Photo: Woodley Wonder Works. Technical Support for European High Yield Bonds
European high yield has started the year strongly, with the Bank of America Merrill Lynch European Currency High Yield Index up 3.1% in euro terms in the first two months of the year. The rise came almost exclusively from credit spread tightening, largely a result of the trickle down in demand from the announcement of quantitative easing (QE) as credit investors move further down the ratings spectrum in search of higher yields.
An improved macroeconomic backdrop has boosted sentiment towards the asset class given the stabilisation in crude oil prices, strong equity markets, and the stop-gap bailout extension for Greece.
Unlike US high yield bond markets, there is minimal leveraged energy exposure within the European universe. Earnings for the European high yield universe should be a net beneficiary of both lower oil prices and the falling euro.
Supply has started the year strongly but has been more than offset by a significant shift upwards in demand, as evidenced by industry data showing positive net fund flows. The high yield bonds that have come to market are dominated by relatively higher rated BB issuers and easily taken up by investors, with many investment grade investors hunting in BB for extra yield.
The rise in demand has implications lower down the credit spectrum. Traditional high yield investors are moving into single-B and CCC rated bonds where the yields are more attractive but there is simply not enough supply of these bonds to meet the inflows. We believe there could be a significant squeeze in these higher yielding assets over the coming months as demand outweighs supply.
Greg Jones, head of retail distribution for EMEA and Latin America at Henderson Global Investors. Courtesy photo.. Henderson GI: “Our Plans Over the Next Five to Six Years, are a Fivefold Increase in Latin America, to Reach 10 billion in Assets”
If we compare today’s Henderson Global Investors with the one of a few years ago, the image is almost unrecognizable. Since its origins as a UK based management company dedicated almost exclusively to the management of European assets, and focused on a more local (or, at most, continental) investor, the company has been immersed for the past few years in a process of strong changes which have transformed it into a global manager with a base of international investors and a distribution footprint that spans the globe, from Chicago to Singapore or Hong Kong (with a few exceptions, such as the African market). In fact, it has more than 900 employees in 19 locations around the world, spread across Europe, USA and the Asia-Pacific region.
Its acquisitions led it down this path of growth, internationalization, and business diversification: it bought Gartmore in 2011, providing it with a powerful basis for managing alternative assets; in 2013 it acquired a holding in 90 West AM, the Australian management company which specializes in natural resources; That same year it bought H3 Global Advisors, specialist in alternative raw materials and also Australian; and a year later it acquired the American company Geneva Capital Management, (specializing in growth stocks of small and mid cap). All of the above acquisitions aimed at not only diversifying their assets, but also at becoming a truly global player.
And in that vein, its medium-term objective is to build an investment infrastructure and also a global front office, as was explained by Greg Jones, head of the management company’s retail distribution for EMEA and Latin America, during an interview with Funds Society. “About five years ago we hardly had any business at all outside the UK,” he says; but now things have changed a lot.
One of the clearest pillars in that desire for globalization is in the US: “The United States is the market with the greatest savings; we started 12 years ago through a purely organic growth built around three equity strategies. It is a market where it is difficult to compete, so you have to offer something different, and therefore, we focus on the international stock market.” Currently, their plans are not just to maintain strong organic growth, but also to build a true “management factory” in the country, in line with the strategy set in recent years to build distribution capabilities on a global basis and aligned with the management company. “We want to build front offices and have local distribution capabilities,” he explains. In this regard, Jones anticipates that they will shortly hire a person in Miami to develop their plans and cover the US offshore market.
The fact is that Henderson GI is strongly committed to the US offshore market, one of its major areas of interest. “For a Latin American entrepreneur, these markets are more stable from a political point of view, and therefore, it’s natural to mobilize towards offshore centers in the US, and not just in Miami” the expert points out.
Overall, their plans are to hire over twenty people during the next few years, most of whom could join between 2015 and 2016, in order to meet the objectives of its strategic plan, which aims to double the company’s assets under management in 2018 (assets under management in 2013 amounted to 76.6 billion Euros). The company aims to have a balanced base and grow both institutionally and in distribution.
Latin America: another key element of this journey
Besides the US, Latin America is another key point in this global journey, where GI Henderson’s business, which they seek to increase fivefold in approximately the next five years, has evolved considerably since attracting its first client, whose fortune was generated in the region’s railroad business. “Two and a half years ago we had no assets in South America and we now have 2 billion. In five to six years, our plans are to have 10 billion,” he explains, very confident in the growth potential offered by the region.
