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Effective Communication is European Asset Managers’ Greatest Challenge

Of all challenges facing asset managers -compliance, competition, volatile markets- Cerulli Associates believes that effective communication is the toughest. Managers are keen to restore trust and confidence in an industry tainted by the 2008 financial crisis by targeting a variety of audiences with thought leadership initiatives -sharing knowledge, developing sustained rapport- via multiple channels, finds a new report from the firm entitled European Sales and Markeging Organizations 2015.

Managers said hat they want to offer fresh perspectives and solutions to help the wider audience -some of it new to investments- which they hope will give them an edge as competition and regulatory pressures intensify.

A total of 94% of European asset managers said that they use thought leadership initiatives to target institutional investors. And almost two-thirds of managers use thought leadership strategies to develop a rapport with consultants, while 55.6% use such initiatives to target private banks and wealth managers. And about a third of managers surveyed are focusing on platforms. A further 22.2% of managers are targeting independent financial advisors.

But thought leadership is not about the hard sell, say managers. They want their content to be informative and educational and a softer, more discerning part of the marketing machine.

“The written word alone is not enough and the variety of message is much wider, quirkier, and colorful. It is also sophisticated and fast moving: videos and podcasts are used as a matter of course,” says Barbara Wall, European research director at Cerulli. “Training for thought leaders has also evolved as fund managers go to greater lengths to develop talent, either through third-party experts or by developing internal know-how,” she adds.

Financial marketers spend between 10% and 20% of their total budget on their content marketing in the United Kingdom alone. And Cerulli’s interviewees have also allocated logistics and time to establishing internal systems while also involving third-party expertise, such as professional copywriters and respected academics. And in return for this commitment, fund managers want effective two-way communication.

“Feedback -any reaction, in fact- is meaningful because it shows that the message that caused it was incisive and engaging enough to warrant a response,”says Angelos Gousios, senior analyst at Cerulli. “This shows that the industry is growing more open and democratic, moving away from the one-sided information mode that has characterized it for so long,” he adds.

Meanwhile, managers are developing ways to measure the success of thought leadership initiatives, including external speaking requests and press coverage. A total of 80% of managers surveyed by Cerulli measure the impact of thought leadership campaigns by counting the hits on their digital and social media sites.

Blockbuster Year for Mixed Asset Products in Europe

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Mixed asset mutual funds drove the bulk of long-term net inflows from European investors through July 31, 2015, according to new data released in two reports from Broadridge Financial Solutions, Inc.

The European Fund Market Mid-Year Review and July 2015 FundFlash Monthly Snapshot reports both detail continued momentum in mixed asset products – those that invest in equities, bonds, cash and other funds – and strengthening equity investments following June’s market correction. The reports include commentary and insight based upon a new partnership between Broadridge and MackayWilliams LLP, a leading mutual fund market analysis and research company firm for the domestic pan-European and cross-border fund markets.

Additional findings from Broadridge’s reports include:

Investors pumped EUR 55 billion into European investment funds including EUR 31 billion into long term funds in July
Mixed asset products accounted for 55% (EUR 124 billion) of total inflows in the first half and 23% (EUR 7 billion) in July
The top three markets by estimate net sales in July were Italy, Germany, and the United Kingdom
The top fund firms by sales in July were BlackRock, DeAWM, GAM Holding, Intesa and Vanguard

“It’s been a challenging year for asset managers in Europe with some periods of intense market volatility and increasing competition coming from the banks,” said Diana Mackay, chief executive officer of MackayWilliams, “But low interest rates continue to drive flows into retail funds and mixed asset funds, in particular, are having a blockbuster year.”

“Our new partnership with MackayWilliams follows our recent acquisition of the Fiduciary Services and Competitive Intelligence unit from Thomson Reuters’ Lipper division,” said Frank Polefrone, senior vice president of Broadridge’s data and analytics business. “Together, these investments demonstrate our ongoing commitment to providing our clients with innovative data, analytics and insights to enhance their sales efforts.”

Why High Yield? Significant Opportunities for Credit Selection

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The high degree of idiosyncratic risk in high yield bonds means good credit analysis is rewarded, making it fertile ground for active managers.

Broader opportunity set: The growth of the market is presenting more choice when constructing a portfolio. For example, in 2005, there were 216 issues in the European high yield market; by 2015, this had grown to 7553.

