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Marcus Evans Prepares its Next Latin Private Wealth Management Summit

The Latin Private Wealth Management Summit is a two day event offering Latin America’s leading advisers of single and multi family offices, wealthy private investors, international fund managers and asset managers a devoted environment for unparalleled business and networking opportunities in a stimulating environment.

For two days between October 3rd and 4th, senior investment executives responsible for fund management and asset allocation decisions of Family Offices including: Presidents, Founders, CEOs, Managing Directors, CIOs, will meet in Panama City for an extensive program organized by marcus evans.

For more information, follow this link or contact Deborah Sacal.

Schroders Appoints New Head of Latin America

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Schroders is announcing today that Gonzalo Binello has been appointed Head of Latin America. His appointment will bring a dedicated, regional-specific emphasis on our development in Latin America, a key strategic growth area for the firm. Gonzalo will also retain his role and responsibilities as Head of Offshore Intermediary Sales.

Gonzalo joined Schroders in 2003 and was most recently the Head of Intermediary Offshore Sales, based in Miami. He has extensive experience and knowledge of the Latin American market, having been Head of Distribution for Latin America and Central America at Schroders from 2009 to 2013.

Gonzalo will report in to John Troiano, Global Head of Distribution at Schroders.

As part of these changes and our focus on Latin America, Pablo Albina will also become Head of Investments for Latin America and continue with his role as Country Head of Argentina. Pablo will work in partnership with Gonzalo to develop and implement our strategy for the region, focusing on building our local investment teams and enhancing our product suite. In this role, he will report to Karl Dasher, Co-Head of Fixed Income and CEO North America.

The new appointment of Gonzalo, together with Pablo, will secure the ongoing prosperity and growth in the Latin America region.

John Troiano, Global Head of Distribution, Schroders commented:

“Schroders has established itself as a growing force in the Latin American market. Furthermore, the region has become a key strategic growth area for the firm and we are experiencing significant client demand for our investment expertise across the continent. We are confident that Gonzalo’s appointment will support the continued growth of our business across Latin America.”

Gonzalo Binello, Head of Latin America, Schroders, said:

“Schroders’ profile in Latin America among investors continues to grow. I am excited to bring my regional experience of the market to this new role and help build on the substantial foundations that Schroders already has in place.

“The investment needs of investors across the continent are diverse. I am determined to ensure that Schroders’ business continues to evolve to meet the complex challenges that both existing and prospective clients face.”

RIA Leaders Are Becoming Younger, Average Age Goes From 52 to 49

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After years of growing older, the ranks of advisers and RIA firm leaders are getting younger. New FA Insight benchmarking research from TD Ameritrade Institutional finds the leadership of registered investment advisor firms is passing the torch from the Baby Boomer to Gen X and investing to sustain their firms’ strong performance well into the future.

The report found that the advisory community as a whole is getting younger, reversing a graying trend that had many advisors worried about the sustainability of the industry. With a median age of 49 years – three years younger than in 2015 — six out of 10 firms have at least one owner who expects to stay at the helm for at least another 12 years, according to The 2019 FA Insight Study of Advisory Firms: People and Pay.

The median age of firm associates, overall, dropped to 42 from 44 in 2015, while the median age of lead advisors is now 46 years, down from 50. The study also found that the number of owners who are 40 years of age or younger equals the number of firm owners who are over 60.

“As the next generation of RIA leaders comes to the forefront, they’re investing in their firms with a long time horizon,” said Vanessa Oligino, Director of Business Performance Solutions at TD Ameritrade Institutional. “We expect to see different approaches to industry challenges – whether they be staffing and compensation, growth and organizational design, or technology and innovation.”

Firm owners remain characteristically confident about continuing growth in 2019. They’re investing in senior-level experience, with lead advisor compensation up by 12 percent over the last two years, in an effort to secure seasoned talent that can help supercharge growth and navigate tomorrow’s challenges.

The report found that, although 2018 ended with the major stock indexes posting their worst yearly performances since the 2008 global financial crisis, choppy markets did not quell firm owners’ optimism, even as growth in assets under management (AUM) slowed.

The median revenue growth rate for firms was 14 percent in 2018, up slightly from 2017, while the median client growth rate of 7.4 percent was little changed. The rate of growth for AUM dropped to 5.9 percent.

