Broker/Dealers Must Respond to Shifting Advisor Preferences

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Broker/dealers revenues continue to face headwinds as advisors escalate their preferences for passive products, avoiding the revenue-sharing payments that asset managers have depended on for so long, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Asset managers must make available separately managed accounts (SMAs), exchange-traded funds (ETFs), environmental, social, and governance (ESG)-oriented products, and other portfolio elements that appeal to advisors’ needs for flexibility and products emphasizing lower cost and sustainability, the report adds.

Across all channels, approximately one-quarter of all advisors create custom portfolios for each client and nearly two-thirds of all advisors report that their primary portfolio construction influence comes from within their own practice. However, as advisors confront margin pressures and scale, they are becoming increasingly conscious of the price they pay for access to investment strategies.

As such, asset managers need to respond with product and pricing to penetrate the market. “Cost plays a significant role in advisors’ investment decisions, placing greater pressure on managers to ensure active strategies are priced appropriately to compete with passive options,” comments Matt Belnap, associate director.

While mutual funds remain the most widely used product vehicle for advisors, asset flows will experience a steady long-term decline as ETF allocations continue to ramp up, according to the research. “The industry is evolving. Advisors across all channels are shifting their investment allocations away from mutual funds and their associated revenue-sharing payments and toward ETFs,” adds Belnap.

The research also projects growing demand for the SMA. “SMAs offer advisors flexibility, as the product allows them the benefit of customization while outsourcing trading to an asset manager or overlay manager,” says Belnap.

“Asset managers, particularly those targeting high-net-worth (HNW) investors, should develop strategies that will be available in the SMA wrapper as clients downmarket will display an appetite for the product structure,” he adds.

Advisors focusing on HNW, women, and younger clients often provide the greatest opportunity for ESG product adoption, as these client demographics typically have been higher adopters. “Looking forward, managers should consider a vehicle-agnostic approach to asset gathering in the retail channel, considering changing demographics and evolving demand for customization,” concludes Belnap.

SEC Charges Crypto Asset Trading Platform Bittrex for Operating an Unregistered Exchange, Broker, and Clearing Agency

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The Securities and Exchange Commission charged crypto asset trading platform Bittrex, Inc. and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency.

The SEC also charged Bittrex, Inc.’s foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.

Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.

The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, coordinated with issuers who sought to have their crypto asset made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate the crypto asset as the offering of a security.

For example, in an effort to avoid regulatory scrutiny, before Bittrex would make an asset available on its platform, Bittrex and Shihara instructed issuer-applicants to delete statements related to “price prediction[s],” “expectation of profit,” and other “investment related terms.”

“Today’s action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity,” said SEC Chair Gary Gensler. “As alleged in our complaint, Bittrex and issuers that it worked with knew the rules that applied to them but went to great lengths to evade them by directing issuer-applicants to ‘scrub‘ offering materials of information indicating that certain crypto assets were securities. Further, Bittrex, as alleged, failed to register and comply with U.S. securities laws as an exchange, broker-dealer, and clearing agency. Cosmetic alterations did nothing to change the underlying economic realities of the offerings and Bittrex’s conduct. Today we’re holding Bittrex accountable for its non-compliance.”

The SEC’s complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Bittrex and Bittrex Global should have registered as an exchange because they brought together, using a shared order book, the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade.

The complaint further alleges that Bittrex should have registered as a clearing agency because it acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets. Finally, the complaint alleges that Bittrex should have registered as a broker because it regularly engaged in the business of effecting transactions for the accounts of others in crypto assets that were offered and sold as securities.

Voya Investment Management hires Vincent Leon as new Senior Vice President, Regional Director for the US offshore Market

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Vince León, Senior Vice President, Regional Director for the US offshore Market at Voya IM

Voya Investment Management (Voya IM) announced that it has hired Vincent Leon as a senior vice president, Regional Director for the US offshore Market. Leon is based in Miami and is responsible of South Florida international offices of broker-dealers, wire-houses and RIAs.

Leon reports to  Alberto D’Avenia, managing director, head of U.S. Offshore Sales. Leon joins Samantha Muratori (NYC/Texas) and Joe Arrieta (California and PR) on the team.

