Prima AFP Becomes the First Pension Fund in Perú to Adopt the CFA Institute Asset Manager Code

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Foto cedidaRenzo Rici, CEO Prima AFP. Prima AFP se convierte en la primera AFP en Perú en adoptar el Código de Gestor de inversiones (AMC) de CFA Institute

CFA Institute, the global association of investment professionals, announces that Prima AFP has become the first pension fund in Perú to claim compliance with the CFA Institute Asset Manager Code™. Prima AFP is the pension fund manager of Credicorp Group, the largest financial services holding company in Perú. The adoption marks another important milestone for the Asset Manager Code in Latin America, with Prima AFP joining other major pension funds and asset managers across the region and around the world.

The Asset Manager Code clearly outlines the ethical and professional responsibilities of organizations that manage assets on behalf of their clients. For investors, the code provides a benchmark for the behavior that should be expected from asset managers and offers a higher level of confidence in the organizations that adopt the code. 

Many organizations have their own conduct standards in place to guide their work, but it can be difficult for clients to compare different codes or understand the level of commitment toward protecting their interests. Clients can use the CFA Institute Asset Manager Code to identify organizations that commit to a common foundation of ethical principles.

“As the newly appointed Chair of the Board, I am pleased to see this exciting development in my home country of Perú,” said Daniel Gamba, CFA, Chair of the Board of Governors, CFA Institute. “The Asset Manager Code provides a common, globally recognized benchmark for pension funds to strive for and Prima AFP is leading the way. I look forward to seeing more adoptions by pension funds and other asset managers across the country and the region.”

“It is at the core of our mission to advance ethics, professional standards of practice, and market integrity in the investment management industry,” said Karyn Vincent, Senior Head, Global Industry Standards, CFA Institute. “We applaud Prima AFP, and all organizations that have adopted the code, for displaying a steadfast and tangible commitment to professional ethics and putting investors first. When we put investors at the heart of all we do, we can rebuild trust in the profession and benefit society at large.”

“Investors deserve the highest level of ethical and professional conduct from the firms and individuals with whom they trust their investments,” said Renzo Ricci, CEO of Prima AFP. “Adopting the Asset Manager Code is a demonstration of our commitment to our clients and a demonstration of how we protect their interests. We are proud to join the distinguished list of firms and pension funds worldwide that are committed to putting investor needs and interests first.”

The Asset Manager Code is grounded in the ethical principles of CFA Institute and the CFA® Program, and requires that managers commit to the following professional standards:

· To act in a professional and ethical manner at all times
· To act for the benefit of clients
· To act with independence and objectivity
· To act with skill, competence, and diligence
· To communicate with clients in a timely and accurate manner
· To uphold the rules governing capital markets 

More than 1,000 firms worldwide claim compliance with the Code including Ariel Investments, BlackRock, Janus Capital Management, J.P. Morgan Asset Management, Afore XXI Banorte, BBVA Asset Management Mexico, Credicorp Capital Asset Management, Itaú Asset Management and Principal Afore.

Prima AFP has been Credicorp Group’s pension fund manager for the Peruvian market for 15 years. It currently manages the funds of 2.3 million people affiliated with the Private Pension System (SPP) of Perú, equivalent to 30.9% of the market. At the end of August, its portfolio was valued at more than 13 billion dollars

Alken Expands LatAm Presence Through Deal with AIS Financial Group

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Pixabay CC0 Public Domain. Alken expande su presencia en Latinoamérica gracias a la firma de un acuerdo con AIS Financial Group

The Alken Fund, managed by Alken AM, through its Luxembourg Manco, AFFM S.A. and Swiss AIS Financial Group, have announced the signing of a Strategic Agreement to benefit from AIS market presence in Latin America with the aim to expand the penetration of Alken funds in such region.

The deal will allow AIS Financial Group investor base to access a couple of Alken´s UCITS funds, including the Alken European Opportunities, managed by Nicolas Walewski and co-managed by Marc Festa, and the Alken Income Opportunities, managed by Antony Vallée and Robin Dunmall. 

The Alken European Opportunities has a solid long track record in European Opportunities with a fundamental / bottom–up unconstrained, concentrated, low rotation approach.  The Alken Income Opportunities invests in global corporate bonds, with a bottom-up approach including low-delta convertibles, straight bonds, hybrids, and any debt instrument issued by quoted companies. With a flexible breakdown High-Yield / Investment Grade, the fund aims to generate at least a 6% yield per annum.

 AIS is an independent, client service oriented investment boutique, that provides advice on investment solutions with a special focus on structured products and funds. With this deal, AIS further strengthens its brand and reputation, enlarging its product and service offering.

 All entities are enthusiastic for the opportunities this deal will entail, and look forward to a successful partnership.

 

A New World Order: the Sino-US Battle for Tech Supremacy

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Luca Paolini Pictet AM

One world, two systems? From semiconductors to artificial intelligence, China is loosening the US’s grip on the global technology industry. It is a development that investors view with a mixture of hope and trepidation.

Their worry is that an intensification of Sino-US rivalry could plunge the world into a tech Cold War, creating an entangled web of technological standards and ushering in a period of geopolitical instability.

But competition from China could deliver a positive outcome. History shows that rivalries can serve as a powerful spur for human ingenuity. Just as the US-Soviet space race in the 1970s led to numerous scientific and engineering breakthroughs, competition between the US and China could deliver a renewed burst of technological progress. That would be positive for global productivity.

It is indeed in the interests of China and the US to find common ground. The two economies are too interconnected: total traded goods between them – imports and exports – are worth more than half a trillion US dollars.