What are the reasons behind such confidence? “It is an attractive market because it is very open, to me it is more attractive than Asia,” says Jones. “It is more modest in terms of assets under management, but the investor base is more Europeanized, due to its history. Furthermore, the time horizon of investment in Asia is shortsighted, and turnover is higher than in Europe or South America,” he explains. Other factors supporting Latin American history reside in demographics and compulsory private pension savings in some countries; and also in their lack of capabilities. “The capabilities in equity management, especially in European and global equities, are still very low in the region and there we see an opportunity to present our range of international equities at a very early stage,” says Jones.
Within the pension market, Chile is the management company’s greatest client and its priority, due to its attractive policy and regulatory framework, market size, and openness. Jones also highlights the exciting opportunities in Peru and Colombia: in Peru, Henderson GI is the active management company with the greatest presence in their pension funds. Yet, the interest in passive management, which is taken strategically when in their opinion it should be tactical, is increasing in these markets. Their plans also include the Mexican Afores. However, taking into account that the institutional and pensions market in LatAm is a more volatile market than retail, the success of the management company is to also reach that distribution client and achieve sustained growth within this segment, which is something they are accomplishing.
To continue growing in LatAm, the company has partners in different markets such as Santander, which through its Select range distributes Henderson funds in countries like Mexico or Brazil. And, according to Jones, Brazil has now been completely sidelined in its list of priority markets: “There are many management companies which are closing down; in order to succeed in that market you have to compete with high domestic interest rates and if you can’t, there is no point. Moreover, it is a very closed and complicated market; we are in no rush to get there”.
An array of unique products and a diverse range
In order to achieve his objectives, the expert does not lose sight of the idiosyncrasies of their investors and their various demands. “In Latin America the investor primarily seeks growth, used to investing in their local markets and with the emerging bias: growth will be the theme that dominates during the next five to ten years.” Meanwhile, in Europe, the issue of income is stronger, like in the US, where there is high demand for vehicles that offer high dividends, as the population ages. “But in Latin America the investor is younger, has to save for a mandatory pension fund, and there is a large structural support for investments that seek long-term growth,” explains Jones.
The fact is that another of Henderson Global Investors’ major changes in recent years has been the diversification of its product range: from equities (which accounted for 99% of its assets in 2009) to a much wider range (in which the weight of equities representing around 60%, and wherein the fixed income products (with around 22% and strengthened capacities), multi-asset, and alternatives have gained weight, a trend that will continue in the coming years). Therefore, Henderson GI has gone from a phase in which they were more focused on investment at European level (and equity) to another in which they are seeking to add value by investing in all types of markets from global equities to bonds or emerging market debt.
“There are management companies which, with the good performance of a fund, they gain trust and are given the benefit of the doubt when launching new products, even though there may not be a history of returns. We are not at that point yet, although 83% of our funds beat their benchmarks with a horizon of three years and we are building the distribution infrastructure required” said Jones, who aims to be given the benefit of the doubt when innovating. Something they do often through a process which has changed in recent years (the generation of the idea can come from managers or the sales team, and before its release has to pass through the Product Strategy Group as well as through an implementation committee) .
That innovation was very strong in 2014, with the launch of a global equity fund focused on income (a segment where they could generate more products), another of global natural resources (under the belief that long-term inflation and growth of the population will increase the demand for natural resources); and several credit funds, including one focused on the emerging world, an area “that still offers value.” Looking ahead, according to Jones, product innovations could focus on segments of global emerging debt, equities (both in Europe and Latin America) and liquid alternative products (in the institutional space).
And, all through active management. “Active management does not try to beat a benchmark every single day … it’s about strategic long-term investments, while passive management is more tactical and short-sighted. We have to educate investors in this,” he adds.
Photo: Stepstone Group. Capital Strategies Partners Announces an Agreement to Cover the LatAm Institutional Market for Stepstone Group
Capital Strategies Partners has announced this week an strategic agreement to cover the LatAm institutional market for the international firm Stepstone Group.
StepStone Group is one of the most important platforms in the private markets global industry, with more than USD 60B in advisory and above USD12B in assets under management. The company operates on four continents with its 8 offices (San Diego, New York, San Francisco, London, Seoul, Beijing, Hong Kong and Sao Paulo) and has 150 employees of whom 23 are partners.
The platform is made up of four integrated pillars: Infrastructure, Real Estate, Credit and Private Equity, and includes Primary, Secondary and Co investments capabilities. The group prioritizes the importance of research, with a proprietary database covering 19,500 companies, 18,000 funds and 6,500 GPs.
