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Investors Continue to Rely on Alternative Assets for Their Long-Term Strategies

pawns-3467512_1920 — Pixabay CC0 Public Domain. El 66% de los gestores europeos de gran capitalización superaron a su índice de referencia

COVID-19 is having a sizeable impact on the business operations of both fund managers and investors, according to Preqin’s latest release, disruption caused by travel restrictions and social distancing will lead to dampened activity through the remainder of 2020, and possibly into 2021. However, they believe that alternatives funds proved to be resilient in previous cycles, and in the longer term, investors seem set to increase their allocations as a result of the pandemic, accelerating future AUM growth.

“A dispassionate analysis based on previous financial crises would suggest that we will see three major outcomes for alternative assets,” said Preqin CEO, Mark O’Hare. “A significant short-term slowdown in activity; a medium-term resumption of the established growth trend; and a long-term outperformance of those funds which were able to capitalize on advantages being presented now. We are already seeing this start to be borne out, with activity in 2020 down from previous years and operators telling us they expect this to characterize the year ahead. Overall, it’s unlikely that COVID-19 will fundamentally alter investors’ attitudes to alternatives, but it may well accelerate some long-term trends and moderate others.”

The alternatives industry is not a single entity, and within each asset class the pandemic is likely to be felt to different degrees and in different ways. Preqin has been surveying and interviewing fund managers and investors across the industry, looking at 2020’s activity so far, and drawing comparisons with previous financial cycles. For this edition, the firm notes:

Private Equity: Accelerating Digital Transformation. Private equity firms have almost $1.5tn in dry powder to deploy into deal opportunities, so they are well-placed to take advantage of opportunities presented by a downturn. However, in the short-term the reality of social distancing will hamper deal closing. Retail, leisure and hospitality assets are set to be hit hard, although supermarket retail specifically will benefit. Digital technologies will benefit, particularly in non-cyclical sectors like healthtech and remote working – accelerating interest in already-growing areas.
Private Debt: The Difficult Second Album. The 2008 Global Financial Crisis was the making of the modern private debt industry, putting the spotlight on distressed debt funds and spawning the direct lending sector. 2020 will see if the asset class can repeat that feat – interest in distressed debt has spiked in Q1, and more than a third of investors are now targeting the strategy. Direct lending, meanwhile, is untested in the face of a crisis, and COVID-19 may put a stumbling block in the path of the sector’s expansion.
Real Estate: Logistical Opportunity. Rental income from businesses and private housing has seen a sharp drop since the start of March, impacting the short-term cash flow of real estate fund managers. Deal activity is likely to be particularly depressed through the rest of 2020, given the practical challenges in evaluating properties. In the longer term, COVID-19 will exacerbate the challenges already faced in the retail sector, and may deflate the market for city-center offices. Demand for logistics assets, though, is likely to spike – last-mile delivery has emerged as a particular opportunity for expansion.
Real Assets: Do Not Pass Go. Toll-based assets and travel-related assets have been hit hard by travel restrictions, with the impact increasing the longer that restrictions are in place. Government-backed bailouts in the travel and shipping sectors are currently aimed at operators rather than asset-owners, so recompense is uncertain. Conversely, social and digital infrastructure have significant growth opportunities as demand for healthcare infrastructure and broadband networks rises. Oil price volatility continues to disrupt the natural resources industry, and more than a quarter of investors are avoiding conventional energy investments in 2020 as a result.
Hedge Funds: Time to Shine. Losses in Q1 2020 wiped out gains made by hedge funds in 2019. But the asset class did act to protect investors from worse downturns in equity markets, showing their value as a defensive strategy. This may reverse recent negative sentiment from investors as the downturn extends. However, it will also likely lead to a flight to safety, benefiting large managers and prompting more consolidation in the sector. New launches will fall as new managers are deterred from raising vehicles to seek investment. Strategy-wise, equities funds are more likely to see outflows, while macro and multi-strategy funds could benefit on the basis of their defensive credentials.