But even under this more positive scenario, not everyone stands to benefit. China’s inevitable rise will bring an end to US tech hegemony and the exceptional profitability that American tech firms have enjoyed in the past decade.

This will have implications for investors. Capitalising on the tech industry’s next phase of growth will require venturing beyond Silicon Valley. A little less US, a little more Asia.

Technonationalism: inching closer

The tech battle has been brewing for some time. In 2015, China unveiled an ambitious blueprint to develop high-tech industries to reduce its dependence on foreign – and especially US – technology.

Under what was previously known as its “Made in China 2025” programme  it hopes to become 70 per cent self-sufficient in several tech-related industries, such as electric cars, next-generation information technology and telecommunications, advanced robotics and artificial intelligence.

Yet it is China’s ambition in semiconductors that worries the US most. Not only do US chip firms employ more than 200,000 Americans, but they also wield enormous market power. Their semiconductors are the backbone of every electronic device – from laptops and smart phones to electric cars and factory robots.

Currently, US chip firms have a 47 per cent share of the global market. By contrast, China accounts for about 60 per cent of world demand while its homegrown suppliers can barely meet a third of what it needs.

But the landscape is changing fast. When combined, the market share of China, Taiwan and Korea now stands at 30 per cent, compared with just over 20 per cent a decade ago [1].

China recognises that chip self-sufficiency will not come cheap. It understands that investing heavily in research and development is essential if it is to produce state-of-the-art semiconductor components. That is why it has unveiled a new USD 29 billion investment programme to develop the domestic chip industry.

The surge in semiconductor-related R&D testifies to the benefits of competition. Rivalries are, after all, an essential element of a dynamic economy. The challenger, armed with a strategic vision, brings much-needed investment and confronts lazy thinking. The incumbent, meanwhile, is forced to address long-neglected problems and increase research budgets, too.

The semiconductor industry is not the only market where China is asking difficult questions of its rivals.

China’s R&D expenditure – a good proxy for tech-related spending – has more than tripled in the last 20 years to 2.1 per cent of GDP in 2018 [2].

  • On a purchasing power parity basis, its R&D spending is almost on a par with that of the US.

Pictet AM

The US is beginning to mount its response, but it has to move aggressively, and quickly. Federal research spending has declined to 0.8 per cent of GDP from 1.2 per cent in the late 1980s, when the government gave generously to institutions like Stanford University to help build Silicon Valley.

If the US raised R&D investment to a level that matched China’s, that would be a welcome development for a world economy whose productivity is suffering as its working-age population dwindles.

Academic studies have found that the benefits of R&D investment extend well beyond both the firms and industries that incurred such expenditure in the first place. A discovery made by one firm, sector or country can lead to new avenues of research, inspire new projects or find new applications. The social rate of return can be as much as seven times as large as the return on investment in equipment and services that support R&D [3].

R&D spending can boost productivity by improving the quality of existing goods or reducing production costs. Another benefit is the spill-over effect. Studies show that other countries can also boost their productivity by trading with those that have large “stocks of knowledge” from their cumulative R&D activities [4].

Tech race: key battlegrounds

Thanks to China’s world-changing ambitions, competition is intensifying in several key areas of the tech industry:

5G: Next-generation mobile phone networks are the new frontline in the battle to control global information technology infrastructure and set international standards. With pandemic-induced lockdowns stretching data capacity to its limits, 5G tech has taken on greater global importance. China’s Huawei, which has a 30 per cent share of world telecoms equipment, has taken the lead in the global roll-out, but has since faced a clampdown in the US. In response, Huawei is developing an alternative supply chain with rival firms such as Taiwan’s MediaTek.

Cloud computing: This market is growing nearly 20 per cent annually to be worth USD 661 billion by 2024:  Behemoths such as Amazon, Google, Alibaba, Tencent and Microsoft are vying for dominance [5]. Each sees Asia as the main engine of growth. In aggregate, they have increased their data centre footprint in the region by almost 70 per cent over the past three years [6].

E-commerce: The COVID lockdown encouraged millions of people to embrace online shopping. That was especially the case in China, where e-commerce represents more than half of total retail sales, compared with just over 10 per cent in the US [7]. China is said to be “a good four or five years” ahead of where the West is in terms of logistics and digital commerce and retail [8]. China’s advantage here lies in the sheer scale of the mobile ecosystem – a population of 1.4 billion – which integrates everything from online shopping, messaging, gaming and digital payments in one app. What is more, Chinese firms are better positioned than their peers in the US and Europe, where growing concerns about misuse of personal data and anticompetitive practices could lead to greater regulation.

Artificial Intelligence: AI represents one of the biggest commercial opportunities, poised to provide USD 15.7 trillion of global economic growth by 2030 [10]. Already home to the world’s largest AI companies, Baidu, Tencent and Alibaba, China filed more than 30,000 public patents for AI in 2018, a roughly 10-fold jump in five years and about 2.5 times more than the US [9]. The US, meanwhile, is doubling its AI R&D spending in the next two years from the current USD 974 million.

Europe should not be written off as a mere observer in the global tech race – the region also vies for a slice of the pie. Specifically, Europe is launching Gaia-X, a new joint cloud initiative among some 100 leading companies and organisations to challenge the likes of Amazon and Alibaba on data infrastructure. The UK is also home to big chip companies such as ARM.

If China and the US find a way to co-exist as global tech powers, the next decade promises genuinely exciting technological advances.