Shannon Bolton, country head of CSP for Chile and Peru adds that “StepStone is one of the most powerful houses in the industry of private markets and, in particular, the world of private equity. The significant amount of annual primary capital (USD 7-8B) is paramount to driving co-investments (individual investments alongside a GP) and secondary opportunities. We believe this unique approach can provide much value to Latin American institutions. “
Capital Strategies Partners is a Spanish broker dealer specialized in representing international managers with a niche profile with local presence in Spain, Italy, Switzerland, Portugal, Germany and Latin America.
CC-BY-SA-2.0, FlickrPhoto: Greg Walters. Battling Fake Goods in China
Following some recent state findings, Chinese officials have been cracking down on a prevalence of counterfeit goods sold in the country, and asking firms to enhance their technology to combat this.
China’s State Administration for Industry and Commerce recently revealed survey results indicating that some of its most popular e-commerce sites are rife with product listings that allegedly infringe on intellectual property rights. Chinese e-commerce sites have already spent hundreds of millions of dollars over the past couple years to try to fight this persisting problem.
This begs the question, if consumers are well aware of fake goods being sold online, why are China’s retail websites still growing at breakneck speeds? During our research trips across China, especially in smaller cities, the answer is painfully clear to us: Chinese consumers have even less faith in their local stores when it comes to recognizing counterfeit merchandise. Most shoppers we met in “lower tier,” or less developed, cities depend on popular e-commerce sites to research products as well as the credibility of merchants. A common bit of feedback is that with buying online, at least you have word of mouth to rely on and have the chance to get a refund if you are not satisfied with your purchase.
For those of us living in more developed countries, it may be difficult to imagine issues of trust while shopping at a Macy’s or Harrods. However, due to the rapid pace of urbanization in lower tier Chinese cities, many retail formats there are new to consumers, and thus lack credibility.
With the convenience and anonymity of the Internet, developed market consumers are also increasingly making purchases online, and are also at risk of purchasing counterfeit products.
The problem with counterfeit goods is not exclusive to China or Asia. In fact, it has become a global e-commerce issue. To gain perspective over the size of this problem, we reference the 2011 World Trade Organization (WTO) report. The WTO has estimated that 2% of all world trade involves counterfeit goods that value in the order of US$25 billion annually. Of these goods, 75% originated in China from 2008 through 2010.
This may not be surprising: the same Chinese factories that produced genuine goods often have access to the exact same material that would allow it to make the unauthorized fake goods. Production of such fakes, along with authentic goods, makes law enforcement difficult. Even if counterfeiting criminals are caught, they often escape jail time, and thus, such crime can continue. In China, unless the police can prove sales or inventory value above roughly US$8,000 for producers and approximately US$24,000 for traders, counterfeiters are subject to fines, rather than imprisonment.
This is why the problem of counterfeit goods persists in China. If it is difficult for law enforcement to punish counterfeiters to any effective extent, even the most complex fraud detection software may not be able to prevent such criminals from using other aliases to try their luck again. This is very different from the U.S. where counterfeiters face up to US$2 million in fines or 10 years imprisonment if convicted of violating trademark laws.
Perhaps in order to stem the root problem in China, tougher enforcement of trademark infringement laws and more severe penalties need to be in place. Weeding out fake goods listings on e-commerce websites simply isn’t enough.
Photo: Ronald O'Hanley, new CEO and President at SSGA/CED Admin en YouTube
. Scott Powers to Retire from State Street Global Advisors in 2015
State Street Corporation announced today that Scott Powers (age 56), president and chief executive officer of State Street Global Advisors, intends to retire later this year after more than seven years leading the firm and three decades in the investment management industry. Ronald O’Hanley (age 58) will succeed Powers at the beginning of April.
He and Powers will work together over the next several months to ensure a smooth transition of responsibilities. O’Hanley will report to Jay Hooley, chairman and chief executive officer of State Street, and will join the company’s Management Committee, its senior-most strategy and policy-making team.
“Although it is bittersweet to be retiring from SSGA, I know I leave the firm on a very solid footing, with even greater prospects ahead. It’s been a privilege to work with such a talented team of professionals and global clients.” said Powers.
Hooley said, “Scott has been a highly effective leader for our asset management franchise and I thank him for everything he has done to strengthen SSGA’s leadership position, talent and culture. We’re extremely fortunate to have such a strong successor in Ron, someone I have known personally for many years, as well as the talented and experienced management team at SSGA. Ron has a proven track record and extensive experience running a global multi-asset class investment management business.”