Howard S Marks Believes That a Good Investor is Confident in His Views, And His Are All About Distressed Assets

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Annotation 2020-05-19 165726 — Foto cedidaHoward S Marks, director y co-presidente de Oaktree Capital Management.. Howard S Marks (Oaktree Capital Management): "Estamos ante un mercado respaldado artificialmente por las compras de la Fed”

In order to be a good investor you have to be confident in your views says Howard S Marks from Oaktree Capital Management.

In the 1980s, he became one of the first investors to specialize in beaten-down bonds. He is now trying to raise $15 billion for what would be the biggest-ever fund to invest in distressed debt. He is also raising a separate $3.5 billion fund designated for underwater real estate assets.

During the 73rd annual CFA Institute conference, he also mentioned that in this environment, where returns will be lower for longer, the secret to prevailing is to produce better returns than your peers. “The market is what it is, rates, and the return environment is what it is, so superior investors control their emotions to deviate from the herd and outperform.”

The billionaire contrarian investor reminded the viewers that “in order to combat the virus we put the economy into a deep freeze… Investors are not experts on the virus, we are just taking ideas from experts which you have to pick according to your bias, but all are cautious to varying degrees.”

Although he agrees with Mr Powell in that extreme and unprecedented actions are called for, he is also aware that stocks and bonds are selling at prices they wouldn’t sell at if the Fed were not the dominant force.

More than once he has quoted that “capitalism without bankruptcy is like Catholicism without hell” and he believes that today’s, is a market which is artificially supported by Fed buying, so he expects plenty of debt defaults and bankruptcies when corporate borrowers start running out of cash in the months ahead.

Marks is not alone, according to Preqin, as of mid-May , distressed real estate funds have already accumulated nearly $10 billion worth of dry powder, waiting to invest once the Fed inevitably steps back.

Tikehau Capital Appoints Raphael Thuin as Head of Capital Markets Strategies

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Tikehau Capital, an alternative asset management and investment group, appointed Raphael Thuin as Head of its Capital Markets Strategies offering, as of 11 May 2020.

Thomas Friedberger, CEO and Co-Chief Investment Officer of Tikehau Investment Management, said: “We are delighted to welcome Raphael Thuin to our team. His experience and deep understanding of equity and fixed income markets perfectly complement our long-term fundamental management approach. We look forward to him making a significant contribution to further development of our Capital Markets Strategies business”.

Raphael will oversee the management of Tikehau Capital’s bond, equity and flexible investment strategies. This range of funds provides access to long-term conviction-based management of investment grade and high-yield corporate bonds, financial bonds and equities of all capitalisations with investment capacity across Asia, Europe and North America. Assets under management of Tikehau Capital’s Capital Markets Strategies activity amounted to EUR 3.8 billion at 31 December 2019.

A graduate of the HEC School of Management, Raphael Thuin began his career in 2005 as a portfolio manager for Topaz Fund in New York. In 2008, he joined the capital markets business of Société Générale, also in New York. Since 2014, he was Head of Fixed Income Management at TOBAM in Paris.

Artcels Launches in LA with Works from Banksy, George Condo, Kaws and Jeff Koons

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artcles — . Artcles presenta una exposición virtual que reúne a artistas como Banksy, George Condo, Kaws y Jeff Kooms

A R T C E L S makes its highly anticipated Los Angeles launch presenting the world’s first asset-based tokenised contemporary art exhibition with works from Banksy, George Condo, Kaws and Jeff Koons. The 3D images will be available until May 18th at this link.

A R T C E L S is the brainchild of commodities trader, Gijs de Viet and London-based contemporary art gallerist, Elio D’Anna of the House of Fine Art (HOFA), who designed it to open the lucrative world of blue-chip art investments to a wider and younger international market. The pioneering contemporary art exhibition will offer investors equity in the form of digital tokens backed by shares in the artworks as registered assets of a London UK based Limited company.

