficult to understand when assessing the environment in which we invest, is the fact that North America has seen the highest levels of volatility according to our indicators; and the greatest deal of pessimistic sentiment, a fact which is contrary to the economic growth embedded in that great nation, in that great economy. There are a lot of strange things happening in the markets today.” For Justin, this volatility has returned to stay for a while, but the positive side is that it can create opportunities for the active investor, which is the approach that his team is taking for the forthcoming months ahead.
ECB’s Purchasing Program
As for the effectiveness of the latest measures announced by Mario Dragui, Bastian Wagner, the fund manager who, along with Christine Johnson, makes the investments decisions on the structure of the Old Mutual Monthly High Yield Bond, expresses his opinion on the market reaction to the European Central Bank’s purchases program, which includes the purchase of corporate bonds: “I think the market was quite surprised by the magnitude of purchases announced with the new measures. When you think about it, the most challenging part will be to buy between 3 and 5 additional trillion on top of established government bonds purchases every month. They explicitly expressed that they wanted to buy investment grade debt denominated in Euros and up to 70%, which represents a large amount when taking into consideration that 5 billion Euros represent almost 2% of the all eligible market.”
Bastian refers to the generalized narrowing of spreads in the investment grade bond markets, but mentions that the effect on speculative grade bonds will be greater. He also points out several issues that have yet to be answered, such as what the effect of a new rate cut may be on the real economy, and what would happen if any of the bonds purchased by the European Central Bank loses its investment grade.
Meanwhile, Huw Davies, co-manager for the Old Mutual Absolute Return Government Bond fund said to be quite impressed with the ECB’s performance: “We believe that the program of the European Central Bank is aggressive and most likely to work. We have already seen some of these effects in falling unemployment rates, which really were at very high levels”.
Complementing previous opinions, Ian Ormiston pointed out that it is important to mention that, for the first time, the Central Bank recognizes that there is a problem in the European banking system, particularly within the Eurozone: “The negative interest rates are compressing spreads and are causing issues for the banks. It’s good that it is good that they now are talking about it, because the debilitation of bank credit is probably the biggest problem in Europe”.
Investor sentiment and divorce from the fundamentals
When asking Ian about the sentiment of the management teams of the companies in which he invests, the divorce between investor sentiment and fundamentals rapidly arises: “It’s amazing the way it is evolving. Especially, when comparing the first quarter reports to the end of year reports three months earlier, a time when CEOs were not providing guidance or giving very cautious guidance. Then the market fell, influencing the opinion of those who thought that Europe was heading back into a recession.”
Ian Ormiston mentions the case of the French economy as a symptomatic case of the entire European economy. In which most investors talk about France as a country which will never grow, and for which bad sentiment is developing due to the lack of proposals for economic reforms by the French government: “Just when everyone had given up on France, its economy begins to grow, fantastically, but not dynamically. Many equities basically reflected no growth at all; but growth is starting to come back. In France, one of the biggest impediments for growth are the labor laws which have really affected large companies. While small companies can more easily hire and fire, they can also help large companies by providing them with employees who are not necessarily included in their payroll.”
Meanwhile, Bastian Wagner compares the differences between the European and US markets, amongst which there is a curious divergence. While during the past four years the United States has seen significant activity in projects of M&A (mergers and acquisitions) and private equity; in Europe, this activity has either decreased or remained flat. “In Europe, we have not seen many private equity firms entering the market, making purchases, or with big M&A operations, which is a sign of lack of confidence. Which raises the question of whether the ECB’s measures are sufficient for the company directors to sit and decide whether an investment project should be executed, or whether maybe we need to go a step further, and the government should provide confidence to the private sector.”
But this lack of confidence doesn’t only occur in developed markets, Josh Crabb comments that sentiment towards emerging markets has been quite pessimistic for a long period of time, so that current valuation levels are very low. “Current levels are as low as they can be in a world without crisis. So, in that respect, they are quite negative, but the interesting part comes when we consider the positioning in stock. During the last six months we have seen that commodities stocks rallied a 100% to 200%, we have seen markets like Brazil which, with the wonderful news of the ‘impeachment’, rallied 50% in the course of three weeks. And most investors have missed it, which is a clear indicator of how extreme the sentiment is, therefore, a simple little event which makes the current situation somewhat less bad, can really change the market.”
Crabb also adds that perhaps it’s time for fiscal policies to begin to step in. In his opinion, fiscal policy tends to benefit emerging countries and obtains better results for the majority of the population by redistributing wealth.
As for the political risks facing the markets, Huw Davies believes that it’s unlikely that the UK exits the European Economic Community. For the fund manager, much of the risk of that event has manifested in the currency, the sterling pound. As the date of the consultation approaches, the strategy in which he participates will be distancing their exposure to the event, as it is an event of a binary nature. As for the US presidential elections, he admits to not having a sure bet: “Six months ago nobody imagined that Trump would get the Republican nomination, currently everything looks possible.”
