Asset owners and managers remain focused on ESG initiatives, despite heightened regulatory scrutiny surrounding “greenwashing” and negative investor perception, according to Cerulli’s latest white paper, Global State of ESG. Even as firms acknowledge and take measures to quell cynicism, few show signs of being deterred by skeptics or deviating from the courses that have been set.
Increased criticism over ESG has led governmental bodies around the globe to step up efforts to more clearly define and better regulate the ESG investment market. Investment funds that purport to be “green” or offer sustainability benefits without meeting any set categorization standards are rightfully being met with increasing scrutiny as the industry aims to sort out greenwashing.
Cerulli’s data shows both U.S. and international asset managers welcome the opportunity for clarity. The majority of U.S. asset managers polled by Cerulli believe the SEC should be responsible for setting standards around both public companies’ ESG disclosures (73%) and asset managers’ ESG standards and product definitions (58%). Meanwhile, 85% of European institutional investors are in favor of fining asset managers that engage in greenwashing practices and only 7% are not.
Additionally, fears of negative returns and the perception that performance may be sacrificed in the name of ESG/sustainability continue to be a major challenge to firms when it comes to marketing their strategies. Despite this, Cerulli observes managers forging ahead with product development, sales, and marketing of ESG products. In Europe, nearly half (49%) of asset managers consider ESG marketing a very important feature of their overall marketing efforts, and in the U.S., 58% of managers consider ESG a top product development initiative.
“Overall, Cerulli’s research reflects an industry largely unswayed by negative rhetoric surrounding the topics and concepts related to ESG investment,” says David Fletcher, associate director. “By and large, sustainability and the overarching themes of ESG investment are already ingrained in the asset management industry. The challenges firms face in implementing ESG investment initiatives are pain points that will likely be viewed in retrospect as necessary steps in the legitimization and long-term success of these goals.”
BNYMellonInvestmentManagement announced the launch of BNYMellonWomen’sOpportunitiesETF and BNYMellonInnovatorsETF. Listed on Nasdaq, both ETFs are sub-advised by Newton InvestmentManagement North America, LLC (Newton), a BNYMelloninvestment firm and a leading equity and multi-asset manager.
“This addition to our growing suite of ETFs provides investors with access to Newton’s deep experience in thematic investing,” said David DiPetrillo, Head of North America Distribution at BNYMellonInvestmentManagement. “Through Newton’s multi-dimensional research platform combined with fundamental research and analysis, these ETFs will enable investors to potentially benefit from themes we believe will drive economic and societal growth and progression.”
BNYMellonWomen’sOpportunitiesETF The BNYMellonWomen’sOpportunitiesETF invests principally in companies that incorporate gender equitable practices in the workplace or provide products or services that enhance the ability of women to meet their work or other personal life responsibilities and needs, such as those relating to household responsibilities, dependent and elder care responsibilities, and gender-specific healthcare. The Fund is co-managed by Newton’s Julianne McHugh and Miki Behr.
As part of BNYMellonInvestmentManagement‘s ongoing commitment to gender equality, the firm has partnered with Girls Inc., the non-profit organization that inspires all girls to be strong, smart, and bold through direct service and advocacy. In addition, BNYMellonETFInvestment Adviser, LLC, the Fund’s investment adviser, will contribute at least 10% of the management fee to Girls Inc. The BNYMellon Foundation will also provide grant funding to Girls Inc. and its New York affiliate, Girls Inc. of New York City, in recognition of their impactful work that equips girls and young women to reach their full potential.
“Gender gaps have economic impacts—if women and men participated equally in the economy a further US$28 trillion could be added to global annual gross domestic product by 20256,” said Ms. McHugh. “We believe that companies that support women, cultivate strong cultures, offer attractive benefit policies in the workplace, as well as deliver offerings which empower women, are positioned to better perform over time.”
BNYMellonInnovatorsETF The BNYMellonInnovatorsETF invests in innovation-driven companies whose products and services seek to transform or disrupt the way we live and work. The Fund invests across all market capitalizations through a wide range of industries and sectors in seeking to capture transformational growth opportunities over a long-term horizon. The Fund is co-managed by Newton’s chief investment officer and head of equity, John Porter, and Edward Walter.