Citing the Economist, Gijs de Viet explains that “Fine Art has been the single best performing asset class over the last 100 years, so it’s about time this opportunity be opened up to a much wider group of investors.” He adds, “A R T C E L S’ mission, is to provide a new alternative to traditional ways of investing in art whilst building a bold and diverse portfolio of Contemporary Art with a focus on rare editions and works on paper to attract younger, web-savvy investors with an offer on high-end assets and high value shares.

A R T C E L S parcels blue-chip contemporary art into shares worth a minimum of £390 ($500) determined through proven quantitative strategies for art asset acquisitions and made available exclusively to subscribers. Art connoisseurs and enthusiasts will get a chance to view A R T C E L S’ two week “XXI” exhibition, taking place at HOFA Los Angeles’ virtual gallery, where artworks by Banksy, KAWS, Damien Hirst, George Condo, Jeff Koons and other blue-chip artists will be on display. “Prospective investors will have the opportunity to choose between sole acquisitions or investments in wider, diversified art portfolios which offer fractional ownership and reduced risk. Whatever their choice, they can be assured they are investing in carefully sourced art, where their values are projected to appreciate based on expert analysis of market trends.” They conclude.

Financial Flexibility and Rigorous Capital Allocation Procedures, the Ingredients for Financial Success

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Annotation 2020-05-05 174141 — Warren Buffett 2020 . wb

At the livestreamed Berkshire Hathaway annual shareholders meeting in Omaha on Saturday May 2, Chairman Buffett offered his frank and erudite views on the unprecedented human and economic challenges of the pandemic crisis. In his characteristic plain spoken style he gave these thoughts: “I’m convinced nothing can stop America”… “We haven’t faced this particular problem in the past” …”We’ve faced tougher problems and the American miracle, the American magic, has always prevailed”… “This is quite an experiment”…”We don’t know what happens when you voluntarily shut down a portion of your economy”…”I’m learning about this the same way that you are…There’s an extraordinarily wide range of possibilities on the health and economy sides and nobody really knows.” He also stressed why dry powder (lots of cash) and unused corporate debt capacity are important since the unexpected is to be expected. On the topic of potential M&A with Berkshire’s current record over $130 billion in cash, he said: “We’re willing to do something very big.” Possibly in the $30-50 billion transaction range as mentioned in the financial press. Stay tuned.

U.S. stocks looked through COVID-19 and economic driven gloom during April as unprecedented central bank easing and government fiscal policy stimulus spurred the best monthly gain since January 1987 and the best April return since 1938. Widespread fragile world economic conditions, a continuation of dour earnings, rising bankruptcies, and a potential second wave of virus contagion are likely to provide some sizeable potholes for the financial markets for a while.

We are focusing our stock research efforts on the long term beneficiaries of the digital revolution – speed, pipes, content, direct to consumer, telemedicine, remote health care, AI, automated vehicles, and warehouse logistics dynamics. Financial flexibility and rigorous capital allocation procedures are the long term ingredients for financial success for both companies and investors. This is the core strength of of the Gabelli Private Market Value (PMV) with a Catalyst™ stock selection process and its goal to find stocks selling below intrinsic value.

Column by Gabelli Funds, written by Michael Gabelli

__________________________________

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GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

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Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

Kirstie Spence (Capital Group): “Several Factors Have Combined to Create a Perfect Storm in EM Debt Markets”

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Capital entrevista — Kirstie Spence, courtesy photo. Kirstie Spence (Capital Group): “Se ha creado una tormenta perfecta en los mercados de deuda emergentes”

Emerging countries are also facing a health crisis due to COVID-19 with serious financial and economic consequences. In this context, debt in US dollars has fallen 13% and debt in local currency of emerging markets has decreased by 15% in terms of US dollars, so far this year. Kirstie Spence, portfolio manager at Capital Group, analyzes the emerging debt market in this interview.