 “We are excited that Vincent, a renowned professional of the US offshore community, is joining us; the US non-resident business market in general, and Miami in particular, is experiencing significant growth and features a high degree of complexity and specialization. As such, asset managers need to provide advisors and gatekeepers with top-notch investment solutions and professionals able to promote them with a holistic, consultative approach,” said D’Avenia

Prior to joining Voya, Leon was director, Offshore Advisory Channel at Thornburg Investment Management where he led UCITS sales & distribution in the Americas working along with fund administration, operations, legal, & marketing teams. Also distributed SMAs and closed-end funds to International Financial Advisors.

Commodity Price Outlook and Interest Rate Concerns Cloud Farmer Sentiment

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Farmer sentiment weakened ­again in March as the Purdue University/CME Group Ag Economy Barometer fell 8 points to a reading of 117. Both of the barometer’s sub-indices declined 8 points in March, leaving the Current Conditions Index at 126 and the Future Expectations Index at 113.

The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted between March 13-17, which coincided with the demise of Silicon Valley Bank and Signature Bank.

“Rising interest rates and weaker prices for key commodities including wheat, corn, and soybeans from mid-February through mid-March were key factors behind this month’s lower sentiment reading,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “Although the March survey did not include any questions directly related to the bank closures, during an open-ended comment question posed at the end of each survey, multiple respondents voiced concerns about the banking sector’s problems and its potential to hurt the economy. These problems also likely ­weighed on producer sentiment.”

The Farm Financial Performance Index remained unchanged from February at a reading of 86. Producers point to higher input costs (34% of respondents) and rising interest rates (25% of respondents) as their number one concern for the year ahead. Notably concern about higher input cost has been falling since last summer’s peak when 53% of respondents cited it as their number one concern for the year ahead. At the same time, the percentage of producers pointing to interest rates as a top concern has been increasing, up 11 points from last summer.

While there was little change in the Farm Capital Investment Index, down one point to a reading of 42 in March, there was a change in how respondents perceived whether now was a good or bad time for large investments. Since last July, respondents who felt now is a bad time to make large investments have consistently chosen “increased prices for farm machinery and new construction” as the key reason. That changed in March as more felt that rising interest rates (34% of respondents, up from 27% in February) over high prices (32% of respondents, down from 45% in February) was the key reason that now is a bad time for such investments.

Producers’ outlook for farmland values in the short-term and long-term were mixed in March. The Short-Term Farmland Value Index declined 6 points to 113 while the Long-Term Farmland Value Index rose 5 points to 142. This month’s short-term index value provided the weakest reading since September 2020 and left the index 32 points lower than a year earlier. One out of five producers in this month’s survey said they expect farmland values to weaken in the next 12 months. Long-term, 17% of respondents said they expect weaker values in the next 5 years, up from 13% a year ago and 7% two years ago.

This month’s survey included several renewable energy questions focused on the ethanol and renewable diesel sectors. When asked to look ahead 5 years, nearly half (46%) of respondents said they expected the renewable diesel industry to be larger than it is today, while just a quarter (25%) expect the ethanol industry to grow over the same time period. In a follow-up question, respondents were asked what impact they expect the renewable diesel industry to have on soybean prices over the upcoming 5 years with 39% expecting a price increase of up to $0.50 per bushel, 28% expecting a boost in price between $0.50 up to $1.00 per bushel, and 21% expecting soybean prices to rise by $1.00 or more per bushel.

Read the full Ag Economy Barometer report at the following link.

China’s Insurance Market to Benefit From Liberalization

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Global insurance companies have accelerated their penetration and expansion in China following recent liberalization moves. The removal of foreign ownership on IAMCs in September 2022 should pave the way for more of them to offer their expertise and strengthen their partnerships with other financial sector players.

The insurance sector was the earliest in China’s financial industry to open to foreign capital. This accelerated in 2018 when the upper limit on foreign ownership of life insurance companies was relaxed to 51%. Over the past decade, a number of global names have expanded their footprints in China. In regional centers such as Beijing and Shanghai, the marketshare of foreign insurance companies has reached 20% by premiums.

In China, blue-ocean sectors such as private wealth management, pensions, and health provide fertile grounds for foreign insurers to offer their expertise, given the aging society. Insurance companies generally manage funds from pension products through fund management company (FMC) subsidiaries. However, IAMCs’ advantages in product portfolio creation and long-term duration can help overcome market fluctuations to some extent and help reap investment returns. Cerulli believes that IAMCs’ long-term fund management and diversified investments can help strengthen the private pension system.