Tech may seem ubiquitous to those who live in the digitalised world, but less than 60 per cent of the world’s population has access to the Internet. What is more, cloud penetration stands at a paltry 20 per cent, while only 12 per cent of the global consumer spending of USD 24 trillion takes place online.

For investors, this new world order will throw up new challenges. To capitalise on tech’s long-term growth potential they will need to look further afield. They should cast their net beyond the familiar – and increasingly expensive – companies in Silicon Valley and allocate more of their capital to rapidly growing businesses in other hotspots, such as Asia.

 

 

For Pictet AM’s Secular Outlook report, detailing key market trends and investment insights for the next five years, download here

 

 

Notes:

[1] Semiconductor Industry Association 2020 Factbook
[2] European Commission
[3] Lichtenberg, F., R&D Investment and International Productivity Differences, NBER Working Paper No. w4161
[4] Hall, BH., Mairesse, J., Mohnen, P., Measuring the returns to R&D, Handbook of the Economics of Innovation, vol. 2
[5] Compound Annual Growth Rate between 2019 and 2024. Source: GlobalData
[6] FT, Synergy Research
[7] Marketer
[8] Michael Zakkour, New Retail: Born in China Going Global
[9] Nikkei Asian Review
[10] PwC

 

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

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This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning.  Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.  Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested. 

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

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Three Policy Differences for Investors to Watch in the US Presidential Race

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Pixabay CC0 Public Domain. Las tres diferencias políticas que los inversores deberían vigilar en la cerra presidencial de Estados Unidos

President Trump and former Vice President Biden have notably different views about corporate taxes, energy and US-China trade, which may have a substantial impact on markets and portfolios.

As the November 3 US presidential election draws closer, the race is tightening between both candidates. While much is at stake in this election cycle, the three policy areas noted below could have a large impact on the markets and portfolio allocations. Investors should plan to adjust portfolios depending on the direction of policy after Election Day though emerging technology and infrastructure may be winners regardless of the outcome.

1. Corporate tax policy

While Mr. Trump’s corporate tax policies are ostensibly more market-friendly, Mr. Biden’s plan may be offset by other growth initiatives. He wants to reverse the Trump administration’s 2017 tax cuts, raising the corporate tax rate from 21% to 28% (keeping it below the pre-2017 rate of 35%) and creating a minimum 15% tax for corporations earning $100 million or more. He also plans to double the tax rate for foreign subsidiaries of US firms.

These policies would likely hurt earnings for sectors that benefited the most from Mr. Trump’s tax cuts (including financials, consumer staples and utilities) as well as large multinational companies with overseas operations (including technology and healthcare). However, Mr. Biden does plan to invest in growth areas such as clean energy and 5G technology. Moreover, the US economy is recovering from recession, so Mr. Biden may not make tax hikes an immediate priority – and there is no guarantee they will pass, especially if Congress remains divided.

Mr. Trump wants to maintain the status quo. The corporate tax cuts he implemented in 2017 were designed to be permanent, and he also likely wants to turn the temporary tax cuts for individuals into permanent ones. However, much depends on which party controls the US Congress after the elections – a Democratic Congress would be much less receptive to Mr. Trump’s tax proposals.

2. Energy policy

A Biden presidency could create opportunities for clean energy, while another Trump term would support the existing energy regime. Mr. Biden plans to invest heavily in areas like renewable energy and climate protection. His policy calls for a $2 trillion investment in solar, wind and other clean-energy sources, as well as incentives for manufacturers to produce zero-emission electric vehicles and energy-efficient homes.

Mr. Trump’s plan focuses more on traditional energy sources such as oil, natural gas and coal – which account for over 80% of total energy used in the US (vs. 10% for renewable energy). He would provide a friendlier tax and regulatory regime for traditional energy, as well as continued support for fracking – a drilling technique use to extract oil or natural gas from underground. The Trump administration believes its energy policies have made the US less vulnerable to shocks from the Middle East or OPEC.

3. US-China trade policy

President Trump has made US-China trade a priority of his administration – often acting unilaterally or via executive order. The two countries did agree on a Phase 1 trade deal in January, but tensions have since resumed over the pandemic and the business practices of Chinese technology firms. In a second term, Mr. Trump would likely continue his tough rhetoric and unilateral approach, perhaps spurring market volatility in the years ahead.

Mr. Biden has also pledged to be “tough on China”, but has indicated he prefers building coalitions – bringing US allies, labor groups and environmental organizations to the negotiating table. His administration would likely also view Chinese-led technology firms less favorably; Mr. Biden proposes a $300 billion investment in US technology spending (including 5G, AI and cybersecurity) to remain competitive with the Chinese. President Trump would likely favor continued US leadership in technology as well, although he has not confirmed any new policy measures to support this.

Gráfico 1

 

Despite their many differences, Mr. Biden and Mr. Trump are aligned in some areas that markets may not appreciate. For example, both candidates support some form of lowering pharmaceutical drug prices, favor more regulation of certain large US tech firms and hope to pass substantial US infrastructure packages, supporting areas like smart cities, roads and airports.

Historically, markets have done worse in the weeks before Election Day than in the period from Election Day to yearend (see chart). This is likely because the markets don’t like uncertainty: once an election is over, the markets are able to start factoring in the next president’s policies.

Gráfico 2

At the same time, the COVID-19 pandemic makes this a very unusual election year for the markets. While the presidential candidates spar over how they would approach the pandemic, the markets are processing new data points about regional outbreaks, vaccines, drug therapies and the pace of economic recovery – in addition to the level of monetary and fiscal support that has provided a floor for markets so far.