“Average company life spans have dropped sharply, with 52% of Fortune 500 companies having disappeared in the last 15 years7. Paired with COVID, which spurred innovation and disruption at an unprecedented rate, this provides many attractive investment possibilities in every corner of the economy,” said Mr. Porter. “Our broad interpretation of innovation, coupled with our institutional capabilities and deep experience of thematic investing, means we can look at emerging opportunities in the healthcare, information technology and consumer discretionary sectors among others.”
New research from Ocorian, a specialist provider of alternative fund services, shows alternative fund managers are optimistic about launches and fund raising over the next 18 months.
More than eight in ten (81%) say levels of fund raising will be higher over the next 18 months compared to the previous 18-month period. 69% of fund managers are cautiously optimistic stating they are expecting to see a slightly higher level of fundraising, whereas 12% believe it will be dramatically higher. Just 18% say it will be about the same and 1% say it will be lower.
These results are reflected in the confidence of fund managers to launch new funds. Almost all (98%) are confident in the ability of alternative fund managers to successfully launch new funds in the next 18 months, with 52% being very confident and 46% being quite confident.
The research from the team at Ocorian Fund Services, which specialises in administrating alternative asset funds globally shows that 91% of alternative fund managers predict there will be more alternative asset fund launches this year compared to 2022. Of these, 28% predict there will be significantly more alternative asset fund launches while 63% predict launches will be slightly higher. Around one in 12 (8%) predict it will be about the same, and just 1% think it will be lower.
And it’s not just about a rise in confidence to successfully launch new funds, the statistics are reflected in the ability to raise capital with 96% predicting that more capital will be raised in 2023 compared to last year. Around two out of five (40%) of those surveyed think there will be over 25% more capital raised this year compared to last year, and a further 39% think there will be between 10% and 25% more. Around 17% believe there will be up to 10% more.
When asked to pick the top five asset classes that alternative fund managers expect to benefit the most from fundraising over the next 18 months, 73% selected private equity, followed by infrastructure (68%), real estate (65%), private debt (59%), and hedge funds (49%).
When specifically asked how fund raising will change in the next 18 months for certain alternative asset classes when compared to the last 18 months, real estate, private equity and private debt are expected to increase the most.
Paul Spendiff, Head of Business Development, Fund Services at Ocorian, said:“2022 was a tough year for the fund management industry, with the number of funds launched and amount of capital raised hitting the lowest levels we’ve seen for many years. While it’s still a challenging economic environment and with a number of geopolitical issues making fund raising more difficult in some markets, it’s encouraging to see how positive alternative fund managers are feeling about the year ahead, predicting both higher levels of fund launches and more capital being raised overall. Despite not being out of the woods yet, we expect to see high performing fund managers with the right strategy, good governance and a transparent approach around ESG will benefit from the improving sentiment in the market.”
About Ocorian Fund Services
Ocorian’s fund services team delivers operational excellence across fund administration, AIFM, depositary and accounting services to the world’s largest financial institutions along with dynamic start-up fund managers and boutique houses. Its team of over 300 funds specialists work across all major asset classes of alternative investment funds such as private equity, real estate, infrastructure, debt and venture capital, whilst its specialist Islamic Finance team is a leading provider of Sharia-compliant investment structures.
US public sector pension plan managers are confident that their plans are well hedged against inflation but still have worries about possible risk scenarios, new research from Ortec Finance.
The study with senior US public sector pension plan professionals who collectively help manage over $1.315 trillion, found 86% say their plan is well hedged against inflation, more than a quarter (26%) believe their plan is ‘very well’ hedged.
The research from Ortec Finance, which has clients with over $15 trillion in assets under management and offices around the world including in New York, found just 12% believe the hedging at their plan is average.
The confidence in inflation hedging is not leading to complacency – managers are still active in changing asset allocations to hedge against inflation. Around two in three (66%) think they will increase allocations to commodities to help with this, while 50% will boost allocation to infrastructure investing. Some 32% will increase allocations to inflation linked bonds and 38% will increase allocations to gold to hedge against inflation.