Today’s Advisory Firms: Growing and Profitable

Firms continued on their growth trajectory in 2018, thanks to efficient operations management and the increase in productivity from associates in revenue-generating roles.

At 21 percent, a typical firm’s operating profit margin last year rose by more than a percentage point from 2017, and overhead expenses as a share of revenue fell slightly in 2018. This translated to rising income for firm owners, whose median total income rose 3.6 percent in 2018 to $633,000, the highest since 2014, or 55 cents for every dollar or firm revenue.

Despite market declines at the end of 2018, firm financial performance was also strong compared to the average of the previous five years. The rate of revenue growth increased to 14 percent, versus 12 percent, while operating profit margin increased from 20 percent to 21 percent. Revenues generated by revenue-generating roles were up 14 percent to $547,000 in 2018, while annual revenues per full-time equivalent (FTE) were up 13 percent over a two-year period.

Wanted: Seasoned Help

Advisory firms anticipate doubling their hiring rate in 2019 compared to 2018, with 61 percent making at least one hire last year. The largest firms plan to increase headcount by 10 to 12 percent, bringing on board seven FTEs.

Senior revenue generators and advisory firm staff, who have a proven ability to navigate market volatility and ease client concerns, have seen compensation rise over the last two years, whereas compensation for less experienced revenue generators has fallen. The compensation of associate advisors, who are now generally younger and have less experience than in prior years, has gone down by 8.5 percent and operations manager compensation rose during this period by 8 percent during this period.

The quest for experience may also help explain why firms continue to recruit lateral hires from inside the industry. RIAs tend to hire predominately from other independent RIAs for revenue roles, though they may also consider recruiting from other financial services firms and wirehouses.

Only 4 percent of firms are hiring recent college graduates for revenue-generating roles. A slightly higher amount, 6 percent, are hiring professionals from outside of the financial services industry.

People costs represent 77 percent of a typical firms expenses and 59 percent of total revenues. For every dollar spent on cash compensation, firms spend an additional 14 cents, on average, on retirement programs, medical benefits, training and payroll taxes.

“Independent advisory firms are laser-focused on growth and profitability, keeping expenses in line, while generating healthy returns across market cycles,” said Oligino. “Entrepreneurial and optimistic, successful owners are making investments they believe will benefit their firm in the long-run.”

Click here to read the executive summary of The 2019 FA Insight Study of Advisory Firms: People and Pay.

FIBA and FELABAN Prepare the 19th CLAB Financial Technology and Innovation Conference

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Fintech revolution and regulation, digital transformation, blockchain, payment innovation, cybersecurity, the future of customer experience, financial inclusion and AI are some of the themes to be discussed at the 19th CLAB Financial Technology and Innovation Conference.

Between September 4-7, over 1,000 people from over 35 countries and representing more than 200 financial institutions will gather in Hollywood, Florida for three days of networking and lectures.

Organized by the Florida International Bankers Association (FIBA) and the Federación Latinoamericana de Bancos (FELABAN), CLAB will discuss the most relevant trends and technologies impacting the financial institutions in the region.

Learn more: https://clab.fiba.net/

Draghi: “An Ample Degree of Monetary Accommodation is Still Necessary”

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At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

According to a press release, “the Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term”.

However, on his opening statement, Draghi made it clear that loose policy is here to stay: “An ample degree of monetary accommodation is still necessary”.

The Governing Council also underlined “the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner”.

In this context, the Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.

Aneeka Gupta, from WisdomTree said: “The ECB remains stubbornly stoic, falling short of market expectations. It has decided to leave the deposit rate unchanged at -0.40% but sets up the stage for a rate cut ahead at its meeting in September… European financials reacted positively to the possibility of tiering by the ECB. The markets were expecting to receive more stimulus at this meeting after the release of the weaker manufacturing PMI and IFO data from Europe and Germany respectively at the start of the week. The German bund yield fell to a record low of -41bps as the ECB opens up the option of further QE.”

Also today, the Governing Council of the ECB adopted an opinion on the recommendation from the Council of the European Union on the appointment of the future ECB President. It read: “The Governing Council has no objection to the proposed candidate, Christine Lagarde, who is a person of recognised standing and professional experience in monetary or banking matters.”

Anne Richards (Fidelity International): “The Shift that the Asset Management Industry Is Seeing Now Will Exclude a lot of Investors”

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During the celebration of the Fidelity International’s annual Media Forum in London, Anne Richards, CEO of the firm, shared her view on the challenges that the asset management industry will have to face in the next decade.

According to Richards, global regulations on pension funds and other long-term saving vehicles are directing the mass affluent investors to own public listed securities. Meanwhile, the amount of capital that has been allocated to private markets has increased and the returns in the private markets have been persistently higher than in the public listed markets.

“The number of public listed companies is falling around the world. Companies are increasingly looking to private markets to raise capital. Last year in the US, more money was raised in the private markets than it did in public listed markets. When I was the rookie on the desk, one of my tasks was to manually check the price of each holding that we owned across the business. The total number of listed companies that I had to check was 967 stocks. Today, the equivalent number is more than a third lower. On one hand, the regulators are pushing the mass affluent investors into funds that are typically concentrated in daily listed stocks, which is a market that is currently narrowing, and on the other hand, the asset management industry knows that the returns are higher in the private market. I think this is a deeply uncomfortable juxtaposition to have,” explained Richards.

“The main benefit of democratization of capital was to allow people without a lot of money to get some access to capital markets. The shift that the asset management industry is seeing now will exclude a lot of investors from obtaining attractive capital returns. The returns in private markets are being only directed to those who have the capacity to get exposure to that type of capital, categorized as professional investors. This may cause eventually an inequality issue, which is the heart of much of the unrest and political divergences that the world is facing right now. We have to come together as industry and think about ways of making sure that we can continue to offer a whole range of investment opportunities, regardless of the investment amount”, she added.

A shift towards more returns for society

Speaking about the responsibility that the asset management industry has over society, Richards mentioned the need to take into consideration not only the financial returns, but the long-term impact that every business has in the society.

“When you look after other people’s money, like the asset management industry does, you end up with an above average share of voice by collecting a lot of individual voices. Our business could make a meaningful difference on encouraging companies not take advantage of the work force or the environment, and to do things that are good for the broader society. Financials returns are important, but not enough. We need to think about the long-term impact of investments. This is important to us because our clients and employees are also asking for a responsible way of investment,” she said.

A family business

The fact that Fidelity Investments and Fidelity International are a family started business -the Johnson family owns a large part of the business, although there are other many shareholders and employees that are owners as well- makes the dynamic of the business very different.

“This characteristic gives Fidelity International a long multi-generational view. The mindset is not about maximizing the value of what we are doing today. Instead, the mindset is how you can build something better to handle it to the next generation, and that’s very special. It is a very refreshing mindset. In a listed company business, the decisions of the management are sometimes affected by the demands that the market imposes on the business and the volatility that can come from the pressure on quarterly earnings.

This is not to say that it does not matter to us running an efficient organization and taking care of the business that we inherited from the previous generation. But we do have an ability to take a through-cycle view of what we want to do and how we want to invest,” she stated.
Fidelity International has two distinctively separated business. Firstly, the investment management part of the business, where the firm engages directly with institutional clients, wholesale clients, private banks or larger financial institutions. And secondly, the platform business that can be used to help advisers to manage their part of the business.

“The dynamics of these two areas of the business are quite different. This gives us a good window on the landscape in the outside world and on what is wanting from us. This full capacity is very powerful and few of our competitors have it”, she mentioned.

Geographical spread

China is a massive market and opportunity. Population in China is aging and has more disposable income than the previous generations. Regulators and policy makers are starting to build the infrastructure to provide to each individual person the ability to have some sort of control over their financial future, as it has already happened in other countries around the world. China is about to build the first pillar to their pension system, but they still not have a third pillar of voluntary savings.

“As for now, we have been in investing in China over 20 years and we have been competing in the ground field around 14 years. In order to build up our capabilities in China, we have been a lot more patient than our competitors. Partly, because we have always felt we needed to be in control of culture, and partly because of the investment environment that our teams are operating in. In 2017, we had the opportunity to obtain a wholly owned investment license in China, which only allows to do business with high net worth individuals, not with the mass affluent market,” she explained.

Other strategic areas

Historically, Fidelity International tended to be known for its expertise and capabilities in both equities and fixed income. However, since the number of public listed companies is falling in many developed markets, Fidelity International considers very important to start building a broadest range of capabilities in the less liquid space of the investment universe. In that regard, the firm recently hired Andrew McCaffery, who will fill the newly created position of Chief Investment Officer for alternative assets.

“We want to build out our capabilities across the alternative investment space so that we can continue to offer innovative themes to our customer base as it evolves. So, it does not mean in anyway, that we are trenching our former heritage or our market expertise, particularly in the equity market and increasingly in the fixed income market, but that we need to enhance the offer the whole spectrum of capabilities”, she concluded.

Global Markets Seem to Have Priced In a July Cut

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Stocks rallied to all-time highs in June bolstered by hopes for progress in the global trade wars and in anticipation of a potential reduction in the Fed’s policy interest rate. At the June meeting, the FOMC signaled that it was prepared to cut rates this year stating that uncertainties have increased and “the Committee will closely monitor the implications of the incoming information…and will act as appropriate to sustain the expansion.” Global markets seem to have priced in a July cut.

Stocks finished June with the best gain for that month since 1955 to close an outstanding quarter and the best first half gain since 1997. Financial markets are now discounting a positive outcome of the trade talks between President Trump and Chinese President Xi Jinping at the G20 summit in Japan, which started on June 29.

On the deal front, a surge of M&A transactions and IPOs put the U.S. way ahead of Europe and Asia for the first half. The booming U.S stock market and relatively strong economy provided a solid backdrop for deal making activity. Activists lit the fuse in many cases as buy side catalysts versus their typical role of demanding that sellers get higher prices from acquirers. Antitrust push back created formidable obstacles to some deals such as Sprint Corp. / T Mobile and Spark Therapeutics / Roche.

Announced first half U.S. deal values jumped twenty percent from a year ago to a record $1.1 trillion, the first time to reach that level during those six months.

Prominent proposed U.S. mega deals – those over $10 billion – included the $121 billion merger of United Technologies’ aerospace division with defense contractor Raytheon, U.S. drug maker AbbVie’s $63 billion bid to acquire peer Allergan Plc and Occidental Petroleum’ $38 billion deal to buy Anadarko Petroleum.

We expect M&A activity to pick up for small and mid-sized companies during the second half of the year as strategic and private equity buyers take a closer look at the intrinsic values versus the market prices of these companies.

Column by Gabelli Funds, written by Michael Gabelli

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

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

Vishal Hindocha (MFS IM): “The Active Management Skill Is Probably the Best Diversifying Asset that Investors Can Buy Today”

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The current US equity market cycle is the longest bullish market on record, with 9 and a half years of history, with a small correction in the fourth quarter of last year, but already back on track in the first semester of the year. In terms of compounded wealth, is the second highest market cycle on record, with a compounded return over 330%. According to Vishal Hindocha, Director of the Investment Solutions Group at MFS Investment Management, this is an enormous volume of return that probably will not be seen again going forward.

Valuations in equity market are telling investors that we are about to enter to a more recessionary environment. Observing the forward annualized returns based on historical Shiller P/E ratios for the S&P 500 Index for one, three, five and ten years, it could be stated that valuation will play a key role in future equity returns.

“When the Shiller P/E ratio is less than 10, equity markets are cheap, and returns are pretty strong. But, when the Shiller P/E ratio is in a range greater than 40, then the forward annualized returns in equity markets are bearish from that point onward, particularly in in the five and ten-years return. Just think about the compounded impact of that in the client’s portfolios. The current Shiller P/E for the S&P 500 is around 32,5x. We are currently in the 30 to 40 times range, if the history is sort of guiding us, the 5 or 10-years returns expectations on equity are not looking attractive from this point onward,” explained Hindocha.

Valuations in bonds are also not promising. In bond markets, current yield to worst tends to be a good predictor of what returns should investors expect over the next five years. A starting yield to worst a little bit lower than 2% communicates that investors should expect a subsequent 5-year annualized return between 2% and 4% above the mentioned yield, which again is lower than expected returns in previous periods in history.

“Returns expectations of the most major asset classes are going to be lower going forward. In MFS IM, we think that alpha is going to need to play a much more important role in investors’ portfolios from today onward. The 100 or 200 bps that you can get from alpha are going to be disproportionally more valuable to investors than they have ever been in the past,” he added.

Leverage in the system

Ten years after the global financial crisis and the level of corporate indebtedness is in fact higher than the pre-crisis levels. The net debt to EBITDA ratios of the MSCI World Index, the MSCI AC World Index and the S&P 500 are well above the 1.6 x level of 2008.

“Leverage itself is not necessary a bad thing. But what it means is that investors need to be extremely careful about what they own. These higher levels of leverage can turn a good business into a stressed business very quickly. That’s the reason why selectivity is going to be much more important in the future. If the default cycle changes, leverage its going to hurt lower quality companies. The same trend repeats itself at the government level. Global government debt to GDP ratio is also generally higher than at the pre-crisis levels. Debt levels are continuing to climb again, and this fact, combined with a decline in the quality of the global corporate index and a decline in the liquidity, is embedding more risk into the system,” said Hindocha.

What can investors do in this environment?

In the last three decades, investing has become an increasingly complex puzzle. According to a model developed by Callan Associates in the US, 30 years ago, in 1989, to earn a 7.5% expected return, investors needed a portfolio that could be 75% invested in cash and 25% in US fixed income, only supporting a risk level of 3.1%.

15 years later, in 2004, to earn the same 7.5% expected return, investors needed to increase the complexity of the risk budget introducing new asset classes: 26% in large caps US equity, 6% in small caps, 18% in non-US equity and 50% in US fixed income, would nearly triple the portfolio volatility to 8.9%.

Fast forwarding to 2019, the pie chart is a lot of more complicated, the expected returns are the same, but now the risk level is six times higher than 30 years ago. Investors are now required to invest 96% of the portfolio in growth assets (34% large cap US equity, 8% small-mid caps, 24% non-US equity, 14% real estate and 16% private equity) and 4% in US fixed income to obtain a 7,5% expected return with a level of volatility of 18%.

“Investors, trustees and advisors are now beginning to question whether the amount of complexity added to the portfolios over the last 15 years has been paying off or if it has only increased the risk,” he argued.

Does diversification work?

In addition, there are clear evidences that diversification is not working as it used to. The paper “When diversification fails”, published by Sebastien Page and Robert A. Panariello in the Financial Analyst Journal in the third quarter of 2018, concludes that diversification seems to disappear when investors need it most. The paper distinguishes between the left tail scenario, where equity is performing extremely bad, and the right tail scenario, where equity is performing extremely well.

On the left tail, the correlation between equity and the major types of asset classes increase over 50%. The benefits of diversification, which are really resting on low correlation between the asset classes, disappear when investors really need them. If equities are performing negatively, all the other asset classes are also falling at the same time.

On the contrary, on the right tail, when equities are performing extremely well, suddenly, diversification works perfectly well. When investors would want unification, correlations remain below the 50% and, in some asset classes, it even becomes negative.

“Diversification is an important part of the tool kit. We just need to recognize the role that it plays and the types of market environments in which it may be more appropriate. Diversification should change the shape of the distribution, it should help on left tail environments, and potentially hold the portfolio a bit on the right tail environments.

Meanwhile, active management, if done correctly, can provide better than average outcomes. It can even change the skew of the return’s distribution. Investors should start viewing good quality active management as a good diversifying asset.

“Active management seems to be providing the trait that investors are expecting from alternative investments. It seems to be protecting investors when markets are down and to being able to keep up when equity markets are going upwards. The active management skill, particularly countercyclical skill, is probably the best diversifying asset that investors can buy today. We as active managers can play a powerful role to help protect client capital when they need it the most”, he concluded.

Facebook: The New Central Bank?

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Facebook: ¿el nuevo banco central? — Pixabay CC0 Public DomainCourtesy photo. Facebook: The New Central Bank?

Facebook has become an essential part of our social, cultural, economic and political spheres. Now it is looking to become our new global payment system. This was the announcement that came last week from the Libra Association (led by Facebook) along with a whitepaper about the creation of a new cryptocurrency called Libra and its accompanying digital wallet, Calibra.

The first digital currency, Bitcoin, was followed by many others: Ethereum, Dodgecoin, Litecoin, Ripple, XEM, Dash, Monero, Petro, etc. Apparently, we will now have one more as early as the first half of 2020. However, this is not going to be just “one more” as Libra looks more like a fiat currency than a cryptocurrency. In other words, with the gold standard consigned to the history books, along comes the all-powerful Facebook to create a digital currency backed by a basket of financial assets.

Facebook is not alone in this endeavour. Companies like Visa, Mastercard, PayPal, Spotify, eBay, Vodafone, Booking, Mercado Pago and Thrive Capital are among the 28 founding members of the Libra Association that will govern Libra. The goal is to reach 100 members before the official launch of the digital currency. Besides the sheer weight of the consortium of businesses backing the currency, if we add into the equation the 2.32 billion active users enjoyed by Facebook each month (one third of the world’s population), it is not hard to image the potential reach of this new cryptocurrency.

In many respects, the use of blockchain technology for Libra is quite different from the other digital currencies we know about today. Quite the opposite, in fact. The Libra whitepaper rejects the idea of anonymity and secrecy in transactions and the Libra Association has already confirmed its collaboration with financial regulators to prevent money laundering and tax avoidance.

A further crucial difference with Libra is the backing of a reserve of low volatility assets including bank deposits and short-term government debt in stable currencies like the dollar, euro, Swiss franc and yen. That said, we will need to have faith that the Libra Association will maintain these assets, record transactions and that Libra itself will be fungible, etc. Ultimately, this is the same faith we currently have in the central banks, except for a couple of important distinctions: Facebook is a private entity but it will hold some underlying assets, whereas central banks are public bodies but they do not hold assets that fully support currency issuance.

Of course, misgivings and controversies are already springing up regarding matters like data protection and the use of information in such a high-profile project. Let us not forget that Facebook possesses a vast archive of personal data from its users, about whom it knows practically everything. Many of us have not forgotten about the fines imposed on Facebook by the European Union for controversies like this and the scandal surrounding Cambridge Analytica, the consulting firm that unlawfully used information gathered from 87 million Facebook users.

Following the announcement of Libra’s creation, it is inevitable that the reflections that have been floating around for some time regarding cryptocurrencies come to the forefront once again. For example, questions are being asked about the implications for central banks and monetary policy in the event of the widespread use of a payment system like Libra, which employs blockchain technology although with a different objective to other digital currencies like Bitcoin. At first glance, it may look like an attempt to undermine the power of central banks. But curiously, as one analyst has already pointed out, in the context of a financial crisis, it could reinforce the impact of negative interest rates as it would eliminate the possibility of hoarding physical currency and other means of avoiding negative rates.

According to the whitepaper on the creation of Libra, it is “a simple global currency and financial infrastructure that empowers billions of people”. For now it is just a fledgling project, but it is certainly an interesting one.

Column by Meritxell Pons, Director of Asset Management at Beta Capital Wealth Management, Crèdit Andorrà Financial Group Research.

Katch Investment Group: A Rising Private Debt Boutique

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In the 10 years following the global financial crisis, the liquidity injections of major central banks have inflated traditional asset classes, particularly in the fixed income markets, thus decreasing the profitability of investors. Additionally, new regulations have reduced the willingness and ability of banks to lend to smaller businesses.

In response to those trends, Katch Investment Group, -a dynamic asset management boutique offering innovative tailor-made investment solutions-, focuses on short-term lending and financing opportunities within the private debt universe. In a constantly changing and challenging financial market environment, Katch Investment specializes in areas where capital supply is scarce that offer relatively high and stable returns for investors.

Who is Katch Investment Group?

The group combines in- depth financial market knowhow, asset management experience and strong analytical skills, with a deep understanding of the needs and tastes of private investors, particularly in Latin America. The group focuses on global opportunities, without any restriction, providing greater diversification and allowing greater potential to offer high returns.

The group is owned and managed by Laurent Jeanmart, Chairman, Stephane Prigent, Chief Executive Officer, and Pascal Rohner, Chief Investment Officer. All three hold the Chartered Financial Analyst accreditation, considered one of the most respected credentials within the financial industry.

As the chairman of the group, Laurent is responsible for the sourcing of new ideas, new business initiatives, due diligence of asset managers and the creation of strategic partnerships across the globe. Laurent is based in London, one of the most important financial centers in the world. He has more than 20 years of investment experience in alternative asset management. Laurent’s previous experiences include responsibilities at Fidelis Insurance Holdings Ltd., a London and Bermuda based insurance company where he was Group Chief Investment Officer managing $1.5 billion of assets. Previously, he was Global Head of Investment at Platinum Capital Management Ltd., a global asset management platform, where his responsibilities included overseeing the firm’s actively managed funds (hedge funds, equities, volatility, and commodities).