If the global economy does rebound in the next 12–18 months, we expect to see broader sector and geographical participation in the market’s upside – beyond the large-cap US technology stocks that have led through the crisis. Investors may want to factor this in, along with the candidates’ proposals, to consider allocations to select sectors. Cyclicals (such as select industrials, energy and financials), emerging technology with long-term growth potential (such as 5G, AI and cybersecurity), infrastructure and clean energy may all be potential winners in a post-2020 US election era.

Column by Mona Mahajan, US investment strategist and director with Allianz Global Investors

The Inflation Debate: What to Expect in an Economy Emerging from the Pandemic

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“The Big Picture Series”, Jupiter Asset Management. “The Big Picture Series”, Jupiter Asset Management

Jupiter Asset Management is organizing its first virtual event, “The Big Picture Series” for September, October and November, during which the management company will be bringing together experts from various investment disciplines to discuss current financial issues.

At the opening of the event, the first conference was delivered by Andrew Formica, the company’s CEO, who reflected on the unprecedented scale of globally disruptive effects of the pandemic and spoke of his belief in “the power of active minds” to meet the challenges of the currently irrational markets.

Afterwards, Richard Buxton, Head of the UK Alpha strategy and former CEO of Merian Global Investors, and Edward Bonham Carter, Vice Chairman of Jupiter Asset Management, spoke about the process of unifying both firms and the possible headwinds in the markets: the US presidential elections, the failure to reach an a Brexit agreement and the implications of the coronavirus crisis.

Then, on the panel discussion, Katharine Dryer, Deputy Chief Investment Officer, moderated a discussion that addressed inflation in a world that is still emerging from the pandemic. The panel included Ariel Bezalel, fund manager and Head of strategy for the fixed income team at Jupiter AM, Mark Richards, strategist with the Multi Asset team, Chi Kit Chai, Head of capital markets and CIO at Ping An Asset Management (Hong Kong), and Ned Naylor-Leyland, fund manager and Head of the Gold & Silver team.

In response to the crisis caused by the pandemic, central banks and governments have taken a major policy shift with a new wave of accommodative measures. As markets adapt to these new conditions, the debate centers on whether an inflationary or deflationary environment will occur. Beginning the round of responses, Ariel Bezalel, reviewed the evolution of inflation in the last decades, and argued that, in his opinion, what we are facing is structural deflation.

“In the 1980s, central banks, led by the efforts of Paul Volcker as Chairman of the U.S. Federal Reserve, focused their efforts on fighting inflation. Then, the decade of the 90s was marked by a period of moderate inflation. While, at present, deflation or disinflation seems to be gradually enveloping the world. In reality, it is really a growing concern for the major central banks. Over the last decade, we have been experiencing a deflationary environment that has been expressed in our portfolios with a high weighting of medium and long duration securities issued by some of the AAA rated sovereign issuers,” explained the manager.

“In the Euro zone, 60% of the economies are experiencing deflation. On average, if you look at the situation in developed economies, inflation is close to 0%. While in emerging markets, where traditionally higher inflation levels have been experienced, inflation levels have been seen to decrease, reaching an average of 2%, year-on-year,” he added.

According to Ariel Bezalel, most of the arguments on deflation are grounded on worldwide  labor price. In a world with a massive increase in debt, an aging population, and enormous disruption by technology and globalization, the incorporation of cheaper labor from emerging economies into the global economy has been key to increasing deflationary pressures.

Another factor that has also been seen over the last few decades is how capital has gained an increasing share of the pie in the face of the bargaining power of the workforce. Since the pandemic began, some of these trends have accelerated – in particular the creation of more debt to try to rescue the global economy. But, for Bezalel, the concern is not so much the increase in debt as the utility of the debt. The manager pointed out that, during this year, a large part of the increase in fiscal deficits has been dedicated to rescuing the corporate sector and supporting people who have lost their jobs; unproductive debt that has not led to progress in infrastructure investment. 

Mark Richards, on the other hand, maintained a slightly different vision, with a slightly more inflationary scenario. The strategist of the Jupiter AM Multi Asset team argues that some of the structural forces of recent decades have set a trend, but that for the first time in the last 30 or 40 years one can see a coherent narrative on inflation based on a greater tendency of economies to deglobalization.

In the late 1990s and early 2000s, the impact of China’s entry into the global economic scene increased the world’s labor supply. Today, however, we are witnessing a reverse process, which is reflected in the strained trade relations between the United States and China. The way in which the post-VIDC era is moving towards a de-globalization of the economy would explain a possible increase in inflation. More money must be spent on redirecting supply chains, representing a greater cost to the system.

Furthermore, it should be taken into account that, at the global level, monetary policies are giving way to fiscal policies. During the last decade, the monetary policy of the main central banks has been expansive. At present, both fiscal and monetary policies are moving in the same direction after a very long time. According to Richards, the main difference in the response of the authorities to this crisis as compared to previous ones is that the liquidity that is flowing in the system is going to those areas which are less prone to consumption, so the argument of the speed of money is beginning to be more convincing.

Central banks are abandoning inflation targets set 30 or 40 years ago, admitting that they are not capable of modeling inflation. Instead of projecting inflation into the future, central banks decide to wait and keep interest rates close to zero for longer. This angle on monetary policy together with expectations, are the elements by which Richards defends an inflationary economic scenario.

According to Chi Kit Chai, however, there are two opposing forces at play. On the one hand, there are the loosening monetary and fiscal policies that have been implemented to counteract the effect of the pandemic. On the other hand, there is also the process of deglobalization that the economy is undergoing.