Amid the increasing volume of insurance assets outsourced to managers with non-insurance backgrounds, IAMCs have a significant role to play in China’s asset management industry. This is because IAMCs, in particular foreign players, offer more diversified and innovative product lines, and can therefore evaluate emerging investment opportunities to meet clients’ needs. Besides having expertise in absolute-return strategy products, they can rely on professional investment research teams to achieve absolute portfolio return growth by controlling target volatility and improving the stability and sustainability of product returns.

IAMCs can also utilize their capabilities to strengthen their cooperation with other financial institutions. For example, IAMCs’ comprehensive risk management systems can strengthen traditional and non-standard investments. In addition, IAMCs’ strengths in alternative non-standard investments—such as debt and equity—and background in investment banking can provide a basis for partnerships in joint product development with FMCs, securities firms, and private fund managers.

“There is plenty of room for foreign insurance companies to develop in China, despite the challenges they face in localization and in establishing nationwide sales channels. Acquiring shares in joint ventures and establishing wholly foreign-owned enterprises are just some of ways in which they can increase their local footprints,” comments Joanne Peng, research analyst. “IAMCs, including those with foreign ownership, should develop the third-party asset management business by improving their investment research and product innovation, and strengthen their cooperation with the asset management industry,” she concludes.

KKR Invests in Leading Strategic Advisory and Communications Firm, FGS Global

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Captación de capital de Dynasty Financial

KKR announced an agreement to make a growth investment in leading strategic advisory and communications firm, FGS Global (the “Company”). Under the terms of the agreement, WPP will remain the Company’s majority owner and FGS employees will remain substantial shareholders.

FGS also plans to expand its employee ownership to include nearly half of its staff worldwide. Golden Gate Capital, an FGS shareholder since 2016, will exit its investment through the sale of its interest to KKR.

FGS is a leader in all aspects of strategic advisory and communications, including corporate reputation, crisis management, government affairs and is a leading advisor on business-critical financial communications worldwide. FGS’s always-on global platform delivers trusted advice, data-driven insights and hands-on execution for clients navigating their defining moments. The Company’s 1,300 experts across 27 global offices oversee an integrated suite of reputation-shaping capabilities, with deep local relationships and extensive knowledge across industries and geographies.

FGS empowers its over 1,600 clients to effectively engage with their key stakeholders and supports them in navigating important issues ranging from sustainability to litigation, regulatory developments and cybersecurity.

Philipp Freise, Partner and Co-Head of European Private Equity at KKR, stated: “Our investment in FGS is the latest example of our focus on proprietary, strategic partnership investments where we are providing long-term capital and a global network of resources to an entrepreneurial management team and alongside a world-class business. We firmly believe that Alex Geiser, Carter Eskew, Roland Rudd, George Sard and their talented global team are pioneering the next generation of value-add strategic communications services. Stakeholder engagement is a boardroom issue and we are confident that FGS, with whom we have enjoyed a long-term relationship, is well positioned to capitalize on significant growth opportunities ahead as a global category leader in the growing management consulting service industry.”

Alexander Geiser, Global CEO of FGS, added, “We are thrilled to have found a partner in KKR, who shares our vision of creating a global integrated communications consultancy and will help us to accelerate the evolution of our industry. Companies are operating in increasingly complex stakeholder ecosystems and FGS was created to build a new kind of consultancy to help leaders face this challenge. KKR’s exceptional investment track record, extensive experience and global resources will be invaluable as we seek to grow our integrated solutions globally. We are committed to creating value for all of our shareholders. This includes many of our colleagues who will be able to participate in our long-term success through a new expanded ownership program that we will create, which we believe is without precedent in our industry.”

Mark Read, CEO of WPP, said: “FGS has established itself as a global leader in strategic advisory and communications, providing board-level counsel to the world’s leading companies and organizations. We are delighted to welcome KKR as a new strategic partner in FGS, in a transaction that recognizes the tremendous value of the business and its potential for continued strong growth.”

