CC-BY-SA-2.0, Flickr. Pioneer Investments Could Become French
UniCredit and Amundi have entered into exclusive negotiations in relation to the possible sale of the Pioneer Investments business to Amundi. In a brief joint press release, they confirmed the negotiations are ongoing without disclosing price or further details.
The french asset management group confirmed its interest in acquiring Pioneer Investments last October saying the acquisition was consistent with the growth strategy, and that if it was to be closed it would have to offer a return on investment greater than 10% over a three-year horizon. However they denied a €4bn valuation for Pioneer Investments.
Other groups that were interested in acquiring Pioneer include British Aberdeen Asset Management which decided a €3.5bn valuation was too expensive, Australian Macquarie and Spanish Banco Santander which decided last July not to merge its Asset Management Business with Pioneer.
Pioneer had over 225 billion euros in Assets Under Management as of end of September.
Pixabay CC0 Public DomainPhoto: Unsplash. Monaco Passes Law on Multi-Family Offices
The National Council of Monaco – the Monegasque Parliament – has passed a law on 29 November 2016, aiming to regulate the activity of multi-family offices in the Principality.
Amendments to the draft law put forward by the Monegasque government, allowing banks and asset managers to establish MFOs in the Principality and the ability given to MFOs to manage portfolios, were finally removed to avoid possible conflicts of interest.
Monegasque MFOs will be categorised in one of two ways: some will only focus on administration but will not be allowed to process financial transactions, while those in the second category will be able to transmit financial orders and provide financial advice to their clients.
The second type of MFOs will need both authorisation from Monegasque regulator the Commission de Contrôle des Activités Financières (CCAF) and the Monegasque government, as well as starting capital of €300,000.
Speaking to InvestmentEurope, Thierry Crovetto, the rapporteur of the law on MFOs and CEO/independent fund analyst at TC Stratégie Financière, says : “The law will spur foreign residents of Monaco to favour local MFOs rather than those of their countries of origin.
“It is estimated only 10% of the assets of Monaco’s foreign residents are currently deposited in banks established in the Principality. There is a huge potential to explore here. A few legal safeguards have been enshrined in the text. The remuneration will be that pertaining to clients only. In addition, banks and asset managers cannot be major shareholders of MFOs that will establish themselves in the Principality. We do not want to see asset managers selling their products through the setup of MFOs in Monaco,” Crovetto adds.
More to read about Monaco’s law on multi-family offices in the forthcoming December 2016/January 2017 issue of InvestmentEurope.
CC-BY-SA-2.0, FlickrPhoto: rachaelvoorhees
. AllianzGI to Acquire Sound Harbor Partners
Allianz Global Investors will acquire Sound Harbor Partners, a US private credit manager led by Michael Zupon and Dean Criares, for an undisclosed sum.
As a result of the acquisition, the Sound Harbor team will join AllianzGI. Sound Harbor is a New York-based private credit manager focused on alternative investments in corporate loans, direct lending, distressed debt and opportunistic credit. The firm manages these investments on behalf of its clients in private limited partnerships, collateralized loan obligations and separately managed accounts. Zupon is a former Partner at The Carlyle Group where he founded and led the leveraged finance business. Criares is a former Partner of The Blackstone Group where he founded and led the loan management business. The transaction is expected to close in the first quarter of 2017.
Andreas Utermann, CEO and Global CIO of AllianzGI, said: “Over the last five years, AllianzGI has invested steadily in the quality and breadth of its active investment offering. Within our fast-growing Alternatives segment, private debt stands out as a particularly exciting area, where we’ve clearly signalled our intent to expand our capabilities to address our clients’ evolving investment needs. The addition of the team from Sound Harbor is a significant step in that process, strengthening and complementing our existing capabilities in this important space.”
Deborah Zurkow, Head of Alternatives at AllianzGI, added: “We are very excited the Sound Harbor team are joining our expanding private debt platform. We continue to see strong demand from our clients for access to a diverse range of illiquid alternatives solutions. Sound Harbor’s expertise enhances AllianzGI’s existing global Alternatives capability, which includes infrastructure debt and a fast-growing corporate loans capability in Paris, underlining our desire to establish ourselves as one of the most prominent private debt managers globally.”