In recent decades, globalization has kept the prices of tradable goods low and has also represented a source of cheap labor. At this time, with tensions created by the US and China, there could also be a disruption in supply chains, and a potential relocation of these, contributing to inflationary pressure. In addition, the Fed has recently signaled its intention to tolerate higher price levels by modifying its inflation target.

In Chi Kit Chai’s opinion, there is an argument that we may be at the end of a secular disinflationary cycle spanning several decades, but there are also deflationary pressures exerted by the pandemic and the economic recession. At this time, it is not known if the pandemic is under control, if further waves will occur, or if the vaccine will arrive soon. Therefore, uncertainty in the markets is high. Deflationary forces remain strong because, although governments have acted against the loss of revenue from the most affected sectors, consumer spending has not recovered.

The near-zero interest rate environment also has implications for financial markets. According to Chi Kit Chai, we are in a high volatility and low yield environment in which debt has lost its traditional role of generating income and diversifying portfolios.

The negative correlation between equities and bonds breaks down when interest rates approach zero. Consequently, the risk/reward profile becomes asymmetrical: while the upside is limited, the downside can be significant if interest rates rise. This creates many challenges for investors, so they should not only take into account inflation, but this whole environment of near-zero interest rates.

In a similar vein, Ned Naylor-Leyland pointed out that, from his perspective, the market is exposed to both inflationary and deflationary pressures and that both will persist over time. According to the head of the Gold & Silver team, deflation exists in the monetary sphere. It is the result of some 40 years of accommodating monetary policies that have, in turn, created structural problems in the financial markets, and more specifically in the corporate debt market, where there is an excess supply that will not disappear soon. 

But, Naylor-Leyland also challenges the perception that the cost of living has not increased. Evidence of inflationary trends can be seen in food prices, especially since the pandemic began.

“Inflation used to be a measure of the cost of living and the ability to maintain a constant standard of living. But adjustments to official inflation measures means that at a consumer level inflation has been rising in an uncontrolled fashion, unrecognized by policy makers, and that has contributed to the rise of populism,” he said.

From a conventional market point of view, said Naylor-Leyland, there are individual asset classes from which returns can be achieved, regardless of the type of inflation environment. For the manager, returns can be generated on an individual asset class by taking virtually opposite positions depending on the area the investor is focusing on.

Growth with Quality and Managing Wealth as if it Were a Company: The ‘We Family Offices’ Approach

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Boasting over 20 years in the international financial sector and with $11 billion in assets under management, We Family Offices is one of the gems of the wealth management sector, both in the international and in the U.S. domestic markets. Santiago Ulloa, Founder and Managing Partner of the Miami and New York based firm, tells us about the specialized work they carry out for their clients. This interview was published in the last printed number of Funds Society America’s magazine for readers of the US Offshore market. 

The current environment forces us to be swift in our decision making and to adapt to a future that does not necessarily have to be negative, but that will probably be different. In this unusual year of 2020, We Family Offices is maintaining its agenda: focusing on a comprehensive wealth vision for the families it serves.

“In addition to investments, we address how decisions are made, family governance, that is: we manage family wealth as if it were a company, using strategy, planning, controls, minutes of meetings, among other things,” explains Ulloa.

These months of lockdown and forced social distancing have been an opportunity to have a closer relationship with clients: “We have realized that traveling is not absolutely essential and that in fact you are able to talk with all the family members at once more often.”

We Family Offices is a small company in terms of client numbers, but important in terms of assets: “We currently work with approximately 80 families, but we advise, or provide support to, investable assets in excess of $11 billion,” says Ulloa.

Latin America has a clear potential for attracting high income clients, due to the complex political situation in many countries and the families wanting to organize and sort themselves out. “We are more focused on providing an excellent service than on growing. Fortunately, we always acquire new clients each year, but if there are more than 5, that´s already too many,” says WE’s managing partner.

“We focus on organic growth and are currently not seeing any purchases. We see the opportunity of independent advisors who understand the challenge of serving their clients from a small structure, but, in any case, the most important thing for us is to have a common culture and vision. If that doesn’t work, we prefer to let that opportunity go,” he adds.

The Future of the Wealth Management Industry

If one were to cite a key factor of change in the wealth management industry, Ulloa would highlight the consolidation of entities due to a more complex regulatory framework and high operating costs. But the biggest challenge in the sector is transparency, since currently, “there are no gray areas, it’s all either black or white”.

The firm mainly serves clients in the U.S. domestic market and families throughout the Spanish-speaking region, but also serves the European and Asian zone. First and second generation businessmen “with a long term vision and a desire to do things right” are part of the company’s profile.

Ulloa believes that the Latin American offshore industry “will always exist because many families do not trust the governments of their countries and always want to diversify their assets in secure environments. What will continue to change is the way in which this is approached. In general, the region is suffering a significant geopolitical deterioration, with poverty growing and with populist models based on that difference in income. You can do good for these countries by helping them grow, educating and giving opportunities to those at the bottom. If they don’t, they will be contributing to the demise of the ruling classes”.

ESG Factors and Investment in Alternatives

In its quest for excellence, We Family Offices also has the means to be at the forefront of investment policy. Thus, the team has been working for over five years to integrate ESG factors into portfolios, “an approach of alignment with family values” that goes through a complex and detailed process of dialogue. “It is possible to have well-made portfolios, both in public and private markets, that do as well or better than those that do not apply ESG factors. There are not many institutions that do this, but we have committed to team building and seeking out opportunities and it is working very well,” explains Ulloa.

