Allan MacLeod, director de Distribución Internacional de Old Mutual Global Investors. Old Mutual Global Investors nombra a Allan MacLeod director de Distribución Internacional
Old Mutual Global Investors announced that Allan MacLeod has joined the business in the newly created role of Head of International Distribution.
Based in London and reporting to Warren Tonkinson, Head of Global Distribution, Allan will be responsible for expanding Old Mutual Global Investors’ footprint in the global financial institutions and international sector. The business has already made steady progress in increasing its market share in this sector, however, it is widely recognised that this is a key sector where significant future growth opportunities exist.
Allan 25 has years of experience in the asset management industry. He spent 21 years at Martin Currie in a variety of senior roles including eight years managing money. He set up and ran the hedge fund business and had a number of international sales and client service roles, including running global distribution for the firm. He was also a member of the executive committee and a main board director. He left Martin Currie in 2011 and joined Ignis Asset Management in 2012 as Head of Global Accounts and spent two years building their business in the Middle East, Japan, Asia, Australia and North America.
Photo: Renate Dodell. Frontier Markets 101, by Global Evolution
In October 2014, Global Evolution attended the IMF-WB Annual Meetings to conduct face-to-face meetings with government officials from emerging and frontier countries, and to discuss joint research with the IMF Research Department, including the planning of an IMF-Global Evolution Frontier Markets Research Seminar for Spring 2015.
After these talks, Ole Hagen Jørgensen, Research Director, and Kristian Wigh Jespersen, Portfolio Manager at Global Evolution, discuss in its most recent Trip Notes their impressions from the 24 country-meetings they held in seven days. “ We attended public meetings with government officials and IMF mission chiefs from 24 emerging and frontier market countries.” These are their headline conclusions:
Angola: Good non-oil growth prospects; likely upcoming financing from WB and other donors; reduction in oil production and royalties; low risk to debt sustainability.
Belize: Fiscal numbers in bad shape; large contingent liabilities; no strong commitment to fiscal reform; oil sector waning down; elevated risk to debt sustainability.
Bangladesh: Prudent monetary policy; GDP revised upwards 50%; weak revenue performance; domestic political turmoil; delayed VAT reform; low risk to debt sustainability.
Botswana: Good fiscal stance; production not diversified; growth outlook worse due to lower diamond production; accelerating credit growth; low risk to debt sustainability.
Egypt: Impressive subsidy reforms; fiscal adjustment offset by infrastructure spending; improved revenue collection; FX flexibility needed; moderate risk to debt sustainability.
Ethiopia: IMF program unlikely; Eurobond issuance likely; high growth; volatile inflation; prudent fiscal performance; build up of debt, but low risk to debt sustainability.
Gabon: Increasing capital spending; business climate and electricity supply not good but improving; production needs diversification; low risk to debt sustainability.
Ghana: Negotiations with IMF on funded program; early budget to be prepared; other donors on board; high inflation; high debt service; moderate risk to debt sustainability.
Iraq: In civil war; Iran influence; IS Ramadi-takeover makes Baghdad-takeover easier; government safeguards oil but difficult; moderate risk to debt sustainability.
Jamaica: Fiscal program major success; need for revenue- enhancing measures; vulnerabilities to PETROCARIBE and external shocks; moderate risk to debt sustainability.
Mongolia: Nervous investor sentiment; too high exposure to China financing; FDI into mining is down; vulnerabilities in banking sector; moderate risk to debt sustainability.
Mozambique: Foreign financing is a concern; proceeds from bond issuance used for elections; huge gas reserves under ground; low risk to debt sustainability.
Nigeria: Economic impact of insurgence in the north is very low; little expected impact of elections on fiscal expenditure; good growth due to non-oil; low risk to debt sustainability.
Pakistan: Privatization program going well; tax reform important; Minister Daar seems fiscally committed and prudent; low risk to debt sustainability.
Paraguay: Inflation targeting implemented; a net creditor nation; VAT of 10% across income types very prudent; infrastructure challenge; low risk to debt sustainability.