The survey shows public sector pension fund managers still have concerns about the risk of stagflation – the combination of low growth and high inflation – for their investment strategies.
Some 48% of those surveyed say they are very concerned while 50% say they are quite concerned. All those surveyed expect to see a change in actuarial assumptions on the expected inflation or discount rate.
Marnix Engels, Managing Director, Pension Strategy Ortec Finance said: “While public sector pension plan managers are generally confident that they have addressed inflation hedging on their funds, they aren’t getting complacent. More work is being done in terms of asset allocations with commodities emerging as the clear favorite for increased exposure in the year ahead and there are some lingering worries that the US economy will not achieve the soft landing of lower inflation and rising growth.”
Ortec Finance models and maps the relevant uncertainties in order to help pension funds monitor their goals and decisions. It designs, builds, and delivers high-quality software models for asset-liability management, risk management, impact investment, portfolio construction, performance measurement and attribution and financial planning, he added.
In a complex environment, the high-conviction active style, emphasis on credit selection and risk-aware approach, seeks to produce a track record of strong risk-adjusted returns for Aegon Asset Management’s High Yield Global Bond Fund.
For the fourth year in a row, the fund won the Refinitiv Lipper Fund Awards Europe 2023: Best Fund over 10 years for the High Yield Global Bond Fund (USD, A Inc), also adding the 5-Year award in 2023.
The manager gave an interview to Funds Society and spoke about the investment approach for the fund, the reasons for some of the investment allocation choices, and also offered his perspectives for high-yield bonds in a recessionary environment and potential upside for this particular asset class.
“Recession risk still looms on the horizon and we believe markets will remain volatile in 2023. Despite macroeconomic uncertainties, high-yield credit fundamentals appear to be in relatively good shape”, says Thomas Hanson, CFA and Head of Europe High Yield at Aegon Asset Management.
Going into 2023, most high-yield companies had healthy balance sheets, with historically low leverage and high interest coverage. “While the ratings momentum will inevitably reverse, most companies remain disciplined and have high levels of cash to help meet debt obligations”, he emphasizes.
According to Hanson, most high-yield companies could weather a downturn as “short-term maturity risk is relatively low, with few bonds maturing in 2023 and 2024, which can help mitigate default risks”.
Credit issuers have been able to prepare themselves for one of the more anticipated recessions, by implementing changes, such as cost control measures. “It is important to note that the average quality of the overall high-yield market is much higher today than it has been in years. There are fewer CCCs and below, and a higher proportion of BBs in the index. There is no doubt that downgrades and defaults will tend to increase as the cycle changes, but the higher quality nature of the market could also help limit distress and defaults compared to previous downturns”, the manager says.
As rates have shifted higher, high yield is now living up to its name. Yields above 8% on the ICE BofA Global High Yield Index look attractive, however spreads remain around long-term averages. This leaves many investors facing a conundrum as they try to evaluate the path forward for spreads and the optimal entry point for high yield bonds.
Given the macro uncertainty, it is unlikely that we see sustained spread tightening in the near term, although a relatively tight technical can exert positive tailwinds. While entry points matter, and spreads could be biased toward widening as the recession becomes more imminent, yields above 8% have historically provided above average total returns for long-term investors. Since 2008, yields above 8% have been relatively rare. These periods have historically resulted in double-digit returns over the subsequent one-, three-and five-year periods.
Hanson believes that long-term investors have reason to consider gradual increases to high yield in an effort to capitalize on attractive returns, provided they can weather some short-term volatility. “After all, it’s time in the market, not timing the market, that matters in high yield”, he adds.
“Over the long term, global high yield has generated risk-adjusted returns that are competitive against many other fixed income assets and even equities. As such, we believe the structural case for high yield remains intact“, Hanson says.