The Financier believes that the number of independent advisors supporting the families will continue to increase: “We have been saying for more than a decade that we must separate the factory from the product, from the distribution and from the advice. You can’t have everything in the one basket because it creates conflict”.

The WE team is currently managing the demand for alternative assets, such as private equity, real estate or hedge funds “with a lot of patience and by reviewing hundreds of options that come to us all the time, you end up being able to identify what you are really interested in and spend time on those opportunities in order to get to know them in depth and, if it makes sense, invest in them”, explains Ulloa.

Roboadvisors have a place for the firm’s small clients, but in the case of large estates, a much broader global vision is needed, which involves fiscal planning, succession, and issues such as governance in decision making.

Investing in Technology and Human Capital

For Santiago Ulloa, the difference between We Family Offices and its competitors is its human team, “both in the investment area, as well as the family advisors with a wealth of experience, the legal and fiscal support team, administration, consolidation and quality control. It is a unit which operates in a coordinated manner, under a common culture of service and of always putting the client’s interests ahead of ours”.

Currently, the company’s greatest investment in effort and money is its investment in technology and in the improvement of the team, which consists of 47 people distributed between the Miami and New York offices.

Ulloa believes that the client wants transparency and access to good investment opportunities with a minimum conflict of interest. They want advisors they can trust and who will not be perceived as suggesting or recommending anything in their own interest.

In the coming years, tax increases are most likely to occur and it is important to be prepared in this respect: “In the United States, analysts agree that regardless of who wins, there will be tax increases, although perhaps that change will be faster with the Democrats,” says WE’s founder.

Whatever the scenario, being prepared, being flexible and staying on course on the essentials is the way forward for We Family Offices.

Irish Association of Investment Managers Appoints Michael D’Arcy as New CEO

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Foto cedidaMichael D'Arcy, new CEO of the Irish Association of Investment Managers (IAIM) . Irish Association of Investment Managers appoints Michael D’Arcy as New CEO

The Irish Association of Investment Managers (IAIM) has announced in a press release the appointment of former Minister of State with Responsibility for Financial Services Michael D’Arcy as its new CEO. He will work closely with IAIM Chairman, John Corrigan, on the development of the IAIM strategic plan in the context of the challenges and opportunities facing the investment management industry.

The IAIM stated that in his role as CEO, D’Arcy will be responsible for re-setting the IAIM agenda and priorities, given the changing landscape post-Brexit. His role will entail growing the presence of IAIM and the voice of investment managers in the context of the broader domestic financial service sector and helping to promote Ireland worldwide as a pre-eminent destination for investment management firms.

He will also be responsible for leading the contribution of the IAIM around key areas, such as sustainable finance and ESG, collaborating with the other key local and international stakeholders.

Corrigan said that they are “delighted” with D’Arcy’s appointment and pointed out that the industry is growing exponentially in Ireland, a trend they expect to continue. “This is our first step in onboarding the necessary expertise and competencies to face the challenge”.

“Ireland is one of the world’s leading centers for investment management, and the industry is uniquely positioned to play an integral role in the economic and social recovery post-COVID-19. However, we need to ensure that the regulation, policies and joined-up industry thinking in Ireland support this growth”, he added.

In his view, we are moving into “unchartered waters” in a post-Brexit environment, both domestically and internationally, and Ireland has “a once in a generation opportunity to make real changes and be at the very heart of new initiatives” such as ESG and sustainable financing.

Meanwhile, D’Arcy believes that crucially now there is a “huge opportunity” for Ireland, as the UK exits the EU, to help shape the future agenda of not just investment managers and firms where these is considerable growth potential, but even more broadly for the funds industry as a whole and become a global center for the industry.

“In that regard Ireland will need to continue to develop its skills base, and the promotion of education and training will be key in equipping students with the required skillsets, as will be the need to create a greater awareness among graduates and school leavers of the industry’s diverse employment opportunities. In my role as CEO, a vital goal will be in helping to make Ireland the premier destination for the advancement of sustainable and Green finance, and to form strong links and grow our relationships abroad”, he said.

Half of the top ten global investment managers have operations in IAIM, with its members and associate companies in Ireland managing over €1 trillion in assets.

COVID-19 Has Shaken Up High Yield and Put Opportunities On the Table

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Pixabay CC0 Public DomainMatt Horward. Matt Horward

As the COVID-19 pandemic cast its shadow over our economies, the high yield debt market has seen considerable changes of its own – not least the glut of downgrades bringing formerly investment grade (IG) issuers into the sector. However, this presents signs of resilience and opportunities for investors.

Two fundamental aspects of the high yield (HY) market have given issuers a chance to weather the storm. First, HY companies tend to ‘term-out’ debt – habitually moving shorter-term arrangements to longer-term. Second, firms typically have a degree of flexibility from revolving credit facilities (RCFs) which allow them to access cash, up to a predetermined limit, at any time. In short, there is no widespread and sudden refinancing requirement on the horizon. In a sector used to stressful conditions, the wiggle room is already incorporated.

That said, damage is inevitable. The hard stop in parts of the economy has seen activity slump – in some cases to near zero and for month after month. It has been dramatic for retailers, restaurants, airlines and many more. In high yield, the energy sector, and particularly US oil, has taken some of the hardest hits.

Bridging the gap

Spreads have narrowed from their peak, but remain well above pre-crisis levels, which AXA Investment Managers thinks offers good value for UK insurers and pension schemes. As of 22 July, spreads in Europe were 483 basis points (bps), compared to 533bps in the US and 559bps globally (1). This is tighter than the peak in March (by 383bps, 554bps and 535bps respectively) but still about 200bps wider than the start of the year. US issues still dominate – accounting for more than half of the global high yield market. For UK and European investors looking to access the US market, it is worth noting that hedging costs (see Figure 1) have tumbled. After historical highs in late 2018, effective zero rates from the Federal Reserve mean currency hedging costs are now at lows not seen since 2015.

