Despite the downturn in China markets in the second half of 2015, Chinese fund management companies (FMCs) saw revenues and profits rising in 2015. Many FMCs saw double-digit and even triple-digit net profit growth during the year.
This is one of the key findings of a research initiative by Cerulli Associates entitled Asset Management in China 2016. This research initiative is divided into three parts: two quarterly strategic overview reports followed by our annual report scheduled for release in the third quarter of 2016. This key finding was presented in the second strategic overview, released this month.
Cerulli’s research shows that six FMCs reported net profits of more than RMB1 billion in 2015. China Asset Management was the most profitable with RMB1.41 billion in net profit, followed by ICBC Credit Suisse Asset Management with a net profit of RMB1.29 billion for 2015.
For the largest 20 managers in China, the average net profit margin was 30.4% in 2015 while the net profit yield–which measures how much managers earn in basis points for each renminbi they manage–was approximately 28.5 basis points. Fullgoal Fund Management showed the best net profit yield last year at 56.9 basis points.
Institutions continue to play a big part in growing FMCs revenues and profits. “Institutional investors are estimated to have contributed one-third of assets under management as at end-2015. We understand that they prefer one to-one segregated accounts because such accounts are more flexible in active management and in using leverage,” says Miao Hui, senior analyst with Cerulli who leads the China research initiative.
Institutional investors also welcome “customized mutual funds,” or funds launched for specific investors that meet the minimum number of subscribers, with lower leverage allowed. Still, it will be hard for FMCs to sustain 2015’s profit levels in 2016. “While institutional investors’ participation in capital markets is expected to grow in 2016, FMCs’ profits will be hard to maintain under current volatile market conditions,” Hui adds.
Foto: mark yang . Los bancos centrales y la definición de la locura
It is often said that that the definition of insanity is doing the same thing over and over and expecting a different result. This appears to be a lesson that central bankers have been unable – or unwilling – to grasp.
Since the depths of the financial crisis in 2008, global monetary policymakers have pulled out all the stops to stave off disaster. These have included lower rates / zero rates / negative rates, forward guidance, Operation Twist, quantitative easing, funding for lending schemes, and now the possibility of “helicopter money.”
To be sure, central banks should be applauded for their creative thinking and flexible use of monetary policy tools when the global economy went on life support. While impossible to prove, it could certainly have been worse had they not acted so decisively. Whether it was the Bank of Japan’s “kitchen sink” approach, Mario Draghi’s “whatever it takes,” or the Federal Reserve’s “open mouth” policy, those extraordinary actions sent a strong message. A message that was powerful enough to change sentiment at a time when it was sorely needed.
What Comes After “Extraordinary”?
Today however, that same message may be doing more harm than good. Although sub-par, the global recovery/expansion is entering its eighth year. In this environment, extraordinary monetary policy seems disconnected from a world that is growing slowly but is hardly in crisis. Consumers and businesses may not understand the technical nuances of negative rates or helicopter money, but they recognize that extreme policies could only be justified by an extremely dire outlook. This disconnect doesn’t send consumers to the mall or encourage CEOs to invest in capital projects. After eight years, policies that once boosted confidence are now undermining it – diluting or possibly offsetting the very benefits that low rates were designed to deliver.
The Side Effects
If extraordinary policy is now undermining confidence, is it time for a change? Normalizing monetary policy obviously comes with its own risks: Raising interest rates or unwinding asset purchases could further slow the global economy and maybe even cause the next recession. While we acknowledge this risk, we believe central banks have reached a tipping point where the negative side effects of extraordinary policy now seem to outweigh its ever-diminishing benefits. These side effects include:
A greater likelihood of asset bubbles
Increasing liabilities and balance sheet pressures for banks, insurance companies, and pension funds
A greater tendency for individuals to save more to compensate for lower yields
Less interest income for the sizable Baby Boom generation to spend
The loss of competitiveness and efficiency as unnaturally low rates enable zombie companies to stay alive indefinitely
A convenient excuse for other policymakers to shirk their responsibilities to implement structural reforms and provide fiscal stimulus
To be clear, no one is calling for aggressive tightening of monetary conditions, just a move away from DEFCON 1, the ultra-accommodative policies that have done little to bolster growth in recent years. It is also important to realize that not all central banks are facing the same trade-offs. Various countries and regions are at different points in the cycle, so each will have to decide how to weigh the knock-on effects. In the U.S., however, modestly stronger growth and inflation allow the Fed greater policy latitude than many other central banks. While the Federal Open Market Committee is unlikely to hike this week, the meeting provides an important opportunity to convey a more confidence-inspiring exit strategy.
Germany’s Oktoberfest is famous the world over for its traditional costumes and, most of all, its one-litre “Maß” mugs of beer. But have you thought about what beer can teach you about the world of finance and economics?