FGS was recently ranked the #1 Global PR firm for Deal Count and Value in 2022 by Mergermarket. It is also consistently ranked a Band 1 PR firm for Crisis & Risk Management and for Litigation Support by Chambers and Partners. FGS was created through a combination of leading strategic communications and public affairs firms: Finsbury, The Glover Park Group, Hering Schuppener, and Sard Verbinnen & Co.

KKR is making the investment in FGS primarily through its European Fund VI, an $8 billion fund that invests in the growth of leading businesses by providing access to KKR’s extensive network and business building resources. One of the core strategies of KKR’s European Private Equity team is investing alongside founders, entrepreneurs and corporates to provide flexible capital for strategic partnership transactions. The FGS investment follows a similar thematic pursued when KKR invested in ERM, the world’s largest global pure play sustainability consultancy, in 2021.

The transaction is expected to close before the end of the third quarter of 2023, subject to regulatory approvals and other customary closing conditions.

Florida Innovation Capital Leads Funding for Third Summit’s Content-Creation Platform Alteon.io

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Florida Innovation Capital (FIC), a venture fund committed to supporting economic growth in the Sunshine State, is leading seed funding for tech startup Third Summit.

FIC has committed $2.75M of the $4.5M funding for Third Summit to continue expanding its flagship SaaS platform, Alteon.io, whose recent partnerships and market reception exemplify the type of company FIC wants to support in Florida.

FIC believes this boldly original startup, focused on the burgeoning $100-billion creator economy, is a future unicorn for Florida, the company said. Alteon is an unprecedented, award-winning cloud-based platform that addresses pain points for content creators throughout the entire creative workflow, letting creators more easily upload, share, review, archive and collaborate on media in a single, universal place.

Leveraging high-profile partnerships and integrations with leading creative tech companies, including Apple, Opera, IBM and others, Alteon reduces creators’ reliance on single-purpose apps. Its vast scope includes proprietary cloud-based media transcoding, maximized data upload, AI organization and Web3 integration.

In Q1 2023, Alteon saw an incredible 104% increase in total users, in part thanks to a highly receptive creator community, a successful partnership with the Student Television Network and high-profile integrations with companies such as Apple, whose Final Cut Pro Ecosystem welcomed Alteon last fall, shortly before the company debuted their iOS app, the press release added.

Alteon also partnered with leading web browser Opera to unveil Alteon LaunchPad, a unique tool that simplifies the NFT minting process, underscoring Third Summit’s commitment to bridging the technological gap between creators of all backgrounds on an international scale. That groundbreaking tool was announced during Art Basel Miami onstage with Miami Mayor Francis Suarez, who vocally supported the company’s mission.

“This milestone is only possible because of the hard work of everyone on our team along with our dedicated investors,” said Third Summit co-founder and CEO Matt Cimaglia. “We are united in our vision to build a product on a strong foundation, with core principles that will keep ahead with the rapidly expanding scale of today’s creator economy. We’re proud to be building infrastructure to help steer the future of creativity.”

This success is largely due to Cimaglia’s founding vision and experience building and running an award-winning creative agency for more than 20 years. Long before NFTs, Web3 and the rise of remote work, he knew that the future of content creation would rely on virtual collaboration, cloud-based technologies and new digital platforms. His prediction was proven starkly correct in less than a year, when the pandemic accelerated all these trends.

“Under Matt’s leadership, Third Summit has built unprecedented partnerships with leading technology companies and developed a truly unique platform that is helping thousands of content creators work more efficiently using the power of cloud computing,” said Michael Munz, president of FIC. “Alteon is a future-proof product with a stable roadmap and strategy. We are excited to be the lead investors for Third Summit’s seed round and help power a new creative ecosystem.”

According to a report by Morning Consult, the creator economy is estimated to be worth more than $100 billion, with more than 50 million creators globally. With content consumption trends skyrocketing and streaming giants investing heavily to compete for audiences, the media-technology space has proven largely protected from recent startup troubles, banking collapses and recession fears. Third Summit and Alteon have withstood these market fluctuations by securing reliable capital to build out a comprehensive and successful product that’s currently being used by thousands of content creators worldwide.

Higher Yields Lure Insurers Back to Fixed Income, While Appetite For Private Assets Remains StrongG

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Goldman Sachs Asset Management released the findings of its twelfth annual global insurance investment survey, Balancing with Yield on the Inflationary Tightrope.