Republic of Congo: Huge fiscal buffers; good non-oil growth prospects; inefficient government spending; poor business climate; need for fiscal reform; low risk to debt sustainability.
Senegal: Good fiscal consolidation; twin deficits; problematic fuel and electricity subsidies; low growth; manufacturing lacking; low inflation; low risk to debt sustainability.
Serbia: Huge fiscal slippage; likely upcoming emergency- financing from WB; privatization-process well under way; high unemployment; elevated risk to debt sustainability.
Tanzania: Fiscal deterioration; need for tax collection improvements; policy reforms moving very slowly; high financing needs; rebasing GDP; low risk to debt sustainability.
Turkey: Huge financing needs of 25% of GDP; oil price decline beneficial to economy but risks removing reform-focus; exports drops; low risk to debt sustainability.
Uganda: High growth; need for revenue-enhancing measures; infrastructure needs mounting; huge real interest rate; low risk to debt sustainability.
Ukraine: No clarity on political situation, economic impact, and external financing; IMF report to come out mid-December; high risk to debt sustainability.
Venezuela: Policy inaction; recent downgrade; 15% budget deficit; sell off in Venezuelan US dollar bonds; possible but unlikely default; moderate risk to debt sustainability.
Zambia: President Sata dies; election and succession in question with political outlook less certain; Fiscal consolidation important; mining companies taking government to court; low risk to debt sustainability.
Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Stragtegies in the Americas Region.
Steve Drew, Head of Emerging Market Credit of Henderson Global Investors. Henderson Global Investors Launches Two New Credit Funds
Henderson has further extended its fixed income offering with the launch today of the Henderson Horizon Emerging Market Corporate Bond Fund and the Henderson Horizon Global Corporate Bond Fund. The funds will be managed by Steve Drew, Head of Emerging Market Credit and James Briggs, Fixed Income Fund Manager, respectively.
The Luxembourg registered funds will have UCITS status and be denominated in US dollars.
The Emerging Market Corporate Bond Fund’s objective is to deliver a total return in excess of its benchmark.
Steve Drew, Head of Emerging Market Credit, says, “Emerging market credit offers investors a unique investment proposition. They are paid an attractive risk premium because of the ‘emerging market’ label, despite the investment grade characteristics of much of the asset class. And while emerging market companies represent some of the largest and fastest-growing companies, their bonds are typically under-represented in investors’ portfolios.
“The fund uses a proprietary thematic and quantitative filtering process that allows the team to concentrate on bonds that offer genuine value. Risk management plays a key role in portfolio construction and the fund is notable for its active management of interest rate exposure, with duration not tied to the average duration of the benchmark.”
The Global Corporate Bond Fund also aims to deliver a total return above its designated benchmark, but by investing primarily in investment grade corporate bonds.
James Briggs, Fixed Income Fund Manager, says, “The launch of the Henderson Horizon Global Corporate Bond Fund is the culmination of eight years of globalising our fixed income capabilities. The fund benefits from a flexible investment approach, using the analytical strengths of a team based in both Europe and the US to identify opportunities across all geographies and all areas of the credit spectrum. The combination of conviction-led investing with a blend of macroeconomic analysis and fundamental security selection can allow the fund to exploit disparities in markets around the globe.”
Both managers will have access to a sixteen strong credit research team and will work closely with the interest rates’ team headed by James McAlevey.
Greg Jones, Head of EMEA Retail and Latin America, adds, “We are launching these Luxembourg based SICAV funds to meet the needs of our clients seeking sophisticated fixed income funds in the global and emerging market credit space. These funds complement sophisticated UCITS launches in the European and global high yield sectors over the last two years and are the result of the globalisation of our fixed income teams.”
Global ETP flows of $37.3bn were driven by fixed income with $19.9bn, although equity flows also finished strong as stocks rebounded from a sharp correction attributed to economic growth and low inflation concerns, according to BlackRock.
The fixed income inflows represented an all-time high, including records for US and European exposures, and year-to-date asset gathering of $73.3bn has already broken the annual record of $70.0bn set in 2012.