How has emerging market debt fared in these volatile markets?

Emerging market (EM) countries are facing a health crisis, with severe global financial and economic implications. I’ve been through many crises in my career and this one is truly extraordinary. US dollar debt is down year-to-date as EM local currency debt is in US dollar terms, most the falls reflects weakness in EM exchange rates versus the US dollar.

Within US dollar debt, it is generally the higher yielding portion that has disproportionately weakened, while declines in EM investment grade bonds are much more in line with movements in US corporate investment grade bonds. Results have also been mixed in local currency debt, but actually some of the frontier markets have been more stable, which is probably due to a lack of liquidity and being under-owned. Meanwhile, many core markets – for example, South Africa – have underperformed. That might be due to large foreign ownership of the bonds, but also because of specific issues related to those markets.

How has liquidity been in EM debt markets?

Several factors have combined to create a perfect storm in EM debt markets. The virus spread created fear and resulted in a correlated sell-off, which was then followed by an oil-price shock which always tends to impact EM as a commodity related asset class.. At the same time, passive exchange-traded funds (ETFs) were being unwound in very large amounts; there was demand for US Treasuries and dollars that couldn’t be met, all while banks and intermediaries were impacted by the practicalities of working from home, including that of the role of intermediation, which was impeded by regulations against risk-taking activities outside of an authorised environment.

We have seen extraordinary measures taken by various central banks, which have helped ease the situation. Mortgage and Treasury markets are functioning better, and US investment grade credit issuance in March was the highest on record as companies seek to lock in liquidity. Because of the domestic buyer base and support from central and local banks, trading liquidity in EM local markets has also improved. Liquidity is choppy, but there is very little actually trading outside of local markets, although it feels like it is normalising. This week, more EM countries have moved into lockdown (South Africa, India, Argentina and some parts of Mexico), which has also created liquidity challenges, although we are starting to see these ease. Capital Group has been able to trade in this difficult time, thanks to our traders’ good relationships and persistence. However very few of the prices we see on the screens, especially the lower ones, we are able to execute at.

How important is China in the recovery of emerging markets?

China’s role in a global economic recovery is key, especially for EM. China’s recovery will likely be slow, because supply chains are blocked and the US and Europe are effectively shut down. However, we saw PMI numbers this week, which were more positive than expected, demonstrating some early recovery.

China has a lot of firepower in terms of additional policy stimulus, and strong political will to use it; the country needs economic growth for political stability.

China could also get involved in lending to countries; this would be more of a mediator role, if certain EM countries face refinancing difficulties further down the line.

What is your outlook for the asset class?

Clearly the global economic backdrop for EM, in fact for the whole world, is dramatically different to what it was even a month or two ago. Our base case going into 2020 was one of relatively benign interest rates and global growth, which would have been supportive for EM debt. We now expect a large contraction in global growth in the second and potentially third quarters of the year. I don’t expect a V shaped recovery because of the nature of the pandemic and the length of the economic shutdown. The oil price has fallen dramatically, as have other commodities, which is broadly negative for EM.

A worst-case scenario could be one where very large EM stimulus measures, such as those seen in DMs, cannot be refinanced due to a prolonged recession and we face a debt restructuring, say, 12 months down the road.

However, the probability of that is very low because we have also had a huge and unprecedented level of stimulus both through monetary policy to support financial markets and fiscal policy to support the broader economies. That has come both from individual EM countries at the domestic level as well as internationally.

As long as the authorities stay ahead of the curve in terms of liquidity provision and a fiscal response to try and support growth, then I think that would be a relatively supportive backdrop for EM debt. I also think investors will continue to look for higher yielding assets with traditional portfolios of investment grade assets offering low yields, which will support EM debt issuance. It is very difficult to time the bottom of the market, but we are incrementally repositioning portfolios, rotating positions without making big portfolio shifts, expecting these to bear fruit over a time horizon of 12-18 months.