Commenting on behalf of Sound Harbor, Michael Zupon said: “Dean and I, along with the entire team, are looking forward to joining a leading and respected investment manager that shares Sound Harbor’s commitment to outstanding investment performance and dedication to its clients’ needs. Joining AllianzGI will enhance our ability to capitalize on trends favoring growth in alternative investment managers with scale, brand recognition and long-term capital.”
CC-BY-SA-2.0, FlickrFoto: M M . China: cautela en el futuro a corto plazo
Taiwanese and Korean insurance companies are currently the most active in overseas investments among insurers in Asia ex-Japan, but it is Chinese insurers that outsource the most assets. Cerulli Associates, a global research and consulting firm, estimates that Chinese insurers outsourced US$228.1 billion in life insurance assets in 2015, up by 38.6% over 2014 and nearly double the amount in 2011.
This is one of the key findings in Cerulli’s newly released Asian Insurance Industry 2016 report. Though most of these outsourced assets are invested domestically, more assets are expected to flow overseas as Chinese insurers see a growing need for better returns outside their domestic market to help meet their liabilities. China’s life insurers have seen their liabilities rise as they tried to compete with providers of popular wealth management products by offering policies with attractive return rates, such as universal life. Total insurance liabilities in the country stood at US$1.7 trillion in 2015, up by 44.5% from 2013.
Chinese insurers also face a growing concern over the potential impact of lower interest rates, with the People’s Bank of China‘s base rate for one-year loans now at 4.35% and its benchmark rate at 1.5%. With more than 21% of total insurance assets invested in deposits alone at end-2015, insurers derive an important portion of their investment income from the interest earnings of these investments. A fall in interest rates will inevitably have an impact on their investment income and will push insurers to deploy assets more efficiently by diversifying their sources of returns, including overseas.
This is something Cerulli has already seen happening. Looking at the Chinese insurance industry’s total investment portfolio, the proportion of assets in bank deposits declined from 27.1% in 2014 to 18.8% in June 2016. On the other hand, investments in the “others” category–which includes listed and unlisted long-term equity investments, bank wealth management products, trusts, private equity, venture capital, loans, and real estate–rose from 23.7% in 2014 to 34.2% in June 2016.
With the general lack of overseas investment experience and expertise among Chinese insurers, Cerulli expects many of them to work with foreign managers on offshore allocation. “There will particularly be opportunity among small and mid-sized players as they follow the lead of large insurers and rely on third parties. Unlike their larger counterparts, most of these players don’t have asset management subsidiaries in China or Hong Kong to help them with their investments,” says Manuelita Contreras, associate director at Cerulli, who led the report.
Supporting this outlook is the increasing number of insurers with regulatory approval to invest overseas. “Nine life and non-life companies received the green light to invest overseas in 2015 through the external manager route, up from only four in 2014. As of July 2016, 15 insurers have the approval to invest overseas through this route,” says Rui Ming Tay, analyst at Cerulli, who co-led the report.
“Through the Qualified Domestic Institutional Investor (QDII) scheme, some of the private insurers are expected to use their overseas investment quotas to outsource assets, potentially for global fixed-income and multi-asset strategies,” says Kangting Ye, analyst at Cerulli, who covers the Chinese insurance market. There were 40 approved QDII insurers as of June 2016.
CC-BY-SA-2.0, FlickrPhoto: Gage Skidmore. What Should Investors Make of a Trump Victory?
After a turbulent, historic election, Republican Donald Trump was elected to the US presidency and will take office in January. Republicans also swept the Senate and House of Representatives. What does it all mean for investors?
One of Trump’s biggest campaign issues was protecting US industry, which raises the potential for import tariffs. The president, whether a Democrat or a Republican, has enormous powers regarding the regulation of international trade, including the power to unilaterally impose tariffs and duties. Given that there was downward pricing pressure in the global economy prior to the election, the addition of tariffs or countervailing duties is probably a negative for S&P 500 companies since roughly 40% of their revenues are generated outside the United States. Lower revenues and profits should be expected if deglobalization becomes a centerpiece of the Trump agenda, and I think it will.
Trump has proposed very large tax cuts, and he is likely to have the support of a Republican-led legislative branch in enacting those proposals. Lower taxes could mean many things, including larger fiscal deficits if revenues fall and government spending is not cut. At the moment, there appear to be no plans for massive spending cuts. If the deficit increases, the US Department of the Treasury will need to issue more bonds to finance it, and I believe there will be a bias toward higher interest rates in such an environment.