The Aegon High Yield Global Bond Fund is managed in an active style and aims to maximize total returns, including high income plus capital appreciation, while also remaining focused on generating strong risk-adjusted returns. “We manage a high-conviction portfolio of our best investment ideas”, he explains. “Our approach is bottom-up security selection. Backed by a structured top-down process, we embrace a dynamic approach to allocating to regions, ratings, and sectors”, Hanson adds.
The fund’s mandate is flexible and not bound by an index: it invests only where it finds there is value. “We believe this flexible approach helps us maximize the opportunity set and avoid unwanted constraints imposed by a benchmark as we aim to outperform our peers and global high yield indices”, he indicates.
In the current environment, with challenging economic prospects, the fund is pursuing an up-in-quality strategy. “We have been adding exposure -says Hanson- in higher-quality, BB-rated bonds with attractive yields. There will be a time to increase allocation to lower-rated high yield, however downside risks remain, and we think it is prudent to be modestly defensive in this environment”.
In terms of regions, Aegon AM is finding high-conviction ideas in US and European corporates, and it maintains its underweight in emerging markets.
Hanson is interested in some leisure companies that are benefiting from pent-up consumer demand. “While some of these businesses may be operating in more challenging sectors, we manage risk by selecting stocks that are more senior in the capital structure in an effort to preserve client capital”, he says.
The fund has a long track record. When asked what has been the biggest lesson learned over the years, Hanson states: “We continue to believe that our high-conviction, bottom-up approach has driven our successes over the years. Throughout this time, we have learned the importance of using a risk-aware process supported by in-depth bottom-up research. Maintaining investment discipline is central to our style”. He adds that, using a risk-focused mindset, “we remain focused on taking sufficient, but not excessive, investment risk as we pursue performance targets”.
Hanson embraces a dynamic approach to allocating to regions, ratings and sectors, supported by a global team of research analysts. “We take pride in our willingness to build a portfolio that we believe is different than peers, as we focus exclusively on our highest conviction ideas and are not beholden to a benchmark”, he remarks.
Photo courtesyAlfredo Maldonado, Managing Director & Market Head in New York
Insigneo is delighted to announce the appointment of Alfredo Maldonado as Managing Director and Market Head for New York and US Northeast Region.
Maldonado will be based at Insigneo’s expanding office located on Madison Avenue and 41st Street reporting to Rodolfo Castilla, Insigneo’s Head of Sales.
With this important incorporation, Insigneo reaffirms its commitment to delivering exceptional financial services to clients across the globe. The company’s decision to hire Maldonado underscores its focus on hiring the best talent and reinforces its position as a leading player in the global wealth management sector. New York is an important hub for the firm to continue its expansion plans while providing an integrated platform for Investment Professionals and their clients globally.
In his new role, Maldonado will oversee Insigneo’s existing business in New York, driving the company’s growth by focusing on top line revenue and assets for its existing business, while expanding its footprint in the Northeast.
“Alfredo’s appointment reflects Insigneo’s aspiration to be recognized as the best value proposition for all independent advisors focused on international clients. We are thrilled to welcome such a distinguished professional, and particularly somebody that shares our values, which is critical to all of us,” said Rodolfo Castilla, Head of Sales for Insigneo.
Maldonado brings 25 years of international wealth management experience, having worked in New York, California, and Florida, expanding his network and knowledge across these regions. The senior hire brings a deep understanding of the New York market, which will be crucial in growing Insigneo’s presence in the city.
“Insigneo’s commitment to providing a pro-business approach for financial advisors, enabling them to provide exemplary service to their clients is unmatched in the industry,” said Maldonado.
“I am happy to welcome a leader of Alfredo’s caliber and culture to our growing Insigneo family. New York and the Northeast are very important markets for us to grow and we are excited he will lead those efforts to make us a powerhouse,” said Javier Rivero, Insigneo’s President & COO.
Driven by the need to facilitate a digital work environment, advisor use of front-office technology has evolved significantly over the past three years. New research from Cerulli, State of U.S. Wealth Management Technology 2023, finds front-office technology has made a lasting impact on both client satisfaction and advisor productivity.
Between 2019 and 2022, the greatest rates of growth in advisor adoption occurred with technologies that facilitate a digital work environment, such as e-signature, client portals, and video conferencing, driven largely by the needs imposed by the pandemic.