The Netherlands, Sweden, and the UK: The Most Investor-Friendly Markets in Terms of Regulation and Taxation

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amsterdam-1682963_1280 — Pixabay CC0 Public Domain. Países Bajos, Suecia y el Reino Unido, los mercados más favorables para los inversores en términos de regulación e impuestos

The main conclusion of Morningstar’s Global Study of Regulation and Taxation in the Fund Industry, is clear: Regulation is adequate, but not always proactive. The Netherlands, Sweden, and the United Kingdom earned Top grades, while Australia, Canada, China, Japan, New Zealand, and the United States received Below Average grades.

The second chapter of Mornigstar’s biannual Global Investor Experience (GIE) report, now in its sixth edition, assesses the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa. The “Regulation and Taxation” chapter evaluates the regulatory and tax frameworks that mutual fund investors face, assigning grades of Top, Above Average, Average, Below Average, and Bottom to each market.

Morningstar gave Top grades to the Netherlands, Sweden, and the U.K., denoting these as the most investor-friendly markets in terms of regulation and taxation. Conversely, Morningstar assigned Below Average grades to Australia, Canada, China, Japan, New Zealand, and the U.S., as fund markets where the regulatory and tax schemes need to improve. Morningstar did not assign a Bottom grade to any market, as every market in the study provides basic protections for investors.

“When it comes to regulation and taxation in the fund industry, we are looking for policy that ultimately empowers investor success, like tax incentives that encourage individual investment and effective regulation of funds that promotes transparency and limits misleading statements and conflicts of interest,” said Aron Szapiro, head of policy research at Morningstar and a co-author of the study. “We found that regulators in the U.S. and Canada are generally running efficient systems. However, the pace of reform there hasn’t kept up with the rest of the world, explaining why the U.S. and Canada continued to receive a Below Average grade for regulation and taxation in our study.”

“Since our last report in 2017, the trend towards strong regulation that protects mutual fund investors has remained intact. We’re seeing more markets take steps to motivate citizens of all backgrounds to invest for their futures through special tax incentives or regulations that encourage lower fees, like mandatory disclosures,” said Andy Pettit, Morningstar’s director of policy research, EMEA, and co-author of the study.

Highlights include:

The Netherlands, Sweden, and the U.K. earned top grades in part because they provide strong incentives for ordinary people to invest, although none of the countries offer the overall best tax systems for ordinary investors. The U.K. continued the expansion of its auto-enrollment program and together with the Netherlands stood out for banning embedded commissions on most sales, and Sweden stood out for having strong governance and being a frontrunner in ESG disclosures.
Every European country covered by the MiFID II regulations earned at least an average grade as the regulation spurred needed reforms in areas like soft dollar commissions and increased transparency.
Australia, Canada, New Zealand, and the United States lagged other markets, as they have in previous studies. These countries have adequate regulation around mutual fund operations and distribution, meeting basic standards, and the experience for investors can be quite good. Despite that, they fall short of the standard set by other markets that govern conflicts of interest and incentivize investing. In addition, Australia, Canada, and the U.S. all lag on tax policy compared with other markets in the study, creating distortions and disincentives to invest.
Japan fell to Below Average despite making some positive strides. Japan fell to Below Average from Average mainly due to Morningstar’s revised methodology putting more emphasis on mutual fund operations and distribution policies, an area where other markets have taken major steps to shore up their regulations in recent years. Japan doesn’t mandate disclosure of third-party research costs or distribution costs paid out of fund assets, and there is no requirement to disclose advisors’ or distributors’ conflicts of interests.
China falls short in encouraging people to save for retirement and opening fund markets to promote greater choice. China only has a state-managed pension scheme and no other mandated supplementary defined contribution system. Additionally, the regulation of third-party research cost disclosure and soft dollars is weak. Although China has made efforts to further open up its capital market, fund choices are mostly limited to locally domiciled funds.
ETFs’ continued growth has given investors more choice in most markets, though distributors still have more incentive to offer open-end funds in some markets. In addition, the tax treatment of ETFs can vary. For example, in the U.S., the choice is distorted by differing tax treatments that are advantageous to ETFs, while, in New Zealand, ETFs are tax-disadvantageous for lower earners.
While funds in many markets continue to levy distribution fees through a fund’s expense ratio, there have been some positive steps to reduce this practice. For instance, commissions have been banned in Australia, the Netherlands, and the U.K. In Hong Kong, intermediaries that receive monetary or nonmonetary benefits from fund issuers can no longer refer to themselves as independent.
Of the 26 markets, only Singapore and Hong Kong do not tax fund investors at all. Many markets exempt fund investors from capital gains while they hold a fund but tax at least some of the fund’s income. The U.S. and Australia are notable exceptions where taxes are due on capital gains incurred by the fund, regardless of whether an investor has sold the fund or not.