AXA IM

The spreads have been seen are almost equivalent to the tech crash in 2002. The only period with dramatically wider spreads was the global financial crisis where they briefly hit 2,000bps in US HY (see Figure 2). In that regards, AXA Investment Managers believes that the swift action and the sheer scale of monetary and fiscal policy announced to combat the coronavirus around the world – and the willingness to do more in future – has helped to avoid this outcome.

AXA IM

Avoiding defaults

Defaults will rise in the global HY space. AXA Investment Managers thinks a first wave will continue over the next few months, with a second possible as we move through 2021, when the effect of stimulus and intervention wanes, and when the true impact of the outbreak is more clear. This doesn’t rob the HY sector of its appeal, but it does mean that care is needed when taking advantage of these market conditions. AXA Investment Managers expects an overall default rate of 5-8% in US HY this year. The demand picture in HY has been a curious beast, with liquidity holding up well at the more distressed end of the market, and among issuers who were well shielded from the virus impact or which even have a positive crisis story to tell (such as in healthcare). In the latter group, some companies are trading not far below where they traded before, but there may well be reasonable value here as the default risk remains low. In the middle group, however, where visibility about prospects is relatively low, liquidity has been weaker, and prices suffered early in the crisis. That means the potential for both risk and value is perhaps highest here, in our view. And it is here, too, that good credit analysis will be able to add the most value, although it may take time to position portfolios.

Within these groups, across sectors and within sectors the effects of the pandemic have been uneven. Balance sheet liquidity has always been a key part of our credit research tools, but it is particularly relevant now to determine which individual companies may have trouble bridging to the other side of this crisis in both a base case and a more stressed case where lockdowns persist or return. AXA Investment Managers has been reviewing individual holdings for short-term liquidity needs in both scenarios, while our analysis is adapting daily to factor in the unique characteristics of national intervention and support measures. This issuer-by-issuer approach applies equally to the influx of so-called fallen angels from the IG segment into HY – the dollar volume of fallen angels hit a record $91.5bn in March. This ongoing effect of the crisis is having a material impact on the size and structure of the HY market and will bring buying opportunities as the market adapts. AXA Investment Managers believes there should be no blind rush to snap up fallen angels, especially in weaker sectors. Value is possible because there may be forced sellers and the companies concerned may be larger and more resilient. However, fundamental analysis and valuation remains the starting point for any individual trade. In an unprecedented crisis, barely a decade from the last one, markets have rightly been rattled. But as volatility softens, attention should turn to the value on offer. AXA Investment Managers can see good reason to increase duration and risk positioning, where appropriate, while controlling risk for more stressed situations that may arise. History suggests that entry into the HY market at these sorts of spreads has a good probability of a strong return over a one-year view providing good opportunities for investors.

 

To learn more about this topic, please contact Rafael Tovar, Director, US Offshore Distribution, AXA IM. 

 

Notes:

  1. Source: Inter Continental Exchange 22 July 2020

 

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Hamish Chamberlayne (Janus Henderson): “The European Recovery Plan is an Excellent Example of Increased Investment in the Green Economy and Renewable Energy”

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Hamish Chambelayne Janus Henderson 3
Hamish Chamberlayne, director de renta variable sostenible global en Janus Henderson Investors. Hamish Chamberlayne, director de renta variable sostenible global en Janus Henderson Investors

Focusing on sustainable investment and ESG factors, Janus Henderson Investors held its “Invested in Connecting” virtual forum, a three-day event designed to connect clients with sales teams and investment managers on a single platform, sharing ideas, perspectives and knowledge through live presentations and discussions on market issues and perspectives.

The event began with a welcome speech by Ignacio de la Maza, Head of EMEA Intermediary and Latam, who explained that during the sessions, emphasis would be placed on how managers perceive ESG factors and how they incorporate them into their strategies.

On the first day, the focus was on equities, with Alex Crooke, Co-Head of Equities for the EMEA and Asia Pacific regions, delivering a presentation on the prospects for the asset class and the three issues to be considered in the future. The first is a possible reflationary scenario in which central bank and government intervention to rescue the economy produces inflation. The second topic would be a process of stock issues or “re-equitization”. There is concern among company directors that they have incurred in over-leveraging to overcome the crisis. It is expected that once this debt matures, they will opt to issue more shares, something that could lead to a decrease in the return on equity, but which could also translate into better P/E ratios. Finally, the British equity market is discounting the fact that there will be no Brexit deal at the end of the year and some good companies are trading at attractive valuations.

The debate with the Global Technology team:

Alison Porter, Graeme Clark and Richard Clode, portfolio managers with the Global Technology team, then discussed the fundamentals that have enabled the technology sector to outperform the rest of the market over the past decade. The team argued that the valuations are still explained by the robustness of their balance sheets, after a crisis that has particularly benefited the sector.

“There are fundamental differences between the current situation and the 2001 technology bubble that should give investors some peace of mind. Firstly, in the last five years, the technology sector’s increased performance has not been as extreme as it was then. In the period before the technology bubble burst, we saw compound annual returns of over 43%, while in this period we have seen less than half.