Hans-Jörg Naumer, Head of Global Capital Market Analysis and Thematic Research at Allianz Global Investors and his team prepared an infographic that compares the number of Okoberfest Maß that EUR 10 buys versus what that same money will have become if invested in German equities back in 1960. The result, Pint-sized economics!
“As our research shows, the equivalent of EUR 10 in 1960 would have been more than enough to buy an entire round for you and nine friends. But thanks to inflation, the price of a Maß has gone from 95 cents in 1960 to EUR 10.50 today – not even enough for one drink. Yet if you had skipped your drinks in 1960 and invested EUR 10 in German equities, you would now have EUR 395. That would buy you an inflation-busting 37 Maß at Oktoberfest. Prost!” Concludes Naumer.
Foto: enki22
. Las firmas de real estate tienen perspectivas positivas, a pesar de la caída del volumen de ventas
The vast majority of real estate firms have an optimistic outlook for the future of the industry’s profitability and growth, according to the National Association of Realtors´ (NAR)2016 Profile of Real Estate Firms. Profitability expectations have declined from the 2015 survey, mainly due to inventory shortages and home-price growth, but real estate firms remain confident about their overall future profitability.
“For a second year in a row, a majority of real estate firms have a positive outlook on profitability, with 91 percent of all firms expecting their net income to increase or remain the same over the next year,” said NAR President Tom Salomone, broker-owner of Real Estate II, Inc. in Coral Springs, Florida. “Although there is an overwhelmingly positive outlook, low inventory and high prices have led to an overall decrease in real estate firm’s sales volume since last year’s report. High home prices are holding back first-time buyers and low inventory means fewer sales at a time of increased Realtor membership”.
In 2016, 64 percent of firms expect profitability (net income) from all real estate activities to increase in the next year, down from 68 percent in 2015. Sixty-seven percent of commercial real estate firms expect profitability to improve (down from 75 percent in 2015), as well as 70 percent of large firms with four or more offices expect profitability to improve (down from 79 percent in the previous year). Residential firms are a little less optimistic as 65 percent expect to see an increase in their net income.
Forty-three percent of real estate firms expect competition to increase in the next year from non-traditional firms, down from 45 percent in 2015. Forty-six percent of firms see competition from virtual firms increasing (up from 41 percent in 2015), while only 17 percent expect competition increasing from traditional brick-and-mortar firms.
The sense of competition has fueled more recruitment since the 2015 survey. Forty-seven percent of firms reported they are actively recruiting sales agents in 2016, up from 44 percent in 2015. This is more common with residential firms (51 percent) than commercial firms (32 percent) and more common among offices with four offices or more (88 percent) than firms with one office (39 percent).
When asked what they see as the biggest challenges in the next two years, firms cited profitability (49 percent), keeping up with technology (48 percent), maintaining sufficient inventory (48 percent) and recruiting younger agents (36 percent).
The NAR 2016 Profile of Real Estate Firms was based on an online survey sent in July 2016 to a national sample of 147,835 executives at real estate firms.
The debate points to a lurking problem for the markets
The level of discourse was so disappointing in last week’s U.S. presidential debate that it was tempting to move up the dial and watch pro football, where the combatants at least get to wear helmets. Personal attacks, rancorous exchanges, smirks and eye rolling…they epitomized why many voters have despaired over the choice they face.
What all this focus on personality obscures, of course, is the actual issues the country faces and the philosophical differences that could seriously impact how to solve them—whether low growth, suffocating regulation, federal debt, health care, income inequality or national security, to name a few.
Not all the issues have concrete implications for investors at this stage. In recent weeks, my CIO colleagues and I have taken turns considering potential drivers for the economy and markets. Erik Knutzen, CIO for Multi-Asset Class, talked about a global focus in U.S. earnings and whether weakness could contribute to new volatility in a market that is “priced to perfection”; Fixed Income CIO Brad Tank considered the potential impacts of Japan’s steps toward “helicopter money”; and I explored whether the two major U.S. political parties could work to improve the country’s dilapidated infrastructure.
Rating the Election’s Impact
As far as the election is concerned, it’s hard to tell what the impact will be. Over the last eight presidential election cycles, inauguration years have seen exceptionally strong returns for the S&P 500, with an average gain of nearly 20% and in several cases returns of over 30%. Only in 2001, in the wake of the tech bubble, did the year turn out to be negative. In part, this positive trend may be a function of stimulus leading up to elections, or reduced policy uncertainty, or simply a touch of optimism tied to the fresh start of a four-year term. It may be a simplistic idea, but elections ultimately have tended to be a catalyst for stocks.
Could this time be different? A key concern is negative voter perception of both Hillary Clinton and Donald Trump, who have the highest unfavorable ratings of any presidential candidates in modern history.1 Regardless of who gets elected, residual anger on the part of the losing party could intensify already entrenched gridlock.