High yield corporate bond ETPs had the best month of the year with $2.3bn to lead inflows of $7.5bn across all income-oriented categories as interest rates fell further and the search for yield intensified.
EM equity redemptions of ($3.0bn) were impacted by tactical trading in broad funds, but opportunities remain for selective investors currently underweight EM, particularly for Asian economies with attractive valuations and less sensitivity to rates/central bank action.
Japanese equity flows of $0.6bn included $3.2bn in the second half of the month as stocks rallied on expanded Bank of Japan stimulus and news the Government Pension Investment Fund will double its domestic equity allocation to 25%.
The 29 October statement from the Federal Open Market Committee (FOMC) doesn’t lend credence to the idea that the first rate increase is off the table for June 2015. Yields have dropped recently on broad-based disinflation, geopolitical concerns and fears of a slowdown in global growth. Yet these lower yields simply don’t reflect the US Federal Reserve’s current forecasts.
If you believe, as I do, that Fed policymakers will start to raise rates as early as next June, then they probably won’t begin to fully signal their intentions until the FOMC meets again in December. In the absence of a major deterioration in macro or financial conditions, the October statement primes the market for further “hawkish” guidance at the next meeting.
My view is that the Fed needs to start raising rates sooner rather than later. We’ve had negative real rates for a very long time, and that has almost certainly led to a misallocation of resources. Labor slack is being taken up; capacity utilization is rapidly normalizing. I think the Fed needs to slowly but assuredly take away the punch bowl, even though the party may just be getting started.
In the near term, as we assign a higher probability to the Fed’s first hike in mid-2015, rates will likely move modestly higher from here — especially at the front end of the yield curve. And as this environment of diverging central bank actions looks to be a multiyear trend, I believe the US dollar should continue to strengthen.
Opinion article by Erik Weisman, Ph.D., Fixed Income Portfolio Manager at MFS.
Pixabay CC0 Public Domain. Mark Mobius: El regreso de Argentina
Xavier Hovasse, manager on the Carmignac Emerging Discovery fund, has said that while the near term focus will be on Brazil in Latin America, it is the longer term prospects of Argentina that could shine depending on factors such as next year’s presidential election there.
Latin American makes up about 30% of the portfolio. Carmignac has previously stayed away from Argentina, for reasons such as the uncertainty surrounding the country’s participation in bond markets.
Currently, the country’s administration is fighting a battle with bond holders, who are owed debt in dollars. Going forward, the government might push to change the debt denomination to the local currency, Hovasse suggests.
Beyond that a key moment will take place with elections next year, which could mark the start of a different type of administration in terms of its dealings with international investors. Besides a new president, there are also Senate and Deputy elections taking place. Should that occur then Hovasse describes the country as “some day becoming the best frontier opportunity”. “The country has a relatively large population, that is well educated, and where you can find good entrepreneurs.”
Locals do not have credit because they do not want to put their money into the bank; so the deposit to GDP ratio is very low compared to similar sized economies. Hovasse estimates that debt to GDP ratio is around 45%.
The country has significant estimated reserves of onshore shale gas, which could become economically extracted if the government could encourage investment into the oil industry.
One of the challenges to investing is that the country has been involved in some unusual developments. For example, Hovasse said that the country was the only one in recent times that managed to have hyperinflation despite also enjoying surpluses, effectively leading into quantitative easing while having no debt. This is a completely different situation to a market such as the US, where quantitative easing occurred at a time when the government hit a sovereign debt crisis.
However, while Carmignac is not invested currently it is preparing to invest massively when it it feels there is a sound basis for change in the country. Hovasse said this might not be immediately following next year’s election, but at the same time there are potential candidates already putting forward policies that in his opinion look interesting.
Looking around Latin America more broadly, Hovasse, who joined Carmignac Gestion in 2008 from BNP Paribas Investment Management, said Colombia was one of the most interesting markets in the region, with sectors such as food retail still in a situation of low market penetration – about half of food sales in the country are still via non chain independent stores.
Colombia generally is enjoying the dividends of a peace deal between the government and FARC, which looks to be withing striking distance, and local politicians are impressing investors, for example, via a fiscal responsibility law. Ratings agencies have upgraded the country in recent years, and it is seen as less dependent on commodities exports than a number of other countries in the region.
Mexico offers potential in the banking sector, as about half the population do not have bank accounts – the result of previous financial crises that saw retail banking customers leave and never come back. Government reforms are progressing, and there is scope to privatise the country’s oil industry.
Insurance is another sector across the region where market penetration rates are low, thus offering good scope for growth, Hovasse added.
Brazil is set to provide the most immediate challenges to investors, after the presidential election. The country enjoyed a commodities and credit boom over the past decade, but the credit needs to be paid off, while commodities prices have weakened.
Cashflow and demography
Two key factors in determining investments in emerging markets are cashflow and demography, Hovasse said. His portfolio looks for companies with good cash flow growth; it is seeking companies with good prospects of self funding their growth. This varies by sector, with industries such as mining being capital intensive.
Hovasse does not look to ebitda. The key metric is free cashflow to equity yield before expansion capital expenditure. Hovasse said there is a split between maintenance capex and expansion capex, and he is looking for the figure after maintenance, but before expansion.
On ongoing challenge is the way accounting differs between jurisdictions. But by looking at cashflow and capital expenditure requirements, it means the fund will never buy a Gazprom or Petrobras.
The manager also uses the cash realisation ratio. If this is higher than 1, it means income statement multiples will make a company look more expensive than it is, so it is attractive from a valuation point of view. Cash return on invested capital is another key metric, Hovasse said.
Demographics are another key factor, he added. When women have fewer children they can be more economically active and provide better education to children, as well as result in other advantages to an economy. Hovasse said he is looking for evidence of populations growing “intelligently”. An example of where this factor suggests investors should stay away is Russia. The poor demographics affect the consumer story there, he said, even as investors struggle with other issues such as corporate governance and the impact of the oil price on the economy and a structural capital flight.
. Institutional Investors Expect More High Dividend Investment Opportunities in Emerging Markets
Institutional investors expect to see more emerging market equities paying high dividends over the next few years. New research from ING Investment Management (ING IM) amongst institutional investors reveals that between now and 2016, 61% believe the number of emerging market stocks paying these will increase – 14% anticipate a ‘dramatic’ rise here. The corresponding figures for the next five years are 68% and 18%.
Nicolas Simar, Head of the Equity Value Boutique at ING Investment Management, comments: “Over the long term, dividend investing accounts for more than 70% of total real equity returns and some of the most attractive opportunities here can be found in emerging markets. They are widely expected to be the primary driver of global economic growth due to their strong fundamentals. In addition to this, dividend yields in emerging markets are already relatively high and growing faster than those in developed markets.”
In terms of why institutional investors expect more emerging market companies to pay high dividends in the future, the main reason is many are becoming ‘cash rich’ and can afford to do this – the view of 29% of those interviewed. This was followed by 22% who said improving corporate governance and transparency in the region will fuel a rise in dividends paid, and one in five who believe it is because they are looking to attract more investors. Some 14% believe the main reason will be because more emerging market companies will be listing and they need to pay high dividends to attract investors.
ING IM’s Emerging Markets High Dividend Equity Fund invests in stocks of companies located in emerging markets around the world that offer attractive and sustainable dividend yields and potential for capital appreciation. The strategy combines quantitative screening with fundamental analysis to identify stocks that trade below their intrinsic value and offer an ability to grow their dividend in the future. The fund focuses on finding the strongest dividend payers from a valuation perspective and not the highest yielders.
Photo: Joka Madruga. Maduro Would Do Venezuela a Disservice by Turning His Back on International Investors
Venezuela’s international debt issued in hard currency has increasingly been under selling pressure in disappointment with the governments half hearted attempt to reform the hopelessly ineffective and intransparent currency regime (that includes three official FX rates) as well as President Maduro’s decision to let Rafael Ramirez become Political Vice President and release him from his hitherto duties as Economic Vice President, PDVSA President and Oil and Mining Minister. In his role as Economic Vice President Rafael Ramirez was widely respected as the longest serving cabinet member under Hugo Chavez and as one of a very few pragmatic and reform friendly politicians in the current administration. Global Evolution, an asset management firm specialized in emerging and frontier markets debt, has published a piece of research discussing theses topics.