On the campaign trail and in the presidential debates, President-elect Trump voiced his opposition to the Federal Reserve’s low interest rate policy. While the Fed is an independent central bank, Trump may choose — when her term expires in 2018 — to replace Chair Janet Yellen with someone more hawkish, which could lead to higher short-term rates down the road. Expect the regulatory burden on banks to be less onerous under a Trump administration than it would have been under Clinton.
A few final thoughts. The risk of price controls on the pharmaceutical industry has fallen dramatically with Trump’s election. Businesses broadly will likely see a reduction in government red tape. The impact of large tax cuts remains an open question. Will they lead to a sustained boost in economic growth? History doesn’t offer much evidence of this since the biggest chunk of tax cuts falls to the top 10% of earners, who tend to be savers as opposed to spenders. A lot of the tax cuts could end up in the banks as savings rather than recirculated into the Main Street economy. It’s hard to say for sure, but the outlook from here suggests a more cautious approach is warranted for both bond and equity investors as they digest the potential for a combination of tariffs and somewhat higher interest rates in the future.
CC-BY-SA-2.0, FlickrFoto: Randy Heinitz
. Changing Investor Preferences are Pressuring Hedge Funds
Hedge fund managers are feeling the pressure from changing investor demands and the managers that adapt accordingly and timely will be the most successful in achieving growth, according to the EY 2016 Global Hedge Fund and Investor Survey: Will adapting to today’s evolving demands help you stand out tomorrow?
The 10th annual survey found that hedge fund growth has slowed for a variety of reasons – the abundance of low fee passive investment options, lackluster hedge fund performance and cost concerns. In 2016, the proportion of North American investors that said they were reducing allocations to hedge funds exceeded the proportion that were increasing for the first time since the financial crisis of 2008.
Investors have more options than ever within the alternatives marketplace and are allocating funds to those managers that have a unique offering that is satisfying a specific need. Therefore, hedge fund managers must be at the forefront of actively listening to their investors to keep pace, or else be left behind, the report finds.
Michael Serota, EY Global Leader, Hedge Fund Services, says: “Growth is the industry’s top priority, but managers are changing the strategies employed to achieve it. While we find the largest managers pursuing several growth strategies, the smaller managers are more narrowly focused, seeking to expand investor bases within their home markets. Amidst today’s challenging environment, it is imperative for managers of all sizes to identify the needs of their clients and align product offerings to their demands.”
Other key findings include:
Hedge fund managers focus on asset growth to counter reduced inflows
As fee pressures increase, managers need to innovate and optimize processes to cut costs
Prime brokerages are putting pressure on hedge funds to evolve their relationships
Managers are focused on developing their talent management programs, which investors see as increasingly important
Pixabay CC0 Public DomainPhoto: Mike Bird . Passive Funds, Funds of Funds, and Team-Managed Funds, the Ones With More Women Fund Managers
Morningstar, has published a research report finding that across 56 countries, one in five funds has a female portfolio manager, and in the study’s eight-year timeframe, that ratio has not improved. The company’s second research report about fund managers and gender considered more than 26,000 fund managers, comparing the man-to-woman ratio of fund managers to other professions that require similar education, including doctors and lawyers, by country. The report also identifies areas of the industry where women have been making relative gains.
“Women are underrepresented in mutual funds’ leadership ranks globally, with larger markets farther behind smaller markets,” Laura Pavlenko Lutton, Morningstar’s director of manager research in North America, said. “We did find areas where women are finding more opportunity, specifically among passive funds, funds of funds, and team-managed funds. Larger equity firms are also more likely to promote women to fund-management roles than smaller firms.”
Key highlights of the research report include:
Countries with large financial centers have lower proportions of women fund managers than many smaller markets based on data from Morningstar’s global database. In France, Hong Kong, Israel, Singapore, and Spain, at least 20 percent of fund managers are women. Singapore is the global leader among 56 countries with women representing 30 percent of total fund managers and 29 percent of Chartered Financial Analyst (CFA) charterholders. Large financial centers, such as Brazil, India, Germany, and the United States, are behind the global average of 12.9 percent women fund managers. In India, only 7 percent of fund managers are women.
In some asset classes, women fund managers are more credentialed than men. A woman fund manager is approximately 7 percent and 4 percent more likely than a male peer to have her CFA designation among equity and fixed-income funds, respectively.