O’Hanley has nearly 30 years of experience in leadership roles within the industry and most recently served as president of Asset Management & Corporate Services for Fidelity Investments. Prior to joining Fidelity, O’Hanley spent 13 years in leadership positions at Mellon Bank and Bank of New York Mellon ultimately as president and chief executive officer of BNY Mellon Asset Management in Boston, vice chairman of Bank of New York Mellon Corp and a member of its Executive Committee.
. Columbia Threadneedle Investments Brand Launched
Threadneedle Investments has now unveiled its new brand: Columbia Threadneedle Investments, representing a combination of resources of UK-headquartered Threadneedle and US-based affiliate Columbia Management.
The collaboration, which was first announced in January 2015, aims to strengthen both groups presence in the UK, Europe, North America, Middle East and Pacific. All existing investment strategies, teams and products will remain unchanged.
Campbell Fleming, CEO EMEA for Columbia Threadneedle Investments, said: “For Threadneedle it builds on our established businesses in EMEA and Asia Pacific. Under the banner of Columbia Threadneedle Investments we now also have a brand presence in North America, the largest investment market in the world.”
The firms, with combined assets of $505 billion, are owned by U.S. financial services company Ameriprise Financial and together form the world’s 30th biggest asset management group.
Photo: Elias Gayles. Lombard Odier and ETF Securities to Join Forces in Fixed Income ETF Offering
Lombard Odier Investment Managers and ETF Securities have announced their cooperation offering a range of Ucits compliant fixed income ETFs.
Lombard Odier, which traditionally offered traditional fixed income funds, will now offer smart beta fixed income products via asset managers, financial advisors and investment platforms. The ETF’s will be listed on London Stock Exchange as of mid-April and will be available to both, retail and institutional investors.
Mark Weeks, CEO of ETF securities comments: “This dynamic partnership is based on complementary skills and experience of two market leaders. Distributing Lombard Odier IM’s fundamental fixed income strategies via ETFs offers an innovating smart beta solution for fixed income investors and helps us to build our reputation as pioneer in specialised investment solutions.”
CC-BY-SA-2.0, FlickrPhoto: A Guy Taking Pictures. Morningstar: 2014 Was A Difficult Year for PIMCO; Vanguard Still Thriving
Indexing pioneer John Bogle’s company, The Vanguard Group, has grown into a global giant with almost $3 trillion in assets; it is the largest provider of mutual funds and the second-largest provider of exchange- traded products in the world. With a wide variety of accessible investment options, the ability to capitalize on economies of scale, and a philosophy of passing the results of efficient operations to its investors in the form of lower costs, Vanguard has built a solid reputation and continues to attract the highest flows.
In addition to its strong expertise in passively-managed investments, Vanguard has also managed to grow its business on the active side. As of the end of 2014, Vanguard was the third-largest active fund manager in the world, with active assets exceeding $900 billion.
On Sept. 26, 2014, “bond king” Bill Gross announced his decision to leave PIMCO, the asset management company he co-founded, sending a shockwave throughout the investment world and prompting unprecedented outflows from PIMCO in the days following his departure.
PIMCO experienced outflows of $176 billion worldwide in 2014, or 26% of their 2013 assets. Outflows from PIMCO Total Return amounted to $96.1 billion in the space of only five months.
Outflows from PIMCO benefited other funds in the intermediate-term bond category. TCW enjoyed consistent inflows to Metropolitan West Total Return Bond MWTIX, which has a Morningstar Analyst RatingTM of Gold, and Gold-rated Dodge & Cox Income DODIX attracted significant amounts of investor money for Dodge & Cox.
BlackRock and iShares combined (they are really the same company) turn out to be the world’s third-largest fund asset manager after Vanguard and Fidelity, with a total of $1,862 billion in assets. They were able to produce organic growth rates above 10% on both the active (BlackRock) and passive (iShares) sides of their business.
. Old Mutual Global Investors Adds Emerging Market Debt to Its Skill Set
Old Mutual Global Investors is pleased to announce the appointment of John Peta as Head of Emerging Market Debt. John joined the business on 2 March 2015 and reports to Christine Johnson, Head of Fixed Income.