Advisors tell Cerulli that these technologies were critical to their ability to operate effectively during the pandemic, but that the benefits experienced go well beyond that. Thus, many patterns of technology use that emerged during the pandemic are likely to continue into the post-pandemic world.
The technologies that are most frequently cited as positively impacting the client experience include e-signature (77%), video conferencing (75%), and client portal (64%). Likewise, the technologies that are most frequently cited as positively impacting advisor productivity include video conferencing (75%), e-signature (73%), and CRM (70%).
“This data aligns with the many conversations Cerulli has had with financial advisors who share how e-signature technology has drastically reduced the time and effort required for clients to open accounts, and create linkages between accounts, for example, obviating the need for papering and re-papering of accounts,” says Michael Rose, associate director.
The same applies to virtual meetings, which were rare prior to the pandemic, and are now often a preferred meeting option for clients and advisors. “The precipitous rise in advisors’ use of these applications over the last three years underscores the importance of creative, outside-the-box thinking when it comes to the ways in which they do business altogether,” he says.
Overall, the ways in which advisors source technology varies between affiliation models. For instance, 88% of advisor practices affiliated with captive broker/dealers (B/Ds) source their suite of technology from their home offices with relatively little control over product selection. Independent registered investment advisors (RIAs) represent the other end of the spectrum, with 50% building custom technology stacks sourced entirely from third parties.
“The diverse ways in which advisor practices source their technology are testament to the varying approaches for operating a wealth management practice in the modern day,” concludes Rose.
Ostrum Asset Management (Ostrum AM), an affiliate of Natixis Investment Managers, announces the appointment of Axel Botte as Head of Markets Strategy. He was previously the global strategist in the same team.
Axel Botte will head the markets strategy team, which is composed of: Zouhoure Bousbih, Emerging countries Strategist and Aline Goupil-Raguénès, Developed Countries Strategist, both members of the team since 2018. The recruitment of a new global strategist is underway. Axel Botte reports directly to Ibrahima Kobar, CIO Fixed Income, Structuring and Research, and member of Ostrum AM’s Executive Committee.
Within Ostrum AM, the main missions of the Markets Strategy team are to establish a macroeconomic, economic and financial scenario to support the active fundamental management teams in their strategy and asset allocation recommendations, as well as to provide top-down internal research to support the managers’ convictions.
Ibrahima Kobar, CIO Fixed Income, Structuring and Research at Ostrum AM, said: “We are delighted that Axel has taken on this new role at Ostrum AM. His experience in asset management and his expertise in international markets strategy are major assets to meet the requirements of our institutional clients”.
Axel Botte started his career in 2000 at Axa IM as an economist, then became an equity strategist between 2002 and 2006. In 2007, he was appointed head of fixed income strategy in the Investment Strategy department of the management company. In 2010, Axel Botte joined Ostrum AM, as an Global Strategist, where he works closely with the fixed income teams on specific themes, such as interest rates, developed market government bonds, inflation-linked bonds and credit.
Axel Botte holds a DEA in Industrial and Financial Strategies and Econometrics from the University of Cergy-Pontoise.
Investor optimism is declining as the year progresses. It is not surprising, given that the idea that economic growth will weaken as a result of the decisive actions of central banks is increasingly widespread.
This sentiment has become evident in the latest monthly survey of fund managers conducted by Bank of America (BofA). Investor sentiment deteriorated in May, reaching its lowest point of the year. The reason is precisely that there are more investors expecting an economic downturn: 65% believe this scenario is the most likely, compared to 63% the previous month.
The most immediate consequence has been an increase in the position of liquidity, which now stands at 5.6%, up from 5.5% the previous month. Liquidity has been above the 5% threshold since November 2021.
The weakening expectations for China also do not contribute to optimism. Now, 55% anticipate a strong rebound in China, down from 83% in April. This sentiment extends beyond portfolios, as the percentage of investors overweighting the Chinese stock market decreases from 30% to 24%. In fact, this represents the lowest overweight position in this asset since December 2022.