Should Venezuela default?
Adding fuel to the fire, an article, named ‘Should Venezuela Default?‘, written by two respected Venezuelan economists, Ricardo Hausmann and Miquel Angel Santos, was published at the beginning of September, basically asking if not Venezuela should default on its foreign debt instead of letting its population down by defaulting on food imports, lifesaving drugs imports, transport and services etc. The fact that Ricardo Hausmann is a former minister of planning of Venezuela and former ChiefEconomist of the Inter-American Development Bank, whereas Miguel Angel Santos is a senior research fellow at Harvard’sCenter for International Development explains why the article has been subject to intense focus and discussions.
The economic regime is a run down mess
According to Banco Central de Venezuela real GDP growth was running around 1% YoY in Q4 2013 while inflation has risen sharply since early 2013; from around 20% to more than 63%. In this environment of runaway inflation, price controls are common with some prices remaining fixed for several years and with gasoline being the most extreme example, being fixed for 18 years. Needless to say, a 18 years price fix on gasoline is fiscally costly and has discouraged any attempt onfuel efficiency. Anecdotally, when Global Evolution was on a trip to Venezuela in October 2013,(driving a V8 four-wheel drive SUV) filled up the fuel tank for USD 1.
The bright spots in the economy
The oil export, the current account balance together with a fairly low public debt stock and a benign foreign debt to GDP ratio are the bright spots of Venezuela’s economy. Whereas the economy and the Venezuelan society may well implode if allowed to deteriorate further over the next decade, Global Evolution has no doubt that the sovereign has the capacity to service its external debt in the coming 2-5 years.
Maduro would do Venezuela a disservice by turning his back on international investors
What the article from Hausmann and Santos questions is the willingness to pay and in this respect Venezuela has a very good track record. Of course, things may look different under President Maduro, but with oil production running at 2.5mn barrels per day and proven reserves that holds the potential to raise production to at least 4mn barrels per day (6mn in a best-case scenario) if investments are made, Maduro would logically have little incentive to turn his back on the international capital market since international investors – be it foreign direct investors or portfolio investors – would be the ones to fund PDVSA’s production expansion and the subsequent increase in hard currency earnings. Currently, at face value, Venezuela’s oil exports generate annual hard currency earnings close to USD 100bn. However, when discounted for export financing to Petrocaribe (see below) and earnings used for the repayment of the debt to China, Venezuela’s crude export generates a still sizeable USD 70bn per year.
Low hanging fruits
Given the relative benign debt servicing cost on Venezuela’s sovereign debt in hard currency and the international debt of state owned oil company PDVSA (on average a total around USD 12.5bn per year over the next 10 years), a debt default would not free up much money in a broader perspective. Instead of running the risk of being excluded from international capital markets for years, the government could pick up low hanging fruits such as the heavily subsidized Petrocaribe solidarity program in which Venezuela basically finance the purchase of crude oil for 17 Caribbean countries. If Venezuela sold oil to these countries at market prices this would easily pay for the bond maturities of both Venezuelan sovereign bonds, the bonds issued by state owned oil company PDVSA and US based PDVSA owned refinery and retail gas station chain, CITGO.
Conclusion
Venezuela is one of the few net international creditors in the World with a current account surplus, high per capita income and low levels of external debt relative to peers, so from that perspective it does not immediately appear a high risk credit. Global Evolution does not view Venezuela as a likely default candidate in the near future and expects it to continue to service its debt. Should President Maduro choose to default on Venezuela’s sovereign debt it would be purely a populist ideological decision that would do little to help the Venezuelan people or economy in the medium to longer term perspective.