Secondly, in the area of stock market listings, since January 2018, some 36 companies have been listed on the stock exchange, a figure which in the two years prior to the bursting of the technology bubble exceeded 230 companies, indicating that we are in a more rational environment. In addition, the leaders of today’s technology companies are more future-oriented; these companies have become platforms that benefit from the network effect they have created. Now 40% of the technology sector is related to software and obtains recurring profits, a percentage that was only 20% in 2001, this allows these companies to obtain higher margins and structural returns,” commented Alison Porter.

 “Finally, on the subject of valuations, interest rates are currently about 600 basis points higher than they were in the year 2000. We tend to say that technology adoption and inflation are inversely correlated, because the adoption of a new technology generates price transparency and is cheaper, faster and allows for better results. The current environment of low interest rates favors high valuations. In terms of profits, shares used to trade with a 53x premium over the rest of the market, while currently they trade with a 20x premium. In terms of free cash flow, shares used to trade at a premium of 118x and now trade at a premium of 31x. But that does not mean that there are not certain areas of concern in terms of valuation, we know that 30% of the sector is not generating profits and that is similar to what happened in the 2000s,” she added.

The importance of ESG factors in the current global environment:

Hamish Chamberlayne, Head of Global Sustainable Equities team and portfolio manager of the Global Sustainable Equity strategy, Andy Acker, portfolio manager of the Global Life Sciences and Biotechnology strategies, Denny Fish, portfolio manager of the Global Technology and Innovation strategy, and Guy Barnard, portfolio manager of the Global Property Equities strategy, then discussed the changes in their respective funds’ investment universe following the pandemic crisis, the acceleration of existing trends, and the growing role of sustainable investment.

“In recent years, the trend towards the digitalization of the economy has had a strong influence on the global context, both on the consumers as well as on the companies. But, during the pandemic, perhaps the degree of consumer penetration has been accelerated, not only in the younger generations, such as Generation Z, which consumes mainly online, but for all cohorts of generations, including the older ones, who now find in the Internet the way to make their purchases and payments,” explained Denny Fish.

“While, on the corporate side, the pandemic has highlighted the importance of digitizing all processes within an organization. As well as the importance of creating virtual infrastructures for their workers,” he added.

Meanwhile, Andy Acker, argued that the defensive characteristics of the health care sector mitigated the impact of the coronavirus crisis on his portfolio. “Investor demand for the healthcare sector tends to increase in market downturns, in the last downturns over 15%, the sector only experienced half of the drop. We have also seen areas of higher returns, such as in telemedicine and sectors on the frontline of the fight against the pandemic,” he mentioned.

Hamish Chamberlayne also discussed how this year, along with technology and the health sector, investment in ESG factors is also benefiting from strong secular trends. “The goal of the Global Sustainable Equity strategy is to build a highly differentiated portfolio with a multi-thematic focus on sources that contribute to performance. While both the technology sector and the health sector contribute positively to the portfolio, there are also other areas that have contributed to performance. Among them, two areas that I would like to point out are companies that are aligned with sustainable modes of transport and a healthier way of life, and companies related to the green economy, renewable energies and electrical infrastructure,” he said.

“Just to mention a few examples, Tesla has had a good year and there is a high degree of enthusiasm about the pace of innovation it has achieved in the automotive sector. On the other hand, Shimano, a leading supplier of bicycle powertrain technology, has benefited from increased demand for alternatives to public transportation and the increased desire for more exercise among consumers in the wake of the pandemic.

On the green economy side, we expect to see an increase in electricity use from the current 20% to 50% of the energy mix in the next decade. As a result, there has been an increase in investment in this area, an excellent example is the European recovery plan, which places the green economy and renewable energy at the center of its stimulus package,” he completed.

IFC and Compass Group Announce an Investment for up to 21 Million Dollars to Help Micro and Small Peruvian Enterprises

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CC-BY-SA-2.0, Flickr. IFC y Compass Group anuncian una inversión de hasta 21 millones de dólares para ayudar a MYPES peruanas

The International Finance Corporation (IFC), member of the World Bank Group, and Compass Group have announced an alliance to channel working capital to hundreds of Peruvian companies, primarily micro and small enterprises (SMEs), from multiple economic sectors which have been severely impacted by the economic crisis generated by the COVID – 19 pandemic.

The alliance is materialized in IFC’s investment commitment for up to 21 million dollars to be invested in one of the funds managed by Compass Group SAFI, Compass – Fondo de Inversión Adelanto de Efectivo, which translates itself as a cash advance investment fund. Moreover, both parties have agreed to stablish a technical support program for the implementation of important enhancements for ESG investments, which is estimated to generate a relevant impact for Peruvian enterprises and communities.

Ivy Figueroa, Senior Investment Officer for IFC, states: “IFC is committed to support Peruvian SMEs in the reactivation process much needed after the pandemic, which has caused negative impacts to the economy and the companies. We are honored to collaborate with Compass Group in the achievement of this goal, given their experience and in-depth knowledge of the enterprise reality across the continent, and specifically in Peru”.

Furthermore, Jorge Díaz Echeverría, Compass Group SAFI’s General Manager declares: “This alliance complements the endeavors which authorities have been displaying to support Peruvian enterprises’ funding needs. We are placing all of our efforts to continue with the investment in receivables and promptly channel working capital to hundreds of Peruvian enterprises who are now confronting the grave crisis caused by the COVID – 19 pandemic.

 The lack of access to financial services that Peruvian SMEs face represents a key obstacle for their growth. IFC works towards developing solutions that close the funding gap by associating with several financial intermediaries, including microfinance institutions, commercial banks and financial leasing companies. In this way, IFC reaches much more SMEs as it could by doing it directly.