Christian McCormick: “China A-Shares Offer Investment Portfolio Diversification and Potential Alpha”

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Allianz GI — Christian McCormick, Senior Product Specialist de Allianz China A-Shares Strategy. Christian McCormick: “Las acciones A de China ofrecen a la cartera de los inversiones diversificación y alfa”

According to Christian McCormick, Senior Product Specialist on the Allianz China A-Shares Strategy, so far this year, China's onshore equity markets are outperforming the China’s offshore equity markets, some developed markets and most emerging markets. In this interview, McCormick answers the key questions about what to expect from the China A-Shares market.

Q. In your point of view, are Chinese regulators in a better position to respond to the challenges of the current environment compared to other developed economies?

A. China’s current fiscal and monetary response has been significantly smaller in scope (about 3% of its GDP) than its response to the 2008 financial crisis (about 13% of its GDP) and the US’ current response (about 25% of its 2019 GDP). China’s economy remains in a better position today than it was during the financial crisis, with greater economic prospects, access to capital markets and a lower budget deficit forecast than developed nations. Chinese policymakers have also shown more restraint in responding to the pandemic. We estimate China would need stimulus of about 4.5% of its GDP to offset the economic damage from the pandemic, leaving potential stimulus on the table should the global economic fallout prove to be more dramatic than anticipated, or should the country have to mitigate a second wave of local infections.

Q. What has burdened the performance of Chinese equities compared to other regions such as the United States or other emerging countries?

A. We believe this disconnect has been driven by the historically ever-changing structure and youth of the domestic equity market. In addition, locally listed A-shares have a smaller foreign investor base than other equity markets and are underrepresented in global indices. Foreign institutional investors were first permitted to own onshore Chinese stocks in 2001, but access to local Chinese equities has expanded more recently.

Q. What relevant steps have been taken recently for foreign investors to have access to the China A-Shares?

A. In 2018, MSCI added China A-shares to its Emerging Market Index and will gradually increase its weighting to eventually represent its true global market cap weighting of approximately 8%. We think this increased representation will help drive higher investor demand globally for China A-shares, potentially narrowing the disconnect between A-share market performance and the country’s economic growth potential.

Q. From a beta perspective, what can favour the growth of China A-Shares?

A. Secular growth areas like consumer discretionary, technology and health care are far better represented in the China A-share market than in offshore Chinese listings, creating an attractive opportunity set for investors. Additionally, there is a high degree of private sector participation in these secular growth areas rather than state-owned enterprises. In this way, two relevant aspects are: government continues to work to Internal transform its economy from an emerging to a developed one and also it works to make public companies more competitive with respect to their foreign counterparts.

Q. What role can China A-stocks play in an investor's portfolio?

A. We believe China A-shares offer substantial potential to generate alpha while also providing attractive diversification. The onshore China A-share market is dominated by small- and mid-cap companies (85% of the market), whereas the offshore H-share market is dominated by large-cap companies (53% of the market). In our view, this broader opportunity set of small- and mid-size companies creates a greater potential for outperformance than offshore H-shares. From both a price/earnings and price/book perspective, China A-shares are currently trading well below their historical 10-year averages, and they trade at attractive valuations relative to developed markets and other emerging markets.