This ties into prospects for fiscal stimulus, ideally in the form of new infrastructure spending, or a deal to repatriate corporations’ overseas earnings. We remain skeptical on that front, and we believe that politicians could keep relying on easy money from the Federal Reserve to bail them out along with the economy. With minimal action in Washington, it seems likely that GDP could continue stumbling along at a 1%-2% pace in the coming year.
Softening Angle on Equities
Such meager growth of course provides little fuel for the stock market. Our Asset Allocation Committee recently downgraded its 12-month outlook for U.S. equities to “slightly underweight,” given rich valuations, a modestly higher rate forecast and potential volatility tied to earnings stagnation.
It would be tempting to minimize the potential impact of the presidential race, to “change the channel” and focus strictly on fundamentals that undoubtedly can sway the markets. But there’s a point where electoral combat and likely gridlock weigh on earnings prospects and growth trends. My “Hail Mary pass” would be that this contest will shake things up enough that politicians will work together, at least for a while, to deal with entrenched problems.
Hermes Investment Management has recently published its second and final paper from its annual Responsible Capitalism survey.
The annual survey of over 100 leading UK and European institutional investors found that the number of those who believe that the gender diversity of the senior management of an investee company is vitally important or important had more than doubled in 12 months. In 2015, only a quarter of investors placed importance on gender diversity, whereas in 2016, a total of 51% of investors agreed.
Harriet Steel, Head of Business Development, Hermes Investment Management, said: “To see the number on investors who place importance of gender diversity leap up by more than double is extremely encouraging and reflective of the high profile campaigns and initiatives introduced to increase gender parity. In our research we believe that the issue for investors appears to be risk, rather than high returns. Investors are growing increasingly aware of the link between ‘group think’ and poor corporate practice. Boards with more diverse composition tend to challenge senior management, be more innovative and make better decisions. These are febrile times and investors increasingly recognise that certain sorts of risk can fundamentally undermine the performance of their portfolios over time. Worse still, they may be accused of failing in their fiduciary duty.”
The Responsible Capitalism survey also showed that despite the gains made in gender, other characteristics of diversity lag behind in investors’ importance; such as race (30%), socio-economic (19%) and educational background (30%). As stated in the ‘Commonsense Principles of Corporate Governance’, recently endorsed by Warren Buffet and others: “Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.”
Steel continued: “In the Responsible Capitalism survey it was particularly encouraging to see that only a tiny proportion of investors now consider diversity of board experience (2.1%) and a Chairman independent of CEO (1%) to be ‘not important at all’. Given ongoing shareholder concerns over shared CEO/Chair roles at companies such as JP Morgan, corporate diversity is no longer being considered a ‘nice to have’, but a necessary part of responsible governance.
“Significant political and economic upheaval has prompted governments to look in increasingly greater depth at corporate governance practice. New UK Prime Minister Theresa May immediately took aim at non-executive board members ‘drawn from the same narrow social and professional circles as the executive team’, accusing them of providing insufficient scrutiny. Nineteen nations in the European Union now mandate that employee representatives sit on corporate boards, while US presidential candidate Hillary Clinton has promised corporate governance reform. When diversity considerations draw the attention of policymakers, companies and investors must increasingly take note.”
To download the Responsible Capitalism paper, click here
Kareen Peetz - Foto BNY Mellon. La primera mujer en presidir BNY Mellon, Kareen Peetz, anuncia su retiro
BNY Mellon announced that Karen B. Peetz, president, has decided to retire from the company at year end.
Peetz, BNY Mellon’s first female president, joined the company in 1998 and has played a pivotal role through periods of significant change in the organization, including the successful navigation of post-financial crisis challenges and the adoption of a more strategic, market- and solutions-led approach to client relationship management.
Peetz has been consistently recognized for her contributions to the financial services industry and has been named #1 on American Banker’s “25 Most Powerful Women in Banking” ranking in recognition of her management style, crisis management skills, influence and charitable endeavors.
“Karen’s leadership, industry expertise and partnership will be missed by BNY Mellon, and we are extremely thankful for her many contributions during her tenure,” said Gerald Hassell, Chairman and CEO of BNY Mellon.
Peetz oversees the company’s global client management and regional management, its treasury services business and its regulatory oversight functions. Prior to her appointment as president in January 2013, she led BNY Mellon’s former Financial Markets and Treasury Services group, comprised of the alternative investment services, broker-dealer and advisor services, corporate trust, depositary receipts and treasury services businesses.
There is an emerging trend among distributors of pairing multi-asset strategies, for regular income, with liquid alternatives to achieve additional returns.
For instance, banks are advising liquid alternatives to retail investors, which was once targeted at high-net-worth individuals (HNWIs) by certain banks. At a small-to-mid-sized Asian private bank, the advised allocation to liquid alternatives was 20%, while another global/regional bank’s recommendation was 40% for mass affluent clients.