Venezuela is now yielding significantly above Ecuador that chose to default on part of its sovereign debt as recently as in 2009 and above Ukraine, a country at war, in severe economic contraction and with a much less sustainable debt situation. Global Evolution is aware of the challenges facing Venezuela and remains cautious on several fronts, but all things considered, current market levels appear attractive given the risks involved.
Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Strategies in the Americas Region.
Photo: Cornelius James . New York Private Bank & Trust Launches Specialty Finance Company for the Film & Television Industry
New York Private Bank & Trust and Aperture Media Partners, LLC have formed a specialty finance company providing comprehensive financing solutions to the filmed entertainment industry. The new company will operate under the name Aperture Media Partners and is structured to create a one-stop shop for producers and distributors seeking financing for film and television projects.
Aperture offers a full spectrum of standard and customized senior and mezzanine credit products including: bridge loans, finishing funds, gap loans, library advances, print and advertising (P&A) loans, production loans, sales agent advances, tax credit monetization, and ultimates financing. The company structures, lends, and syndicates loans through a network of banks, hedge funds, private equity and family offices.
Aperture is managed by Chief Executive Officer and Co-founder, Jared Underwood, and Chief Operating Officer and Co-founder, Andrew Robinson, two leading bankers in film and television finance. The two have over 30 years of combined lending experience and have financed over $10 billion in transactions to nearly every leading independent film company and producer in the industry.
John Hart, Vice Chairman of New York Private Bank & Trust and Head of its Private Banking division, welcomed the Aperture team, stating: “Aperture fits well within NYPB&T given its combination of thorough underwriting and high level of product customization.”
“Jared Underwood and Andrew Robinson already have an industry leading reputation for creative and client-centric thinking,” Mr. Hart continued. “NYPB&T will provide them with exciting new tools to fulfill their vision and further grow their thriving business.”
“We are delighted to have New York Private Bank & Trust‘s support and look forward to becoming an industry leader through our affiliation with the bank,” Mr. Underwood said. “With the backing of NYPB&T, Aperture Media Partners becomes a one-stop shop, efficiently providing senior and mezzanine capital to the film and television industry. We will be well positioned to leverage our talents and industry insights to capitalize on a number of existing and future opportunities.”
Fifty-one jurisdictions, many represented at Ministerial level, translated their commitments into action during a massive signing of a Multilateral Competent Authority Agreement that will activate automatic exchange of information, based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Early adopters who signed the agreement have pledged to work towards launching their first information exchanges by September 2017. Others are expected to follow in 2018.
The new Standard for Automatic Exchange of Financial Account Information in Tax Matters was recently presented by the OECD to the G20 Finance Ministers during a meeting in Cairns last September. It provides for exchange of all financial information on an annual basis, automatically. Most jurisdictions have committed to implementing this Standard on a reciprocal basis with all interested jurisdiction.
The Global Forum will establish a peer review process to ensure effective implementation of automatic exchange. Governments also agreed to raise the bar on the standard of exchange of information upon request, by including a requirement that beneficial ownership of all legal entities be available to tax authorities and exchanged with treaty partners.
The Global Forum invited developing countries to join the move towards automatic exchange of information, and a series of pilot projects will offer technical assistance to facilitate the move. Ministers and other representatives of African countries agreed to launch a new “African Initiative” to increase awareness of the merits of transparency in Africa. The project will be led by African members of the Global Forum and the Chair, in collaboration with the African Tax Administration Forum, the OECD, the World Bank Group, the Centre de Rencontres et d’Etudes des Dirigeants des Administrations Fiscales (CREDAF).
“We are making concrete progress toward the G20 objective of winning the fight against tax evasion,” OECD Secretary-General Angel Gurria said after the signing ceremony. “The fact that so many jurisdictions have agreed today to automatically exchange financial account information shows the significant change that can occur when the international community works together in a focused and ambitious manner. The world is quickly becoming a smaller place for tax cheats, and we are determined to ensure that developing countries also reap the benefits of greater financial sector transparency.”.
The Global Forum is the world’s largest network for international cooperation in the field of taxation and financial information exchange, gathering together 123 countries and jurisdictions on an equal footing. Peru and Croatia joined the Forum at the Berlin meeting.