Q. How does ESG analysis factor into evaluating China A-share opportunities?

A. We find ESG analysis extremely valuable when assessing company opportunities in the China A-share market. In addition to analyzing a host of environmental and social factors, we emphasize governance factors as the market as a whole is still ramping up to the level of sophistication of other developed markets. We seek to understand corporate board and management structures, executive incentives, the relationship a company has with its local and central governments and the alignment of interests between management and its various stakeholders, including its workforce and shareholders

BlackRock Launches its First Impact Mutual Fund Advancing the United Nations Sustainable Development Goals

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dart-103020_1280 — Pixabay CC0 Public Domain. BlackRock lanza su primer fondo de inversión de impacto que contempla los Objetivos de Desarrollo Sostenible de Naciones Unidas

BlackRock announces the launch of a high-conviction active equity impact strategy with its BlackRock Global Impact Fund. The new Fund gives investors the opportunity to direct their investments toward companies helping to address major world challenges. The addition of the impact strategy forms part of BlackRock’s continued efforts to expand its sustainable investment platform as it delivers against its commitment to make sustainability its standard for investing.

The Fund’s impact is achieved by investing in companies which contribute to the advancement of the United Nations Sustainable Development Goals (SDGs) and targets. The portfolio is comprised of companies that map back to the firm’s proprietary impact themes including increasing access to quality education and affordable housing, advancing healthcare innovation to help with societal challenges such as the current COVID-19 pandemic, expanding financial and digital inclusion, preventing climate change, reversing environmental degradation, and increasing efficiencies in water usage and deployment.

The Fund is managed through BlackRock’s Active Equities Impact Investing team which recently formed under the leadership of Eric Rice, who joined the firm in October 2019. Eric will draw upon his 30 years of industry experience, most recently exclusively developing and managing impact strategies, and including his prior experience working for the World Bank as a development economist and as a U.S. diplomat in Rwanda.

Rachel Lord, Head of Europe, Middle East and Africa for BlackRock commented, “Eric joined BlackRock with a strong track record in developing alpha-seeking impact strategies and his expertise will lead our impact investing efforts during this challenging time and beyond. While launching the Global Impact Fund during a global pandemic is coincidental, it does highlight that the opportunity inherent in investing in companies committed to doing good is enduring, and is of increasing relevance to the world today.”

Alongside the impact goals, the Fund seeks to maximise long-term total return and to outperform the MSCI All Country World Index (ACWI). To achieve the Fund’s objectives, the team has set stringent impact criteria for the portfolio companies including:

materiality – whereby a majority of revenues or business activity advances one or more of the SDGs or targets;
additionality – defined as delivering a new technology or innovation to market, serving an underserved population, or operating in an unaddressed market; and
measurability – in that the impact must be quantifiable.

“Impact investing is becoming more and more attractive as investors increasingly require their investment targets to advance their sustainability objectives,” said Eric Rice, Portfolio Manager of the BlackRock Global Impact Fund and Head of Active Equities Impact Investing at BlackRock. “Launching the Fund during the COVID-19 pandemic has further highlighted the important role companies play in society. COVID-19 is one of the greatest societal challenges the world faces right now, and we see impact investing playing a meaningful role in how we overcome it. Capital from the Fund will be put toward the search for alpha by investing in companies focused on medical diagnostic tools and vaccines to combat the crisis, as well as crisis mass notification systems and microloans, amongst others.”

The team intends to run a low-turnover, long-term buy and hold concentrated portfolio strategy and use active dialogue and partnership with companies to drive improvement towards impact outcomes, alongside long-term value creation. The Fund is USD-denominated and available for investors located across Europe.