The results show that while insurers expect a deterioration of credit quality and upcoming recession in the U.S., they are leaning heavily into fixed income and seeking to increase duration and credit risk. For the first time, insurers ranked increasing yield opportunities in the current environment as the most important factor driving asset allocation decisions (68%), nearly triple the percentage of those who say they are decreasing risk due to concern with equity or credit losses (25%).

“With high inflation, rising geopolitical tensions, and the effects of tightening monetary policy, insurers are looking to take advantage of higher rates while managing their market risk,” notes Matt Armas, Global Head of Insurance Asset Management at Goldman Sachs Asset Management. “As shown in the survey results, the journey to rebuilding yield, is done with a balance of duration and high-quality credit opportunities.”

The survey revealed that more than half of global insurers (51%) plan to increase their allocation to private assets over the next 12 months. Across all asset classes, private corporate debt (41%) is the top asset class that insurers plan to allocate more to over the next year. Twenty-nine percent of respondents plan to allocate more to private equity, and 28% plan to increase their allocation to infrastructure equity and infrastructure debt.  

“Despite uncertain market conditions, we believe there are real opportunities for investors across private and public markets, particularly in credit, where increasingly attractive yields in fixed income have lured back insurance investors,” said Michael Siegel, Global Head of Insurance Asset Management and Liquidity Solutions at Goldman Sachs Asset Management. “We also expect insurers to continue to build positions in private asset classes, including private credit, private equity and infrastructure, as they seek to diversify portfolios and take advantage of expanding illiquidity premiums. ”

The survey incorporates the views of 343 Insurance company CIOs and CFOs representing over $13 trillion in global balance sheet assets. Their responses were collected from February 1 – 17, 2023.

FIBA Announces New AMLCA Courses with Florida International University

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La Financial & International Business Association (FIBA) announced a new call for anti-money laundering certification courses offered in conjunction with the Florida International University.

The courses, which will be taught in both English and Spanish, will begin on May 18 and will be delivered in an online format.

Funds Society readers can access a $200 discount by applying the promotional code FS200.

The online course is an interactive option design for participants interested in completing the certification at their own pace. Through open forums and discussions, participants will have the opportunity to actively engaged with the instructor and classmates to discuss the assigned materials. Participants will have 90 days to complete the reading materials, PowerPoint narratives, 23 practice quizzes and the final certification exam, according to the course description.

The course is led by Ana María de Alba as the instructor, who is a specialized consultant in risk management and administration. She has over 25 years of experience and professional training in the banking industry and consulting.

You can access the following links to register for both the Spanish and English versions, respectively.

Bank of America Names Lindsay Hans and Eric Schimpf Presidents and Co-Heads of Merrill Wealth Management

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Photo courtesyLindsay Hans y Eric Schimpf

Bank of America announced that Lindsay Hans and Eric Schimpf have been appointed presidents and co-heads of Merrill Wealth Management, reporting to Bank of America Chair and Chief Executive Officer Brian Moynihan.

As presidents, Hans and Schimpf will join Bank of America’s executive management team and oversee more than 25,000 Merrill employees.

“Merrill is one of the largest wealth management businesses in the world and an integral part of Bank of America as we serve the unique needs of individuals, families and businesses,” Moynihan said. “Lindsay and Eric have excelled as leaders, delivering outstanding results for our advisors and clients. I’m looking forward to them building on the success and long tradition of Merrill in the years ahead.”

Hans, who most recently served as head of Merrill’s Private Wealth Management, International and Institutional business, joined the company in 2014. Previously, she was a division executive for Merrill for six years, first for the Mid-Atlantic and later for the Northeast.

Schimpf began his career as a Merrill financial advisor in 1994 and has held several leadership positions within the business. He has served for six years as division executive, first for the Southeast and most recently for the Pacific Coast. He also has been serving as co-head of the Enterprise Advisor Development program.

Hans will continue to serve as a member of the company’s Global Diversity and Inclusion Council and as a National Executive sponsor of the Merrill Women’s Exchange. Schimpf will continue to serve as Executive Sponsor for the company’s Black Professionals Group.

Hans and Schimpf succeed Andy Sieg, who is leaving the company. Sieg served as Merrill president since 2017 and led the business through a period of sustained growth and modernization of technology for advisors and clients.

Merrill’s client balances totaled $2.8 trillion as of Dec. 31, 2022.