Women have better odds of running funds in areas of industry growth such as passive, funds of funds, and team-managed funds; women are 19 percent more likely to manage on a team than men. In addition, it appears difficult for women to achieve management roles in more-established parts of the fund industry, including actively managed funds and solo-managed funds. In fact, women are 36 percent less likely to manage an active equity fund than men.
The industry’s largest equity firms are more likely to name women as fund managers than smaller firms. Among funds at one of the top 10 largest firms by global equity assets under management, there are 83 percent higher odds that a woman would be named a fund manager.
Photo: JimmyReu, Flickr, Creative Commons. Luxembourg Secured Lending Funds: Attractive Alternative to Traditional Fixed Income for Wealth Managers
“It is remarkable…what a change of temper a fixed income will bring about”. Virginia Woolf, A Room of One´s Own.
Though few who practice our trade will admit it publically, the wealth management industry is immersed in an existential crisis. Quantitative easing by the world’s central banks has driven yields on high quality corporate bonds to near zero, and those of many sovereign nations to negative values. Traditional fixed income instruments are an essential tool of the wealth management industry and have been the mainstay of the classic “bonds/equities/hedge funds” asset allocation for decades. However, until yields rise from their current levels, government bonds and high quality corporate debt no longer add value to a portfolio. Rather, the fixed income allocation of a portfolio under current interest rate conditions adds credit and duration risk compensated by almost no return, or indeed a negative return.
If questioned as to why they persist in recommending traditional fixed income to their clients, wealth managers and asset allocators typically will state that “there is no alternative” as a justification for continuing to invest in this grossly overpriced asset class. It does not require a guru to see that market price and intrinsic value are clearly out of equilibrium in the fixed income markets, due to massive bond purchases by central banks and the increasingly frenzied search for yield by pension funds and insurance companies desperate to cover their future obligations. Even high yield bonds (formally known as junk bonds) now offer scant returns, as the hunger for yield overrides caution. From my point of view after twenty-five years of practice in the wealth management industry, to invest in an asset class that adds risk to a portfolio without providing return is tantamount to professional malpractice.
This being the case, where is a wealth manager to turn to secure attractive yields given the ongoing distortion of the traditional fixed income markets? Many wealth managers and family offices worldwide are turning to real estate as a substitute for fixed income, where rental yields replace bond yields. Investing in direct purchases of rent-generating properties as well as participations in real estate investment trusts and similar instruments is unarguably a reasonable move. However, I would suggest that many wealth managers are overlooking an alternative source of attractive yields that avoids the pitfalls of direct real estate purchase or participation in real estate funds, such as liquidity risk and exposure to real estate price cycles. This source is secured lendingfunds registered and regulated in the Grand Duchy of Luxembourg.
There is an astounding width and depth of credit expertise to be found among the management teams of many of the secured lending funds registered as Luxembourg SICAV-SIFs. Luxembourg is second only to the United States in terms of mutual fund assets, totaling over 3,500 billion euros as of July 2016 according to the highly respected CSSF, the Luxembourg financial regulatory authority. Although the majority of Luxembourg-registered assets are daily liquidity retail funds under the UCITS umbrella, there are over 1,000 Luxembourg-registered SICAV-SIFs. These vehicles are by their very nature a wealth management rather than a retail product, as they are intended for well-informed investors and are subject to the Luxembourg Act of 13 February 2007 on specialized investment funds, as amended. For this reason, they are subject to a minimum investment requirement of 125 000 euros. Liquidity varies, but redemptions and NAV declarations are typically on a monthly basis.
Since there is no equivalent of Morningstar to collectively track the performance of the SICAV-SIFs, a great deal of outstanding investment and credit analysis talent in this segment has not received the attention it deserves. For example, among the SICAV-SIF managers, there are secured lending funds specializing in each of the various segments of the asset-backed lending spectrum, including financing account receivables, specialized small business lending, aviation and machinery leasing, trade finance and real estate bridge financing. Though the particulars are different in each case, the common element among these successful secured lending funds is that they lend their investor’s capital to finance selected short term opportunities in the real economy, with a sufficient guarantee to secure the loan and protect the fund’s NAV in case of a default. These funds normally operate in creditor-friendly jurisdictions such as the United Kingdom or Germany where assets pledged to secure a loan can be quickly transferred to the creditor if a default does occur. In short, these funds operate in a terrain that once belonged to traditional merchant banks, but is increasingly abandonded by the banks as they restructure in the face of Basel III capital requirements.