Impact investments are designed to generate positive, measurable impact alongside a financial return. The Fund uses the World Bank’s IFC Operating Principles to ensure impact considerations are integrated throughout the investment lifecycle. Reporting plays an integral role of the investment offering where clients will receive regular updates and reports on the positive environmental or social impact that Fund companies are achieving.

BlackRock’s active equities impact offering will sit alongside existing impact strategies in the fixed income and alternatives business areas. The Active Equities group manages USD $316bn * of assets on behalf of its clients and has managed Environmental, Social and Governance (ESG) investment strategies for over four years.

The Fund forms a part of BlackRock’s Sustainable Investing platform which manages USD $107bn* in dedicated sustainable strategies, comprising of ESG outcome oriented, sustainable thematic and impact funds. Sustainable investment options may have the potential to offer clients better outcomes and is integral to the way BlackRock manages risk, constructs portfolios, designs products and engages with companies.

Morningstar to Acquire Sustainalytics

| For Beatriz Zúñiga | 0 Comentarios

hands-3127297_1280 — Pixabay CC0 Public Domain. Morningstar se hace con el 100% de Sustainalytics

Morningstar has reached an agreement to acquire Sustainalytics, a globally recognized leader in environmental, social, and governance (ESG) ratings and research. Morningstar currently owns an approximate 40% ownership stake in the firm, first acquired in 2017, and will purchase the remaining approximate 60% of Sustainalytics shares upon closing of the transaction.

The transaction consideration includes a cash payment at closing of approximately EUR 55 million (subject to certain potential adjustments) and additional cash payments in 2021 and 2022 based on a multiple of Sustainalytics’ 2020 and 2021 fiscal year revenues. Based on the upfront consideration, Morningstar estimates the enterprise value of Sustainalytics to be EUR 170 million. The closing of the transaction is subject to customary closing conditions and is expected to occur early in the third quarter of 2020.

“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing,” said Morningstar Chief Executive Officer Kunal Kapoor. “By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”

For more than 25 years, Sustainalytics has been ahead of the curve, recognizing the need to provide ESG solutions to investors, banks, and companies worldwide. The firm is widely known for its security-level ESG Risk Ratings – which are integrated into institutional investment processes and underpin numerous indexes and sustainable investment products – as well as serving an ever-increasing number of use cases across the emerging sustainable finance landscape. Sustainalytics offers data on 40,000 companies worldwide and ratings on 20,000 companies and on 172 countries.

Since 2016, Morningstar and Sustainalytics have teamed up to supply investors around the world with new analytics, including: the industry’s first sustainability rating for funds, rooted in Sustainalytics’ company-level ESG ratings; a global sustainability index family; and a large span of sustainable portfolio analytics that includes carbon metrics and controversial product involvement data. With this acquisition, Morningstar plans to continue to invest in Sustainalytics’ existing business while also further integrating ESG data and insights across Morningstar’s existing research and solutions for all segments, including individual investors, advisors, private equity firms, asset managers and owners, plan sponsors, and credit issuers.

“Sustainalytics welcomes the opportunity to join the Morningstar family. Our collaboration over the past several years has helped to extend the understanding and use of ESG insights and strategies to a multitude of investors, advisors, asset owners and managers across the globe,” said Sustainalytics Chief Executive Officer Michael Jantzi. “This new ownership structure will amplify our ability to bring meaningful ESG insights, products, and services to the global investment community and to companies around the world. Importantly, I am thrilled that my colleagues and I are joining a firm with a belief in our mission and intent to help us further expand our reach.”

Dutch-domiciled Sustainalytics has a global business that includes more than 650 employees worldwide spanning 16 locations, and all are planned to join the Morningstar family under the existing Sustainalytics leadership team. Morningstar intends to fund the transaction with a mix of cash and debt. The transaction is expected to have minimal dilution to net income per share post-closing, excluding any impacts of purchase accounting and deal-related expenses, as the company expects to incur costs to integrate certain capabilities and fund growth opportunities.