Finally, Justin Wells refers to the role that these events are playing in terms of market sentiment. “All regions where we have positions are in pessimistic sentiment territory, the higher levels of political risk are the key driver behind that.”
CC-BY-SA-2.0, FlickrPhoto: Russ Oxley. Old Mutual Global Investors Strengthens Absolute Return Government Bond Team With New Hires
Old Mutual Global Investors, part of Old Mutual Wealth, announces that, as a consequence of a difference in opinion regarding future strategic direction, Russ Oxley will leave the business with immediate effect. Old Mutual Global Investors would like to thank Russ for his valuable contribution in supporting the launch of the ARGB capability.
Adam Purzitsky and Paul Shanta have been appointed Co-Heads of the Absolute Return Government Bond team, reporting to Paul Simpson, Investment Director.
Adam and Paul joined Old Mutual Global Investors in early 2015 along with the other members of the ARGB team. They have been instrumental in the management and development of the Absolute Return Government Bond strategy over the last seven and eight years, respectively.
Old Mutual Global Investors also announces the enhancement of the ARGB portfolio management team with the appointment of two highly experienced investment professionals, Mark Greenwood and Peter Meiklejohn. Both Mark and Peter have already made valuable contributions to the ARGB team during the time they have been working alongside the team as consultants. These appointments bring the total number of portfolio management professionals working on the ARGB strategy to six, supported by two additional specialist investment professionals.
Supported by the rest of the team, Adam and Paul will continue to co-manage the Old Mutual Absolute Return Government Bond strategy. Their focus will remain on meeting clients’ expectations and delivering the outcomes and investment journey clients expect. Adam and Paul were among the first members of the team to join Old Mutual Global Investors, and were instrumental in the pre-launch preparation, as well as actively managing the strategy since launch in October 2015. The managers will continue to employ exactly the same investment process and philosophy that they have been at the heart of developing over many years.
The Standard Life InvestmentsEuropean Property Growth Fund has sold a portfolio of eight assets across Europe, as it adjusts its focus to concentrate on its core markets.
Logicor has acquired the portfolio of logistics assets from the fund in an off-market transaction. Located in Belgium, Germany, Italy and Hungary, the assets in the portfolio total 241,753 sq m with a total average occupancy rate of 99.7%. Tenants include third party logistics providers such as DB Schenker, DHL and online electronics retailer Redcoon.
This sale represents around 20% of the Standard Life Investments European Property Growth Fund, which reflects the significant emphasis the fund is placing on its research-led strategy of targeting its core markets in Europe. Proceeds from the sale of the portfolio will be reinvested in the acquisition of high quality assets across a range of sectors in markets such as the Netherlands, Germany, Spain and Ireland.
Veronica Gallo-Alvarez, Fund Manager of the Standard Life Investments European Property Growth Fund said: “This is a strategic transaction that meets our long-term objectives for the fund, which is about continuing to deliver robust long-term returns for investors. We are targeting income generating assets as well as opportunities to create value in core and recovery European markets with a demonstrable opportunity for strong rental growth. As part of this repositioning, we are already undertaking due diligence on a number of possible acquisitions.”
Mo Barzegar, CEO & President, Logicor added: “This is a well-let portfolio of high-quality modern logistics assets. This acquisition strengthens our pan-European logistics platform and is consistent with our strategy of investing in key logistics locations across the European supply chain.”
Allfunds Bank has cemented its position as Europe’s largest mutual fund platform as assets under administration (AuA) soared to EUR 215 billion from EUR 147 billion last year, according to Platforum’s latest findings on European fund distribution.
With growth of 46%, Allfunds Bank’s soared far ahead of its nearest rival, UBS Fondcentre, which grew 17.6% to EUR 169.4 billion. Platforum described Allfunds’ growth in Europe as being across all regions including in its traditional core markets of Italy and Spain.
“Despite its clear Asian and Latin American ambitions, Allfunds Bank still regards Europe as a market with great potential that will continue to drive growth. Reinforcing this view, assets in Central Europe and the Nordics more than doubled (+119%) in Q4 2015 over Q4 2014,” said Platforum.
Of the 46 asset managers surveyed by Platforum 55% suggested that Allfunds Bank had the best “distribution potential” compared with 35% and 20% for its nearest two rival platforms.
The Platforum survey also found that half the fund managers believed Allfunds Bank represented “value for money” compared to 20% and 15% for its nearest two rivals.
Allfunds Bank received another top billing regarding the provision of management information, with 35% of managers polled suggesting it was best for providing good information compared with 30 and 15% for its two nearest rivals.
Commenting on the Platforum’s findings, Allfunds Bank’s CEO, Juan Alcaraz said, “Allfunds Bank had an outstanding year which led us to grow across the board. Our relentless pursuit of the open architecture model, which provides consumers with the widest fund choice possible, is proving ever more attractive to a wider range of wealth and asset managers across Europe.In the UK, where we have taken a long time to establish our model, the business is now thriving with a very strong pipeline. We therefore remain very confident that our approach, which is clearly gaining traction in the UK, will continue to help propel our business forward across Europe.”