Fund managers continue to closely monitor the actions of the Federal Reserve, 61% believe that the Fed has completed the cycle of interest rate hikes, and a large majority, 43%, expects a cut in the interest rate at the January meeting next year. However, a third of the respondents still believe that there will be further interest rate hikes in the US.
As for the main negative events, the spending ceiling emerges in May as one of the biggest “tail risks”: 8% point to this event as a possible negative scenario for the markets.
A credit crunch combined with a global recession once again tops the list of investor concerns, although with slightly less intensity this month, as 33% mention this event. It is closely followed by high inflation coupled with further interest rate hikes, with 29% expressing this view.
The fear of a credit crunch and a global recession prompted an increase in portfolio exposure to fixed income: 14% overweight this asset, the highest level since March 2009. Sector rotation is also accelerating.
The positioning in growth sectors (technology and discretionary consumption) compared to financials (banking and insurance) increased by 12 percentage points in May, reaching the highest level since August of last year. The last time the survey showed such a rapid shift from financials to growth was in November 2007.
As spring blooms in the northern hemisphere, the green shoots of economic recovery appear to be emerging. This after months of stubborn inflation and banking sector turmoil.
Unfortunately, however, there aren’t yet enough of those green shoots to convince us to shift from the cautious stance we have maintained since the end of last year. Economic prospects are still highly uncertain, particularly in the developed world thanks in large part to sticky inflation.
Moreover, corporate earnings estimates are being revised down, as we predicted. We continue to forecast flat earnings per share growth for 2023 in developed markets, which is now largely in line with consensus, but we believe expectations for the years to come are still too high. We therefore remain underweight developed market stocks and upgrade global bonds to overweight.
Our global business cycle indicators are still firmly in neutral territory; they are some way off from turning positive.
We still believe the US can avoid a recession, but its growth prospects aren’t especially bright in the medium term. GDP grew by just 1.1 per cent in the first quarter on an annualised basis – around half the pace that economists had expected.
There are some green shoots: our US lead indicator had shifted into positive territory for the first time in nearly a year, while housing activity, which tends to lead the economic cycle, has picked up from 10-year lows. But we believe that a definitive positive shift is still some way off given the lag in the transmission of tightening monetary policy, which has taken longer to work through the economy than in previous cycles. Consumption growth and non-residential investment will surely slow, while core inflation remains stubbornly high.
Our indicators for Europe are equally downbeat; we believe the region is several months behind the US in the cycle. Recent rate hikes won’t be felt in economic activity for another few months, although solid domestic demand should act as a buffer.
The picture is brighter for emerging markets. First quarter GDP data showed Chinese growth back near potential, fuelled by a rebound in private demand, especially in services. We expect excess savings – worth some RMB5 trillion – to be drawn down over the next two years, giving a significant boost to consumption.
Property markets also look healthier: construction has rebounded from September lows, floor space is increasing, and mortgage rates have fallen 150 basis points from their peak. China’s trade balance has also markedly improved, driven mainly by trade with the ASEAN economies. Our analysis shows that exports are now 63 per cent above pre-crisis levels, led by shipments of electric vehicles.
Our liquidity indicators are positive for emerging market assets but contain red flags for developed market equities. China’s central bank remains in easing mode, encouraging the flow of money and credit into the economy and thus creating supportive conditions for riskier assets.
In contrast, the rate hikes delivered by US and European central banks are now starting to weigh heavily on the cost and availability of credit, causing a marked reduction in liquidity. With more tightening likely, conditions could worsen.Private liquidity – that provided by banks and other private sector lenders – was weakening even before the March bank failures and has now deteriorated further. Net interest margin pressures, tighter lending standards and the likely introduction of more stringent regulatory measures are curbing banks’ willingness to lend (see Fig. 2). Euro zone bank lending has come to a standstill, while in the US it’s slowed to just 1.5 per cent of GDP, compared to an average of 4 per cent in both regions in 2022.
We remain confident in the prospects for emerging market stocks and bonds but don’t share the same enthusiasm for developed market equities.
Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist
