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Amundi Pioneer hires New Senior Managing Director and Head of Fixed Income, US

Amundi Pioneer has announced the appointment of Christine Todd as Senior Managing Director and Head of Fixed Income, US.

Christine was previously President of Neighborly Investments in Boston, a technology-driven impact investment manager focused on customized municipal bond portfolios for institutional and high net worth investors. Prior to Neighborly, Christine was President of Standish Mellon Asset Management in Boston, a leading fixed income asset management firm. She headed Standish Mellon’s Tax Sensitive and Insurance investment platforms and managed portfolio management, credit research, trading, and client relations. Prior to joining Standish Mellon in 1995, she was a portfolio manager, trader and analyst at Gannett Welch & Kotler, a Boston investment firm.

Christine has a B.A. from Georgetown University and an M.B.A. from Boston University. She is a Chartered Financial Analyst.

After a Great January, the Small and Mid-Cap Space Continues to be Well Valued

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U.S. stocks started 2019 with the best January since 1987 and the best monthly gain since 2015. This sets up 2019 for a positive annual return based on historical data since 1936. The FOMC statement that the Fed would now be ‘patient’ on future rate changes and Chairman Powell’s statement that balance sheet ‘normalization’ would end sooner than expected, plus a robust employment report, all combined to spark investor sentiment to buy stocks.

Gabelli’s Private Market Value (PMV) with a Catalyst™ stock selection research ideas — Liberty Braves (BATRA), Energizer Holdings (ENR), 21st Century Fox (FOX), Herc Holdings (HRI), MGM Resorts International (MGM), Navistar International (NAV), Griffon (GFF) and updates on Textron (TXT) and GCP Applied Technologies (GCP) — were highlighted as seven ‘stock picks’ and two updates at BARRON’S 2019 Roundtable published in the January 21 issue.

Cambridge, MA based GCP Applied Technologies is a producer of cement, concrete additives, and weatherproofing for commercial construction and benefits from infrastructure spending. Swiss chemical company Sika AG is acquiring French rival Parex for $2.5 billion in the ongoing consolidation of the building materials industry. Sika recently fended off a hostile takeover from France’s Saint-Gobain. As a niche player, GCP is an appealing potential target.
Providence, RI based Textron continues to take share with new models as the long cycle in business jets unfolds. NetJets, the shared jet ownership division of Berkshire Hathaway, recently announced a deal to buy up to 175 Cessna Citation Longitude and 150 Hemisphere jets. Textron has a top notch management team.

Global M&A announced deal volumes were $4.1 trillion in 2018 with a strong first half driven by ‘megadeals’ greater than $10 billion in size. Companies will continue to focus on unlocking value with deal activity in 2019 as spin-offs and split-offs, often catalyzed by increased pressure by activists, remain center stage.

We continue to scour the market for great companies to invest in and are focused on fundamental opportunities globally. The small and mid-cap space continues to be well valued and the long term upside, thanks to financial engineering, serves to be fruitful for investors. The consumer and a focus on global infrastructure and development are major themes to keep an eye on as we begin the year. Trump and Trade remain at the forefront in the U.S. and as the dust settles globally economic questions remain open ended throughout Europe and Asia, leading many to raise cash and reevaluate the markets as future volatility remains a key driver for both sentiment and relations both at the personal and macro levels.

Column written by Michael Gabelli from Gabelli Funds

To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:

GAMCO MERGER ARBITRAGE

GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.

Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.

Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.

Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.

Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476

GAMCO ALL CAP VALUE

The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.

GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.

Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155

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.

Andrea Frazzini, David Kabiller, and Lasse Heje Win CFA’s Graham and Dodd Award

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CFA Institute, the global association of investment management professionals, has named the winners of the 2018 Graham and Dodd Awards of Excellence. Every year, a research article published in the CFA Institute Financial Analysts Journal receives the prestigious Graham and Dodd (G&D) Award to recognize the contribution of the research to the practice of investment management. The article “Buffett’s Alpha” by Andrea Frazzini, David Kabiller, CFA, and Lasse Heje Pedersen of AQR Capital Management has won the Top Award for 2018.

Published in the Fourth Quarter 2018 issue of the Financial Analysts Journal, the article suggests that Warren Buffett’s returns are neither luck nor magic but instead a reward for leveraging cheap, safe, high-quality stocks. The piece attempts to explain the remarkable performance of Buffett’s Berkshire Hathaway portfolio by analyzing and compiling stock returns, mutual fund data, holdings data, SEC reports, and even hand-collected comments from Berkshire Hathaway’s annual reports.

“It is fitting that an article about Buffett, Benjamin Graham’s most famous student and a strong advocate of his value investing approach, is this year’s Top Award winner, bringing the award back full circle to the well-respected principles of Graham and David Dodd,” said Heidi Raubenheimer, CFA, managing editor of the Financial Analysts Journal at CFA Institute. “Andrea Frazzini, David Kabiller, and Lasse Heje Pedersen did an outstanding job of thoroughly dissecting Buffett’s approach and analyzing what is truly at the heart of Berkshire Hathaway’s long-term success. Their findings confirm the ‘practical implementability of academic factor returns’: Berkshire Hathaway’s systematic exposure to value and quality factors can be mimicked and realized by others. Their analysis demonstrates the further improvement of the fund’s performance by its successful use of its unique access to high-quality, cheap leverage.”

In addition to the Top Award, the G&D Awards Committee honored “Hedge Funds and Stock Price Formation” by Charles Cao, Yong Chen, William N. Goetzmann, and Bing Liang with a Scroll Award. The article was originally published in the Third Quarter 2018 issue of the Financial Analysts Journal and concerns stock mispricing implied by both hedge fund ownership and trading.

The annual G&D Awards of Excellence include the Top Award to recognize the best research article and up to two Scroll Awards to acknowledge the runners-up. Winners are chosen through a two-stage selection process. First, all members of the Financial Analysts Journal Advisory Council and Editorial Board are invited to vote, producing a shortlist of practitioner-relevant research articles published in the Financial Analysts Journal throughout the year. Second, the G&D Awards Committee (six members selected from the CFA Institute Board of Governors, the CFA Institute Leadership Team, CFA Society leadership, and the Financial Analysts Journal editorial team) collectively decide the award winners from the shortlist.

Adaptation to the Client and Social Commitment: BNP Paribas Wealth Management Tools to Ace the New Post-MiFID II Course

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Although she recognizes that MiFID II will promote the discretionary management of portfolios, Silvia García-Castaño, CIO and Head of Discretionary Portfolio Management at BNP Paribas Wealth Management Spain lets us know in this interview the importance of this service that will coexist with financial advisory services in order to have best tailor offering solutions for wealth management clients. In fact, adaptation to the client and social commitment are some of the milestones for the success in the private banking business.

The asset management and advisory industry in Spain started the second half of the year with much anticipated developments: the application of MiFID II to the Spanish legal system, whose objective is to provide greater protection to investors by establishing a legal framework of professionalism and transparency for its relationship with financial entities. For Silvia García-Castaño, Head of Discretionary Portfolio Management at BNP Paribas Wealth Management Spain, the application of the directive “is good news that allows us to finally adapt ourselves in the new rules”, although she emphasizes that the publication of the last Royal Decree Law does not represent major developments, as most of the relevant issues for the industry are still pending from regulatory development and are not detailed enough to solve the doubts amongst investors that have arisen in the recent months.

But, despite the questions that still remain on the table, she believes that her entity has already done its homework strengthening their processes: “Entities have already developed numerous projects for a long time to adapt to the new demands of MiFID II. In our case, many of these measures have already been implemented in recent years, nonetheless our procedures have been reviewed. Our entity is in a continuous evolution, we have already progressed adequately in the past but we continue to dedicate our best resources in order to continue to lead in this area”, she said and highlights:” Risk control has always been one of our strengths. We want to build durable relationships with our clients, this is the reason why we have been investing in being objective and transparent for years. “

The value of discretionary portfolio management

Mrs. García-Castaño is responsible for Discretionary Portfolio Management at BNP Paribas Wealth Management, and she believes that MiFID II will strengthen the value of this service in combination with advisory services: “I firmly believe that MiFID II help provide a better service for the client. Discretionary management and advisory are two services that can coexist and complement each other very well. There are clients who feel very comfortable delegating the management to professionals for an important part of their wealth but keep a separate part to take their own decisions. The more we integrate these two services, the more added value we will provide to our customers”, she explains.

All in all, she recognizes that MiFID II will promote discretional portfolio management, as it is a service that makes life easier to clients as teams of experts are the ones who take the decisions on their behalf. “MiFID II strengthens the value of a service that already existed and which is expensive for financial institutions as it integrates big capabilities in analysis, investment strategy, selection and monitoring of financial instruments services, portfolio construction, monitoring, risk control, and IT”, she adds.

This process is also facilitated by asset managers, who had to launch new clean share classes for their range of funds: “The situation over a year ago in relation to clean share classes was unsatisfactory. Although the progress of the asset managers has not been as quick as we may have wished, it has been sufficient to adapt to MiFID II in time, ” said the expert.

Funds of funds, funds and mandates

As vehicles to materialize this discretionary portfolio management, Mrs. García-Castaño highlights the beauty of the fund of funds as an investment product, but she also highlights the importance of the direct lines funds and mandates. “The investment fund is an optimal instrument for the Spanish investor. At BNP Paribas we have always opted for funds of funds, under an open architecture scheme. Among our range are our multi-management funds that already have a 20 year track record. These have been a very suitable instrument for the construction of global and diversified portfolios”, she said.

“Our mission, discretionary portfolio management, must adapt to all phases of a client’s life. For this reason, at BNP Paribas we have designed a range of investment solutions, fiscally efficient and adapted to the different needs of our customers. Within this range, there are funds with direct investments, but also discretionary portfolio management mandates through other types of investment vehicles, to adapt to the specific needs of each client. New fund solutions must also be adapted to the new requirements of MiFID II”, says García-Castaño about his offering.

In addition to this, she stresses that discretionary portfolio management must incorporate both active and passive management: “Knowing when to use active or passive management is part of our portfolio decision-making process. Asset managers must be modest and concentrate efforts on what we do best and actively manage, our portfolios to generate alpha and differentiate ourselves from the rest. For the rest of assets, styles or geographical areas, it is important to find the best of every type of asset in the industry”, she says.

On the impulse of the ETFs under potential new fiscal efficient transferability (which could finally reverse), she foresees a wider use of ETFs over time: “Currently, we use the ETFs in our investment solutions or for those customers who don’t mind the further tax penalties ETFs suffer In these cases, we have implemented an analysis and selection process similar to the one we use with investment funds, with an external partner, Trackinsights. The day these products are available for the “traspasos” process, ETFs products will be also used with the rest of clients”.

Different collection options

According to a varied offer of services and products, the entity also offers different collection options, the CIO said: explicit in discretionary portfolio management and diverse in advice services: “In the advisory service, the client can choose between the payment of an explicit commission, eliminating retrocessions, or continue as before, without an explicit payment where the bank is remunerated through retrocessions. The customer has the last word, according to their needs and preferences “, explains Mrs. García-Castaño.

All in all, to give best service to a client that has been changing over time: “Since we started our private banking activity, we have been observing changes in the financial behavior of our clients. Currently, our client of private banking and discretionary management, in particular, has a greater financial knowledge and is generally accustomed to having lot of information. Our client has always been demanding, the difference is that now they have all the information at their disposal. Therefore, it is very important to provide our client with a consistent portfolio management service adapting portfolios to our market vision. Working with risk scenarios and quantitative tools always helps, but the key is to know how to adapt to each of our clients, with great dedication and communication. The financial crisis has reinforced the relationship with our clients allowing us to get much closer to them and their needs.”, explains the expert.

Social commitment and responsible investment

Adapting to the client is on its DNA, together with its commitment to society. “As an international bank, we have the strong commitment and we dedicate human, technological and financial resources to be part of change. Our aim is to transform our operational system to be more digital and be the preferred partner of our customers”, explains Mrs. García-Castaño.

According to the CIO, “it is a main objective for BNP Paribas to bring all capabilities we have as financiers, buyers and employers at the service of four fundamental pillars: energy transition, entrepreneurship, support for future generations and local ecosystems”. To this purpose, the Company Engagement department has been created at the center of the organization and with the presence of the steering committee, to intensify its positive impact on the society: “Being a bank for a changing world means continuing to be the partner of our clients to contribute to a more sustainable and egalitarian world”, she adds.

In fact, beyond his social commitment, Mrs. García-Castaño highlights that BNP Paribas Asset Management, is one of the pioneers in responsible investments. “We have been using ESG criteria in its portfolio management for more than 15 years, with assets under management in excess of 230,000 million euros with ESG philosophy. BNP Paribas is currently a member of international organizations advisory committees such as PRI, the IIGCC and FAO / OECD, and the group is rated by PRI as A +, for their responsible investment approach”. And she explains that in BNP Paribas Wealth Management they take advantage of these capabilities of BNP Paribas AM. “In addition, we have an offer of socially responsible investments in continuous development, which will have a fundamental role in our future growth”.

BNP Paribas social responsible investment criteria include the adoption of the 10 Principles of the Global Compact regarding the selection of issuers and strict sectorial policies to monitor sensitive sectors investments.

To grow in a market with big potential…

With these principles, the entity seeks to grow in a potentially large market, although with a strategic business reorientation towards high net worth segment (see appendix): “Economic Spanish growth in recent years has been very resilient. Low interest rates for our superior domestic growth profile in recent years led to higher growth than our European counterparts”, she says, also mentioning the importance of the real estate and tourism sector development.

“Expansionary monetary policy has been supportive for asset valuations and contributing to a positive wealth effect. Our growth forecasts are positive for coming years both in Europe and in Spain”, predicts Mrs. García-Castaño. “The still accommodative monetary policy will continue supporting business and real estate dynamism so we forecast a positive private banking trend.”

… thanks to internal talent

But to be able to grow in private banking, the talent of the team is key. Mrs. García-Castaño explains that “recruiting the best talent is an art. We are keen on attracting talent leveraging on the attractiveness of the BNP Paribas brand. Our employee rotation is very low. We are experts on building stable teams that fit and develop together. Our international approach and the commitment of our group to develop the Spanish unit is a motivation. Those who work at BNP Paribas know that we belong to a large group, highly solvent and with a long successful history”.

To retain and manage talent, the group invests a lot in internal culture, in creating an atmosphere in which the employee feels motivated. “Our private bank talks a lot about investments but also about our values, being easy to feel as a family and I think this is perceived by our clients. The big sense of belonging to this group is reinforced by working close to other multidisciplinary teams. Another motivating factor is BNP Paribas’ commitment to relevant issues such as climate change or diversity. As a result, our group has for many years developed a corporate social responsibility policy that includes environmental, social and good corporate governance criteria in the day-to-day of all our entity’s activities”, she adds.

Because of all this factors and because of the significant size of the bank, we also have to face challenges like increasing regulation, we don’t foresee our talent moving to independent firms: “Entities need an adequate size and many resources to best meet regulatory requirements on one hand and to provide with best experts and investment resources to our clients”.

And she also rules out that the roboadvisors can replace the private banker: “The roboadvisors will develop but it does not mean that they are going to replace the private banking. Quantitative models have always existed and new technology makes these models more powerful. We have always used this type of models and we continue developing them in order to help us in our decision-making process and to support portfolio management”.

BNP Paribas Wealth Management will focus on the segment of higher net worth clients after the recent sell of the Mass Affluent branch – with 550 million euros in assets – to Banca March. With this operation, that will be fully completed in the coming months once the pertinent authorizations are received, a part of BNP Paribas’ private banking business will be integrated into Banca March.

BNP Paribas Wealth Management continues with his specialization in the high net worth segment, being currently one of the most important international firms in the Spanish market with assets under management over 7,000 million euros

Going forward, BNP Paribas Group is refocusing its Wealth Management strategy in Spain and in other European countries towards a business model that specializes in high net worth clients, with a special focus on entrepreneurs, to which we can provide a greater added value in terms of personalized service and offering, taking advantage of the group’s capabilities (corporate and institutional banking, Global Markets, BNP Paribas Asset Management, Real Estate, etc.).

The entity specializes in the High Net worth and Ultra High Net worth customer segments, which so far accounted for 90% of the volume of total assets under management. This is a segment where you can add more value to your customers by providing a personalized service and a differentiated product offering.

For BNP Paribas, Spain continues to be a strategic country for the Wealth Management activity, with a 2021 plan that includes investments in technology to improve service to his customers.

BNP Paribas works on an open architecture scheme for years but they also have great experience in managing direct lines portfolios: “In 1998 we already managed one of the largest funds of the Spanish market under an open architecture process. On January 1st, 2003, we launched our range of fund mandates coinciding with new fiscally efficient transfers’ regulation. We could say that we are pioneers in this topic “, said García-Castaño. In her opinion, the benefits of open architecture remain as this investing style gives you access to the best expertise of each asset manager and increases diversification and she remembers that the combination of different managers reduces the portfolio volatility “. For me, open architecture is not taking 5 stars rated funds and neither to have an infinite palette of colours, but choosing those colours you really need and fit perfectly with others improving the beauty of the whole picture,” she says.

The expert argues that “funds are an interesting vehicle that allows you to postpone capital gains payment, so it will continue to be attractive for Spanish clients as long as our tax regime is not modified. But in addition, funds bring numerous advantages to customers in terms of diversification, economies of scale, liquidity, legal protection, etc.”

At BNP Paribas Wealth Management they work with a wide selection of more than 80 international managers that are interesting due to their management style, capabilities and resources: “The keys for selection analysis are: analysis of capabilities, consistency and sustainability. To do this, we conducted a quantitative and qualitative analysis, being especially restrictive with everything that has to do with the control and monitoring of risks “, explains Mrs. García-Castaño. In this work, they are not alone, FundQuest , acquired by BNP Paribas in 2005, a major worldwide player in the selection and analysis of investment funds, managing more than 50.000 million euros on a multi-management approach.

On the potential fiscal and legal changes of the sicavs, she recognizes that uncertainty is weighing on these vehicles, which have been losing assets in recent years. “The whole industry is waiting for the final decision on this issue, but it would be a pity to punish this vehicle since the impact would be very negative not only for the private banking industry but also for the whole Spanish economy”, she says.

In her opinion, there is much ignorance regarding this vehicle that is available to all savers and that does not have any privilege with respect to investment funds. And warns that unfavorable changes could international outflows from Spain: “In the countries around us there are other vehicles that work as an alternative to the SICAVs, so we could see a movement of capital to other jurisdictions.”

A cycle that is not at risk

On the market situation, she argues that the cycle is not yet over thanks to supporting factors such as profits and valuations, and she shows her preference for European, Japanese and Emerging equity. “In our baseline scenario, we maintain our conviction that the economic cycle is not at risk thanks to positive earnings per share trends and reasonable valuations, although volatility will accompany us for a while. We forecast 100 b.p US interest rates hikes for 2019 and no increases for 2020, so we assume that an “error” by the central bank is very unlikely. This is an important factor to clarify by markets. In our scenario, the dollar should depreciate to 1.22 bringing stability to emerging markets that have suffered an excessive correction … In the short term, uncertainty and geopolitics will drag performances “, explains the CIO.

Regarding asset classes they bet for risk on, “we favor European, Japan and emerging markets equity and we are less positive on US stock market. Regarding fixed income, we recommend to be cautious and short duration bonds before the normalization scenario of interest rates arrives. Within this category of assets we prefer corporate bonds to governments bonds and we find value on local current emerging markets debt”.

To find long-term trends, she argues that we must build on demographic, social and technological changes we will experience in the coming years, “in which there is no doubt that millennials will be the engine of growth, and we will address major trends such as revolution of mobility, investment in infrastructure, more sustainable production methods, or business investment “.

In support of gender equality and the greater role of women in the financial world

As well as being the CIO and head of DPM at BNP Paribas Wealth Management, Silvia Garcia-Castaño is a founding member and vice-president of the Spanish Executive Women association, EJECON in Spanish, which seeks to promote and support women in executive positions. “We founded the association in 2015 with the sole purpose of trying to promote more women into executive management positions and supporting the “talentoSINgenero” initiative”.

This is an association that has had an exponential growth and as of now has around 500 members with an average seniority of 15 years and that include women and men from more than 300 firms from all areas of the economy, who have the enough responsibility to promote a cultural change within their companies towards a more egalitarian workspace. “My daily task have always been related to strategic planning as well as company culture. In this sense I have been responsible for communication and I am currently leading the EJE&CON forums” she said, convinced that there is still a lot of work ahead”.

“Data such as salary differences or the fact that only one in ten CEOs are women, are the ones that have encouraged us to found EJE&CON. The important thing is to implement effective initiatives with the aim of making the gender balance a reality. The initiatives can be diverse, the important thing is that they obtain positive results, “she said. With this objective they have launched the EJE&CON Code of Good Corporate Practices in which they give ten clear recommendations in terms of diversity. We have also launched the Directors Program, the EJE&CON Awards or the EJE&CON Forums.

But, in spite of the challenges, she trusts that women will occupy a growing role in the financial world: “The financial sector and especially the management area have traditionally been run by men. Currently both clients and professionals are associated with a male role. But we are changing things, proof of this is this interview. It is important to change the image of certain roles to be is more attractive to the new women generations in order they join us in this exiting professional activity “, adds García-Castaño

#10YChallenge for the Mexican Pension Funds’ AUM

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The assets under management of the Mexican Pension funds, or Afores, expressed in dollars grew 149%, when the assets passed from 67.771 to 168.583 billion dollars between December 2008 and December 2018. These figures expressed in dollars include the movement of the exchange rate of 13.83 pesos to 19.65 pesos (+ 42%) in 10 years.

In December 2008 there were 19 Afores in the market of which 10 prevail today because of various mergers. For some Afores, their growth came about because of an aggressive commercial strategy, as well as attractive yields, while for others it was due to merges.

Of the 10 Afores that today prevail six have merged others and only four haven´t (Azteca, Coppel, Invercap and PensiónISSSTE) according to CONSAR document: Corporate events in the Savings System for Retirement. A total of six mergers and purchases happened between the years 1998-2008 and 11 were made in the last 10 years. The purchase of MetLife by Principal (2018) isn´t identified in this document.

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The Afores with the highest growth in assets in terms of dollars are:

Coppel (+ 1,269%). Its growth is explained by a specialization in the low-income worker and without any purchase. Coppel went from a 1.1% market share to 6.2% in the last 10 years that leads it to occupy the 7th place. It stands at 94 million dollars (1%) of PensiónISSSTE who is in 6th place. Afore Coppel manages 10,406 million dollars.
XXI-Banorte (+ 818%). Is growtht comes from the mergers of: Ahorra Ahora (2009), IXE (2009), Argos (2009), Banorte Generali (2012) and Bancomer (2013). In 10 years, its market share grew from 6.1% to 22.5%, currently the largest. Afore XXI-Banorte manages 37,882 million dollars.
Azteca (+ 410%) just as Coppel has specialized in the low-income worker and hasn´t made any purchase of Afore. Between December 2008 and December 2018 its market share went from 1.1% to 2.2% and is in the 10th place. Afore Azteca manages 3,785 million dollars.
Principal (+ 317%). It has merged the Afore of: Atlantic-Promex (1998), Zurich (2002), Tepeyac (2003), HSBC (2011) and last year to MetLife (2018). In 10 years, it rose from 4.0% to 6.8% market share and now is in the 5th place. Afore Principal manages 11,409 million dollars.
Profuturo (+ 247%). It has merged the Afore of: Previnter (1998), Scotia (2010), Afirme (2014). Its market share increased from 10.5% to 14.7%. This Afore occupies the 4th place and is only 1% to reach Sura who occupies position 3. Afore Profuturo manages 24,789 million dollars.
PensiónISSSTE (+ 229%). Its growth has been organic without having made any acquisition. Its market share increased from 4.7 to 6.2% and now is in 6th place. Afore PensiónISSSTE manages 10,500 million dollars.
Sura (+ 197%). Acquired Afore ING (2012) who previously merged Santander (2008). Although Sura has remained in place 3, its market share increased from 12.4 to 14.8%. Afore Sura manages 24,928 million dollars.
Invercap (+ 169%). It has not made any merger. Its market share has only increased from 4.7 to 5.1% and holds the 8th place, same place it was 10 years ago. Afore Invercap manages 8,593 million dollars.
Citibanamex (+ 148%). Merged Garante (2002). Its market share has practically maintained it since in 2008 it was 18% and in 2018, it is 17.9%, which has allowed it to hold the 2nd place. Afore Citibanamex administers 30,214 million dollars.
Inbursa (-4%). Acquired to Capitaliza (1998). Its market share fell from 9.3% to 3.6% and is the only Afore that reflects a reduction in assets under management in 10 years (-4% in dollars) and holds the 8th place. Afore Inbursa manages 6,077 billion dollars.

This year Profuturo could rise from 4th to 3rd place beating SURA as the difference is only 0.6%, while Coppel could do the same to PensiónISSSTE as the difference is 0.9%, which would allow it to rise from 7th to 6th place.

Surely, the consolidation process will continue in the coming years.

Flamenco Sephardit Returns to Miami

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Maestro Jeffrey Eckstein and Siempre Flamenco announce the return of Flamenco Sephardit Passion and Grace to Miami for the sixth consecutive year on Sunday, January 27, 2019 at 7:00pm. Temple Emanu-El (1701 Washington Ave., Miami Beach, FL 33139) once again hosts the performance. Featuring a cast of international opera stars, guitarists, flamenco masters, and distinguished classical musicians, Flamenco Sephardit promises audiences a deeply emotional and transcendent experience.

The production welcomes Laura León as vocal soloist, cellist Chava Appiah, and violinist Katherine Kobylarz.

The show explores the connection between Ladino and Flamenco music, two distinct cultures born in Spain. Ladino originated from the Jews who were exiled from Spain during the Spanish Inquisition. It emerged from the songs these exiled Jews composed in their adopted homelands using their old Spanish from the 1400s. Similarly, Flamenco emerged from the cries and sufferings of the Moors, Gypsies, and Jews after they were banned from Spain during the Spanish Inquisition. Flamenco Sephardit explores similarities and differences in these two cultures.

The talented ensemble includes the father/daughter team of Jeff and Lakshmi Basile. Jeff is a prominent bassist and composer and has written the string arrangements for the show since its inception. Lakshmi (La Chimi) is a world-renowned flamenco dancer who has spent much of her career in Spain. The cast also features vocalists Rabbi Marc Philippe and Paco Fonta, dancer Celia Fonta, guitarists Paco Fonta and Michel Gonzalez, and percussionist Adolfo Herrera.

“The message of Flamenco Sephardit has always been to bring people of diverse cultures and religions together, to remind us that we all have similar origins, and therefore should live together in peace,” said Maestro Eckstein. “We are so excited to welcome the incredible Jeff Basile and La Chimi to this already phenomenal cast. Flamenco Sephardit is experiencing a full circle moment, with La Chimi having spent so much of her Flamenco career living in Spain, complementing Paco Fonta’s heritage from Andalusia, and Jeff having collaborated on all of our strings arrangements since 2013. We are also so pleased to welcome back our sound designer Cody Engstrom, who truly makes the space come alive!” said Eckstein.

Tickets are $25 in advance and can be purchased by visiting www.flamencosephardit.com or by calling 800.515.1831. Tickets purchased on January 27th online or at the door are $30. VIP tickets are $65 in advance and $75 on January 27th and include seats in the first 5 rows, a wine and hors d’oeuvres reception, as well as a meet and greet with the company.

FLAIA Prepares a Real Estate and Direct Lending Forum

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In a year when a surging U.S. economy is again creating growth opportunities in real estate and lending, the Florida Alternative Investment Association is offering an exclusive two-day forum for family office and private wealth managers who are seeking steady returns from the sector.

The Real Estate and Direct Lending Forum 2019 will take place March 4-5 at the conference facilities of the iconic Seminole Hard Rock Hotel & Casino in Hollywood, FL. The forum is designed to give managers an insider’s look at what to expect from the industry, as well as an overview of trends in direct and institutional lending strategies.

“With unemployment rates continuing to plunge, tax rates at record lows and a continuing appetite for growth in the industrial, office and multi-family segments of real estate, there is no time like the present to size up the investment opportunities in real estate and direct lending for the balance of the New Year,” said Michael Corcelli, Founder and Chairman of FLAIA and Managing Partner of Alexander Alternative Capital in Miami.
Scheduled agenda topics include:

Disruption of the Airbnb Model
Commercial Real Estate Development
Tokenization of Real Estate
Real Estate Technology
Economic Opportunity Zones
Traditional Bank Financing vs. Direct Lending
Asset Based Lending
Blockchain’s Impact on Lenders and Borrowers
Small Business and Corporate Lending
2019 Direct Lending Opportunities and Trends

The conference is divided into two distinct forums. The first day’s event, March 4, is entitled Real Estate Finance and Private Wealth Forum, and will provide participants with a forecast of industry macroeconomic trends and opportunities.
The second day, March 5, will feature the Direct Lending Forum, where participants will hear from experts in the following areas: Best Practices and Industry Developments; Asset Based Lending in the Emerging Global Economy; Private Debt Funds; Managing Private Credit; and Senior Lending Strategies.

FLAIA is offering Early Bird pricing for the event between now and Jan. 31, 2019. Investment managers who register before the end of the month will be charged $250 for both days, with service providers paying $350. To register, please click here.

After Jan. 31, the prices will rise to $350 for managers and to $500 for the service providers.

For more information about the agenda, or for answers to any other questions about Real Estate and Direct Lending Forum 2019, call 786-574-5161 or email the association at events@flaia.org.

About the Florida Alternative Investment Association

Founded more than a decade ago, The Florida Alternative Investment Association (FLAIA) is a not-for-profit 501(c)(6) organization created to establish Florida as an internationally leading center for Alternative Investment management. The association’s mission spans a broad-range of areas including Community Building, Education, Branding, Capital Attraction, Business Attraction, and Policy Optimization.
The ultimate goal is to articulate the State of Florida’s impressive strengths as a center for Alternative Investment management and systematically strengthen the state’s Alternative Investment “ecosystem” over time. To learn more, visit www.flaia.org.

Private Equity – Worth the Risk?

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Few would have predicted 10 years ago the meteoric rise of private equity. In 2017, US private equity firms raised $621 billion, the most in a decade. However, this ‘wave of liquidity’ has led to concerns that heightened competition for deals is driving up valuations and exerting downward pressure on returns. Given the asset class’s relatively illiquid nature – and factoring in rising interest rates, macroeconomic concerns and the threat of a global trade war – it is therefore reasonable to ask: is private equity worth the risk?

End of the golden age?

This first thing to say is commentators have been predicting the decline of private equity for the last 25 years or more. And yet, despite a few bumps along the way, the industry has thrived. The current ‘golden age’ of private equity is due to a number of factors. For private equity firms (GPs), low levels of interest rates have made it easier to borrow at lower costs to buyout deals or refinance old deals on better terms. At the same time, fundraising levels have soared as yield-hungry investors – both institutional and retail – have turned to more unconventional sections of the market in search of better returns. And private equity has certainly delivered on that front. According to a study by the Association of Investment Companies, the median annualised return for the past 10 years from private equity was 8.6% (net of fees), outperforming public equity (6.1%), fixed income (5.3%) and total return strategies (5.3%).

But, as we are often told, past performance is not a guide to future returns. So, can private equity continue to deliver this stellar outperformance?

Paying a premium

As we highlighted, private equity fundraising is at its highest in 10 years. This, however, has left global GPs holding around $1.7 trillion of unallocated capital (or ‘dry powder’). With more money at their disposal, managers are under increasing pressure to deploy that capital, leading many to pay a premium to secure their targets. According to consultancy firm Preqin, private equity managers were paying up to 11/12X average EBITDA in 2017, while leveraged deals were 6X EBITDA. These are the highest multiples since the peak in 2007. Elevated prices will naturally affect the returns investors can expect.

Finding value

However, these prices tend to be focused in the upper end of the market, where many large GPs deploy their capital. By contrast, there is much stronger return potential from buying at lesser entry multiples at the lower mid-market. Here, leverage is typically capped below 5X EBITDA and companies have strong debt-to-equity ratios. It also means debt is less of a driver of valuation in this segment.

Additionally, the supply/demand dynamics of companies-to-GPs in the mid-market space is less competitive. According to the Boston Consulting Group, only 17% of midsized US companies ($500 million to $1 billion in annual revenue) are owned by private equity firms. Were US GPs to spend all their ‘dry powder’ ($628 billion at the end of 2017), this would see this increase to only 27%. This means there are numerous attractive companies that can still be acquired for sensible prices.

There are also numerous early-stage opportunities in the tech space. While the so-called ‘unicorns’ – $1billion-plus start-ups such as Air BnB, Uber, Pintrest – continue to garner much of the attention, there are also many early-stage opportunities in Big Data, A.I., automation and the cloud. While not traditionally the realm of GPs, many are tapping into this market through strategic partners, who can nurture growth ahead of a profitable exit further down the line.

Further, GPs are increasingly looking at new and expanding markets. This includes China, where private market returns better reflect the nation’s strong GDP growth than their public market counterparts. Sectors such as consumer, healthcare and services – which all benefit from China’s growing consumption – are rich in private market opportunities. The reduction in China’s capital controls and the opening of its markets are also positive for private equity exits, both in terms of offshore-to-onshore capital inflows, as well as international exits to Chinese purchasers.
So, while valuations are undoubtedly elevated at the upper end of the market, there are still plenty of opportunities elsewhere that should enable GPs to continue to deliver superior returns.

Watch out for bears

Of course, one cannot ignore the current macroeconomic climate and the headwinds markets are facing. For one thing, major central banks have started to unwind QE and raise interest rates. This includes the Federal Reserve (Fed), which has hiked rates four times over the last year, with four more expected in 2019. However, some have argued that the Fed was too slow to start tightening and will have to hike more aggressively should inflation rise rapidly. The US government’s $1trillion tax cut at a time when the economy is at its strongest in 40 years could certainly manifest itself in rising prices, necessitating the Fed to act.

As for the wider economy, higher rates and inflation fears could also push up costs for consumers and businesses, curtailing spending and business investment. Then there is President Trump and his trade war. The tetchy rhetoric is now translating into real world tariffs, which is hurting business around the world. Geopolitics also remain a factor, notably around the oil price, which is sensitive to any new confabulation. It is these factors that could ultimately lead to a US recession in the next few years.

Bumpy times ahead

As for markets, we are now in the ninth year of bull-market run and the S&P 500 is up 300% since early 2009. However, with central banks tightening policy, this liquidity-fuelled run might not have much further to go. The likelihood of a market reversal increases as we move into 2019, especially given the unpredictable nature of the factors at play.

This would obviously have implications for GPs. Indeed, elevated interest rates could make it potentially difficult for highly leveraged firms to meet their obligations. However, any downtown will also create opportunities for GPs, who can use their huge stockpiles of dormant capital to buy companies at discounted prices. So, perversely, a market slump may prove a boon for many private equity firms.

In the interim, markets are therefore likely to be volatile for the remainder of 2018. This will no doubt impact valuations and the performance of private-equity-backed companies. That said, private equity funds have traditionally performed well in volatile markets because managers focus on long-term value and are able to look through short-term noise and market disruption. In particular, sector-focused funds have also grown in popularity during volatile times, with GPs able to capitalise on favourable trends amid wider macroeconomic concerns.

What are the risks for retail investors?

With large minimum investment thresholds, private equity funds are usually too expensive for the average retail investor. However, investors can access the market through investment trusts. These tend to be ‘fund of funds’ (FoFs), whereby mangers invest in private equity funds (for a management fee) and reap the benefits of the manager’s investment decisions. These FoFs suffered during the financial crisis, but have rebounded strongly, beating the MSCI World index by 560 basis points over the past 20 years. One of the major risks of such investment is that they are long-term in nature – typically 8-10 years – which means retail investors must be prepared to lock their cash away for an extended period of time before making any meaningful returns.

Final thoughts…

So, while risks exist, there are reasons to believe that private equity will continue to stand the test of time. As we have shown, elevated valuations will no doubt weigh on returns, but there are opportunities in the lower mid-market, tech space, growth capital and geographies like China that will allow GPs to continue to create value. Rising interest rates and the threat of recession also remain to the fore, while the former will no doubt pose challenges for overly leveraged GPs. However, any market downturn will also create opportunities, notably for those that have chosen to keep their powder dry.

Column by Graham McDonald, Global Head of Private Equity, Aberdeen Standard Investments

Powell and China, Behind November’s Success

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U.S. stocks surged higher in late November as the pragmatic Fed Chair Powell, in an intriguing speech titled the Federal Reserve’s Framework for Monitoring Financial Stability at the New York Economic Club, hinted at a possible slowdown during 2019 in the Fed’s projected rate hike path when he said, interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy.

Mr. Powell continued, we see no major asset class where valuations appear far in excess of standard benchmarks as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom, setting the stage for the best week for stocks in seven years, placing November in the plus column for the month.

That same day, Wednesday November 28, the Wall Street Journal ran a prescient story on the U.S. vs China trade war and the upcoming G20 meeting in Buenos Aries which also caught the stock market’s attention stating, officials from both countries are examining the possibility of delaying higher U.S. tariffs until the spring, and launching new talks about Chinese economic policy.

Using the metric of ‘cumulative equity value and number of deals,’ merger and acquisition activity for 2018 is running about twenty five percent above 2017 levels according to industry sources. M&A totals, using the metric of value, are tracking higher than pre-crisis 2007 levels and using the total number of deals puts 2018 about twenty five percent below 2007 levels. Deals in energy, financials, and technology are standouts compared to these sectors in 2017.

On the research front, the television industry is experiencing a tectonic shift of viewership from linear to on-demand viewing. Vertically integrated behemoths like Netflix and Amazon continue to grow with no end in sight. Despite this, we believe there is a place in the media ecosystem for traditional terrestrial broadcast companies.

In an interesting update since the G20 summit, on an event driven situation we have highlighted previously regarding NXP Semiconductors and Qualcomm, China and the U.S. have recently agreed to return to the negotiating table. Chinese leader Xi Jinping said he is now “open to approving” U.S. chip maker Qualcomm ’s $44 billion acquisition of Dutch chip maker NXP Semiconductors according to the official White House statement. The deal had fallen apart in July because Chinese regulators had sat on it for so long, seemingly ending a takeover saga that dragged on for almost two years. More to come on the subject as the ongoing trade rhetoric continues.

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.

John Stopford (Investec AM): “We Are Finding Value in Government Bond Markets where Central Banks Have Tighter Interest Rates”

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How to invest in a post-QE world? According to John Stopford, Head of Multi-Asset Income at Investec Asset Management, investors may be concerned about how different asset classes are going to react when the effects of the quantitative tightening begin to be felt. “Ten years ago, the global financial crisis hit, and the central banks responded by flooding the system with liquidity. Markets have been a rush ever since. Investor did not have to think too hard about what they owned. All asset classes have gone up. But what would happen when quantitative easing begins to turn and unwind? Is there a risk that bonds and equities will sell-off together? The answer is probably yes,” explained Stopford.

“Most of us got used to an investment world where movements in the US equity market were negative correlated to movements in US bond market. This has been the norm for the last 20 years or so. But, from 1984 to 1998, the correlation between the S&P 500 Index and the US 10 Year Future was positive. During that period, bonds and equities went up and down together. Investors need to understand that if there is a common driver that pushes both bonds and equities in the same direction, then both will tend to have a positive correlation behavior. In this decade, the common driver has been the monetary stimulus, that essentially pushed all the assets up. Investors need now to be more selective and look for mispriced assets rather than assuming that owing big pockets of beta is going to win the day”, he continued.

In developed markets bonds there are some areas that are starting to look more attractive and are more likely to offer at least some protection if equities sell-off. “Essentially, it is about valuation and finding government bond markets with reasonable yields in real and nominal terms. We are beginning to find some value in government bond markets in US, Australia, New Zealand and Canada, where central banks have begun to tighten or already have tighter interest rates. The Fed’s tightening is being felt mostly elsewhere rather than in the US, which is dangerous because it allows the Fed to fall into a false sense of security and continue to ratchet monetary policy tighter”.

The Fed usually tightens until something breaks

In the past, the Federal Reserve has typically tightened interest rates until they reach a point in which they have tightened too much. This point is usually when the yield curve gets inverted. “The Fed looks at the US economy, which is booming, they look at US inflation, that is in line with target inflation, they look at unemployment, that at 3,9% is well below the sustainable rate of unemployment and they decide to go tightening. Meanwhile, the pressure is happening outside the US, for example in Turkey and Argentina. Emerging markets are beginning to feel the pressure of the liquidity tightening, but as long it is not yet impacting in the US, there is nothing that will stop the Fed from carrying on,” he stated.

Over the next year, investors should not be worried about a recession. Typically the latest stages of an economic expansion in a bull market are very rewarding. By the second half of 2020 though, the market outlook may get more complicated.

“Now, the Fed is tightening interest rates and they may be the cause of a bear market. But other central banks have just started tapering their quantitative easing programs. They are tightening liquidity, but they are not rising rates yet. They are not giving themselves ammunition to fight the next battle. In the typical recession, central banks cut rates by 4% to 5%. What are central banks going to do now? The one-month deposit rate in Europe is still negative and the European Central Bank is talking about raising rates after the summer of 2019. If a recession may hit in 2020, how high will be European rates by then? Meanwhile Japan is still pursuing quantitative easing but tapering a bit. There is a big question mark about what policy makers are going to do. In the past, they came out with creative ways of adding liquidity, but there will be less ammunition to fight the next crisis”.

Regarding credit vulnerability and the rising uncertainty in the markets, Stopford believes that the risk premiums are compressed at this point in the cycle, but this is something that it is beginning to change. “The yield premium offered by the US High Yield in terms of spreads, a compensation for credit uncertainty, and the equity volatility measure of VIX have typically moved together. But due to the higher level of uncertainty, it seems that they may decouple a bit. Equity volatility is going to remain suppressed for much longer and credit spreads will start to increase as the market is beginning to worry more and more about future defaults.

A challenging environment makes selectivity crucial

The US dollar remains the world reserve currency, even if there are some currencies like the renminbi, the euro or the sterling pound that are candidates to become reserve currencies, but they all have some flaws. “The dollar remains the principal world currency. Trade is still around 80% denominated in dollars. It is not surprising that the US remains the most liquid capital market and it is the place where borrowers go if they want to borrow. The quantitative easing has facilitated an explosion in debt outside the US denominated in dollars. The problem is that dollar funding conditions are now tightening, and lot of that monies are just stock in the US because that is where the economic growth is and where the returns are. Borrowers finance themselves through global trade. When the global economy is expanding, borrowers that are earning dollar revenues can service their debt tend to have excess of dollars at that point and diversify their investments, generating reserves and putting downward pressure on the dollar. On the contrary, when global trade goes into recession, there is a shortage of dollar revenues, dollars are used to fund borrowings and the price of the dollar goes up. By now, global trade is under pressure, with new protective policies and tariffs.”

On the other hand, the Japanese yen is easily the cheapest developed market currency in the world. “Japan has been running an aggressive quantitative program for some time. Japan is essentially a capital exporter. The Japanese have excess of savings and they tend to send those excess savings to other markets to earn a return. When they hit a crisis, they stop sending their capital abroad, therefore, the yen tends to have very good defensive characteristics. If equity markets collapse, Japanese investors temporarily become more cautious and the yen will tend to go up. We need to think more cleverly about how to diversify investors exposure in the current environment”, he concluded.