Old Mutual Global Investors believes that John brings a wealth of industry knowledge and experience to the business. John previously worked at Threadneedle Asset Management, London where he was Fund Manager, Head of Emerging Market Debt since 2012. John started his career in Fixed Income in 1987 at Merrill Lynch, Seattle, before joining Chancellor LGT Asset Management, San Francisco in 1994. John began specialising in managing dedicated emerging market (external and local) debt assets when he joined Standish Mellon Asset Management, Boston in 1997, moving to Acadian Asset Management, Boston in 2007 to assist in the launch of an emerging market local currency debt product.
John will initially manage the US$150 million¹ Old Mutual Local Currency Emerging Market Debt Fund with effect from 20 April 2015. The business will review the manager of the US$250 million¹ Old Mutual Emerging Market Debt Fund and may announce any recommended change at a later date. Both funds are sub-funds of the Dublin domiciled Old Mutual Global Investors Series plc and are currently sub-advised by Stone Harbor Investment Partners LP.
Christine Johnson, Head of Fixed Income, comments: “We are delighted that John has joined us as his wealth of fixed income and emerging market debt knowledge will greatly enhance our investment capabilities. We believe that our clients will also benefit from John’s investment skills. Whilst we are looking forward to working with John, we would like to take this opportunity to thank Stone Harbor for their support in managing the Old Mutual Local Currency Emerging Market Debt Fund and for continuing to work with us on our hard currency fund, the Old Mutual Emerging Market Debt fund.”
Old Mutual Global Investors aspires to be a leading, modern asset management business focused on the needs of investors. Significant progress has been made to further the goal of being a top five player in the UK retail market. The business has restructured its global business and now has a strong distribution capability spanning Asia, Europe and Latin America, which currently generates 20% of revenues from outside the UK.
Old Mutual Global Investors is an investment focused business which strives to provide the very best investment talent and performance to clients. The business plans to grow its market share through investing in existing core investment skills and expanding capabilities where they are complementary to the business’s culture and focus.
Julian Ide, CEO of Old Mutual Global Investors, added: “From the outset, we have retained and attracted the best investment talent offering: compelling and reputable investment processes and track records; ‘star’ quality; strong cultural fit within the business and incremental distribution benefits. In addition to enhancing our distribution capability, we have bolstered our Equities team with the appointment Richard Buxton and his team, including Ian Ormiston as European Smaller Companies Fund Manager, launched our Asian Equities capabilities with the appointment of a team of four under the leadership of Josh Crabb and, more recently, announced that Russ Oxley and his team of six will join us during the course of this year to form our Fixed Income Absolute Return team.
“I believe that John’s appointment is further proof that Old Mutual Global Investors is a sought after destination for top investment talent. The addition of his expertise certainly enhances the range of products we can offer to our global client base and we are now seeking to bolster this investment capability by recruiting additional resource.”
Photos: Pablo Blázquez. Funds Society Successfully Held the Second Edition of its Golf Tournament
The 2nd Funds Society Golf Tournament was held on Friday March 13th at the Miami Beach Golf Course, the tournament was attended by over 50 participants from the Asset and Wealth Management Industry in South Florida. On this occasion, we enjoyed the cooperation of Henderson Global Investors, MFS, M&G and Carmignac.
Although it seemed that the weather would be on our side this year, players had to contend with several of those storms so typical of Miami, bravely continuing with the game in spite of being soaked to the bone. Of course, no one gave up and all attendees continued the tournament, claiming that they were enjoying “a great day of golf.”
The session of golf was preceded by a panel in which each manager had the opportunity of sharing their strategy and prospects for 2015. Nicolo Carpaneda, fixed income specialist at M&G, reviewed the main triggers of the global debt market. Meanwhile, Malte Heininger, who manages Carmignac Euro-Entrepreneurs, a fund oriented towards small European companies, detailed the opportunities in European equities. Nicholas J. Paul, Director of Investment Products at MFS spoke about the attractiveness of emerging equities in the current macro environment. Asian markets were covered by Andrew Gillan, portfolio manager for the Asian Equity team (ex -Japan) at Henderson Global Investors.
After lunch, the championship’s shotgun start came at 13:30. As was the case last year, the game type was individual Stableford in two categories. The first category was for players with handicap 0 to 18.4 and the second for those with an 18.5 to 36 handicap.
Following is the list of Winners of the 2ndFunds Society Golf Tournament:
Flight 1:
1st Place – Luis Cardenas – Sabadell Bank, Miami Branch
2nd Place – Ignacio de la Maza – Henderson Global Investors
Flight 2:
1st Place – José Alfredo Ruiz Marcos – Agent
2nd Place – Carlos del Hierro – Sabadell Bank, Miami Branch