Stephane is the CEO of the group and therefore responsible for all day-to-day operations and the distribution. He has more than 20 years of experience in asset management in several locations around the world: Paris, Boston, NYC, London, and Panama City. He has worked in several banks, such as BNP Paribas, Lehman Brothers, State Street Capital, and Credit Andorra. His focus has been on the construction and management of portfolios for clients with a focus on alternative investments. In his previous experience at State Street London, Stephane was a Managing Director in his Global Head of Equity Sales Research position. He was a member of the European executive committee and oversaw 25 people located in New York City, London, and Hong Kong.

Finally, as the Chief Investment Officer, Pascal is responsible for the investment strategy, portfolio management, marketing and investment advisory for financial intermediaries. Pascal has more than 16 years of experience in financial market research, portfolio management, and investment advisory. He worked several years as a financial analyst, strategist and investment advisor for Credit Suisse in Zurich, New York and Panama. Before joining Katch Investment Group, he was the Chief Investment Officer of Credit Andorra and its Multi Family Office, Private Investment Management in Panama.

Pascal highlighted: “I have been working with private clients and advisors in Latina America for the last 7 years. Latin Americans tend to have a very conservative investment approach for their family savings, with a focus on wealth preservation and liquidity. However, they tend to take too much risk within their fixed income portfolios, because safe bonds don’t pay enough to cover inflation and the bankers’ commissions. And maybe they do not have enough time to analyze alternative solutions”.

“Speaking to institutional and private clients in the region, we noticed that there is a huge, unmet demand for relatively safe fixed income alternatives. That’s why we started to explore the whole investment universe to find conservative investment opportunities that can provide liquidity, income and stable returns, that are not correlated to traditional asset classes,” he added.

The backdrop

The investment environment is challenging around the globe, not only in Latin America. Equities are reaching the final phase of the bull market that is characterized by high volatility on the back of trade war and recession fears. And the safer fixed income areas, such as US Treasuries offer protection but little value after the recent drop in yields. Therefore, many investors and advisors have started to focus more on alternative asset classes, an area that has long been little explored by private investors, especially in Latin America.

The problem is that many alternative assets are structurally unattractive. Commercial Real Estate is challenged by a strong trend towards online shopping and the rise of the “sharing” economy with big disruptions coming from innovative companies such as Amazon and Airbnb. Commodities are negatively affected by the trends towards alternative sources of energy, car sharing and China’s transformation from an export- and infrastructure-driven economy towards high-tech and domestic consumption. Finally, many hedge funds still suffer from the lack of transparency, the high complexity and image problems due to investors’ bad experiences in the past. Also, the 7% drop of the HFRI Hedge Fund Index in 2018 illustrates that many hedge funds remain highly correlated to other liquid assets, such as bonds and equities that had a very bad performance too last year.

The good news is that there is a new, emerging asset class that offers the most attractive risk/reward profile for investors, that is called Private Debt. The asset class started to flourish after the Great Financial Crisis. New regulations have reduced the banks’ desire and capability to lend to the real economy, especially to smaller businesses. Instead, banks helped to inflate the government bond market in their effort to accumulate reserves and strengthen their capital base.

The banks’ retreat from the loan market has left a gap that private institutions, such as private equity firms and other asset managers, have been eager to bridge. They have filled the lending vacuum to provide crucial financing to the real economy – and particularly to small and medium-sized enterprises, the backbone of our economies. Newly created investment vehicles have attracted substantial interest from institutional investors hungry for yield.

Following the financial crisis, the massive monetary stimulus has inﬂated the price of liquid assets, especially in fixed income markets, depressing yields for investors. At the same time, the lack of capital provided to smaller companies has kept yields for smaller loans at elevated levels. Typically, private loans pay interest rates between 5% and 15% without leverage, based upon a ﬂoating base rate (LIBOR) with very low market volatility (standard deviations below 2%). In addition, strong collaterals, personal guarantees, and relatively low nominal amounts favor low delinquency.

In summary, private lending funds generate attractive and stable returns for investors, with low volatility and low correlation to traditional asset classes. Katch Investment Group identified these trends and decided to launch open-ended investment vehicles that invest in short-term lending and financing opportunities.