Given this track-record and the ease of investment in Luxembourg SICAF-SIFs for wealth management clients through their securities accounts, I would encourage private bankers, family offices and wealth managers in general to begin to think outside the box of traditional fixed income and real estate to give serious consideration to Luxembourg-registered secured lending funds as a source of attractive, stable, non-market correlated returns.
Opinion column by James Levy, Director of Clearwater Private Investment.
. Liquidity Management Top Priority for Fund Managers and Institutional Investors in New Market Environment
State Street Corporation in partnership with the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers, released a new research report that found that nearly half (48 percent) of survey respondents say that decreased market liquidity is a secular shift that is here to stay. Regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy, have constrained the ability of many banks to perform their traditional roles as market makers, which in turn has impacted broader market liquidity conditions.
More than three-fifths of the survey respondents say current market liquidity conditions have impacted their investment management strategy, with nearly a third rating this impact as significant, and are reassessing how they manage risk in their investment portfolios. More broadly, they are adjusting to an environment of less liquidity in which trading roles have been transformed, new market entrants are emerging, and electronic platforms and peer-to-peer lending are changing the way firms transact their business.
“Increased regulation and the pressure to manage costs have significantly changed market liquidity conditions,” says Lou Maiuri, executive vice president and head of State Street’s Global Exchange and Global Markets businesses. “The new liquidity paradigm is causing many players in the investment industry to think again about the fundamentals: what roles they play, where they invest, and how they transact their business.”
While there is no one-size-fits all strategy for balancing risk and return in the current market environment, investors and managers are adapting to the new environment by focusing their efforts in three areas:
Rationalizing the risk
Optimizing the portfolio
New rules, new tools
49% say the role of non-bank institutions as liquidity providers will grow and 42% say that this growth will come from hedge funds Nearly half (47%) say hedge funds may play an important role in providing liquidity in more volatile markets. “With liquidity likely to remain top of mind for years to come, now is the time to find the strategies, tools, and solutions that will make a sustainable difference in the new investment climate,” continued Maiuri.
“Hedge funds and other asset managers are responding to more challenging market liquidity conditions by increasingly seeking out new opportunities, including taking on a more prominent role as market-makers, providing new sources of finance to the real economy, and lending their support and expertise to improving liquidity risk management,” added AIMA CEO Jack Inglis.
Photo: Naroh, Flickr, Creative Commons. New Equities Fund Invests in Listed European Family Businesses
The current economic and financial situation is changing investment habits. Persistently low interest rates, the resulting quest for yield and control of risks are the main concerns for investors seeking to invest in equities. Against this backdrop, BLI – Banque de Luxembourg Investments will launch the BL-European Family Businesses fund, a new equities fund that invests in around 60 listed European family businesses, rigorously selected according to strict criteria: a clear competitive advantage, strong profitability, a value-creating business strategy and attractive valuation.
“One distinguishing characteristic of family businesses is that they are not driven by short-term financial objectives. Because of the family’s commitment to the next generation, the company naturally develops a long-term strategy with an underlying desire for continuity and resilience over time. Of course, growth and performance are also important, but these goals are balanced by socio-economic values that can strengthen the organisation and its position in the market,” says fund manager Ivan Bouillot, who is also fund manager for the BL-Equities Europe fund since 2004.
“Family business leaders are also able to steer the company’s strategy and shape the corporate culture through the values they advocate, their passion for their profession and their social commitment. It was during meetings with family business owners that we began to appreciate the added value of businesses managed by families, and the idea of developing this family business fund project grew from there.”
The BL-European Family Businesses fund invests in European equities, regardless of market capitalisation. They define a company as a family business if at least 25% of its equity is owned by the person or family that founded the company or acquired the company’s capital, if the family has an active role in the company as a manager or a board member, and if there is a desire to preserve the company as part of the family’s wealth.
“With this new fund, we continue to apply our proven investment strategy, which involves selecting quality companies and taking an interest in their long-term development”, explains Head of Sales, Lutz Overlack. “Our strategy focuses mainly on manufacturers of personal and household goods, food and beverages and companies in the industrial, healthcare, chemistry and technology sectors.” Banking and insurance, capital-intensive industries, commodities and telecommunication companies are excluded from all the funds in the BL funds range.