Wealth managers are upbeat on liquid alternative products that are based on long-short or global macro strategies as they believe these strategies can provide investors returns that are uncorrelated to traditional asset classes. Structured products with option strategies as an income-generating idea are also often advised by wealth managers to investors with higher risk appetites.
However, according to a survey conducted for The Cerulli Report – Wealth Management in Asia 2016, retail investors in Asia may not be ready for liquid alternatives just yet.
The survey reveals that the appetite for such products remains low, as investment preference lies in cash and deposits, even as investors wish for 3% to 5% higher returns than their respective country’s one-year deposit rates and cite portfolio diversification as their top priority.
While Asian investors seem to adopt a cautious approach to their investments, Cerulli notes that a lot of convincing needs to be done by asset managers and distributors.
The Alternative Investment Management Association (AIMA), the global representative for alternative asset managers, has announced a new Chairman and the formation of a new AIMA Council, the Association’s global board of directors.
Taking over as AIMA Chair is Simon Lorne, Vice Chairman and Chief Legal Officer, Millennium Management LLC. He replaces the former SEC Commissioner Kathleen Casey, who served as Chair of AIMA from September 2012 to September 2016.
There are four new additions to the AIMA Council – Robyn Grew, Chief Administrative Officer and GC, Man Group Plc; Han Ming Ho, Partner, Sidley Austin; Ryan Taylor, Partner and Global Head of Compliance, Brevan Howard Asset Management LLP; and Michael Weinberg, Senior Managing Director, Chief Investment Strategist, Protégé Partners.
The Council, who will serve from September 2016 to September 2018, is as follows:
Simon Lorne, Millennium Management LLC (Chair)
Jack Inglis, AIMA
Olwyn Alexander, PwC
Andrew Bastow, AQR Capital Managements (Europe) LLP
Fiona Carpenter, EY
Stuart Fiertz, Cheyne Capital Management (UK) LLP
Robyn Grew, Man Group Plc
Han Ming Ho, Sidley Austin
Tim O’Brien, Pine River Capital Management LP
Martin Pabari, CQS (UK) LLP
Christopher Pearce, Marshall Wace Asia Ltd
Henry Smith, Maples and Calder
Ryan Taylor, Brevan Howard Asset Management LLP
Philip Tye, HFL Advisors Limited
Karl Wachter, Magnetar Capital LLC
Michael Weinberg, Chief Investment Strategist, Protégé Partners
As well as Casey, Eva Sanchez of Citadel Europe and Choo San Yeoh of Albourne Partners are also stepping down from the Council.
AIMA Chairman Simon Lorne said: “I’m honored to be named as AIMA’s Chair at this important time in our industry’s evolution. I look forward to working with the outstanding firms and individuals who are the global face of our industry as we work together to best serve the interests of our individual and institutional investors around the world.”
AIMA CEO Jack Inglis said: “I am excited to have such a strong board to guide our work at AIMA, and I am very much looking forward to working closely with Simon Lorne, our new Chair, as we address the big issues facing alternative investment fund managers around the world. We are fortunate to welcome to the Council individuals with the skills and experience of Robyn Grew of Man, Ryan Taylor of Brevan Howard, Michael Weinberg of Protégé Partners and Han Ming Ho of Sidley Austin. On behalf of AIMA and all the membership, I also would like to pay tribute to our out-going Chair Kathleen Casey, who served the Association with such distinction these last four years, and Eva Sanchez and Choo San Yeoh, who have made such an important contribution to AIMA and the global industry over a number of years.”
CC-BY-SA-2.0, FlickrHelmer Arizmendy, foto cedida. Lombard International abre oficina en Miami
Lombard International, a global leader in wealth structuring solutions for the high net worth market, recently announced the opening of its office in Miami, FL, located at 801 Brickell Avenue. The new office will be a hub for Lombard International’s sales team to reach high net worth individuals, families and institutions in Latin America.
“The Miami office serves as a gateway for us to engage with and educate advisors of the Latin American high net worth community,” said Helmer Arizmendy, Senior Managing Director and Latin America Region Head for Lombard International. “With this new expansion, we look forward to raising awareness of our solutions available to help protect and preserve wealth.”
This office opening comes shortly after Lombard International’s expansion into Bermuda with the appointment of Phil Trussell as Senior Managing Director to lead the growth of its life insurance operations in the region. In addition, earlier this year Lombard International opened a representative office in Paris and two brokerage offices in Asia, expanding the firm’s global footprint into other key financial markets.
“As the number of ultra-high net worth individuals and families continues to grow, Latin America is a key market for Lombard International,” said Ken Kilbane, Executive Vice President and Head of Global Distribution at Lombard International. “The opening of this new office further cements our position as a global leader in wealth structuring solutions for the high net worth market.”