Under-researched issuers: Bonds trade over-the-counter (OTC) rather than on standard exchanges. The lack of transparency in the OTC market means exchange-traded funds (ETF) and larger investors are forced to focus the bulk of their trading activity on the larger issuers in the indices. This leaves a wealth of opportunities for active investors, such as Henderson, to identify value among the smaller underresearched issuers.

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Ratings mismatch: Within the credit cycle, ratings agencies tend initially to review the larger issuers in the high yield market, taking time to progress to the smaller, often lower rated issuers, so can be slow to appreciate improvements among CCC-rated companies. Henderson, historically, has held a higher-than-benchmark portion of CCC issuers in its high yield strategies, believing that many of these credits are mis-rated. We also believe that since the financial crisis ratings agencies have sought to deflect criticism that they were too generous before 2008 by applying a cautious bias to ratings in recent years. Again, this allows good credit analysis to identify mis-rated opportunities.

Accessing the asset class

Henderson offers three strategies within the high yield space: global, US and European currency, as well as offering access to the high yield market through off-benchmark exposure in investment grade strategies.

A truly global approach

Unlike many global high yield funds, which are run solely out of one location, the Henderson global high yield strategy is run jointly by Chris Bullock and Tom Ross in London and Kevin Loome in Philadelphia, together with credit analysts on both sides of the Atlantic. As the high yield market expands globally, Henderson believes it is vital that analysts are closer to the companies they research.

High conviction portfolios

Henderson’s high yield funds are run as ‘best-ideas’ funds. Rather than attempting to replicate the indices against which the strategies are benchmarked, the portfolio managers, in conjunction with the credit analysts, choose their top 75-150 issuers to include in a portfolio. This makes for a high-conviction approach that captures the strength of our analytical expertise.

Flexible and active

We believe that credit selection and analysis are key to structuring portfolios but that top-down factors cannot be ignored. Henderson’s high yield strategies, therefore, asset allocate nimbly across ratings,

geographies and industries. Henderson is also adept at using derivatives, which can be used for hedging purposes or to express short positions.

Experienced team

The Henderson Global Credit team numbers more than 30 investment professionals with an average of 13 years’ experience. Its strong performance has led to several accolades and awards.

Tom Ross joined Henderson in 2002 and has been co-managing Henderson’s absolute return credit funds since 2006.

Institutional Sales Teams Adding to Headcount on Sales and Servicing Teams

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New research from global analytics firm Cerulli Associates finds that institutional sales teams are adding personnel to their sales and service teams in the United States.

“We surveyed institutional sales managers about the types of changes they are making to their sales and service teams, and found, regardless of firm size, the majority of asset managers are focused on adding headcount,” states Alexi Maravel, associate director at Cerulli. “They plan to add headcount to nearly all groups, except relationship management, where headcount will remain the same.”

“Some institutional asset managers deliberately increase its client service and portfolio specialist headcount, because after the business is won, these relationships are immediately taken over by client service personnel,” Maravel explains.

“Institutional sales and service teams are typically structured to support portfolio management so that the firm’s investment personnel spend minimal time traveling and can focus on managing assets.”

“Managers that we spoke with also expressed interest in hiring junior associates for their sales, consultant relations, and client service teams,” Maravel continues. “Individuals in these roles are tasked with the more operational aspects of sales and service departments, such as intelligence and data-gathering, finding opportunities in territories, and assisting with creating slide decks that will be presented to clients and prospects.”

Morgan Stanley Investment Management Re-Opens Global Brands Fund for Subscriptions

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Foto: toastyken, Flickr, Creative Commons. Los family offices se vuelven globales

Morgan Stanley Investment Management has announced that MS INVF Global Brands has re-opened for subscriptions after capacity became available in the strategy.

The investment thesis behind Global Brands has remained the same since its inception, providing a concentrated portfolio of high quality companies with the aim of compounding investors’ wealth over the long term, whilst striving to preserve capital in down markets.

“We have long taken a conservative approach to capacity management and will continue to do so to protect investment returns,” said Managing Director and Head of the International Equity team, William Lock, which manages MSIM’s Global Brands and Global Quality funds.

Bruno Paulson, Managing Director and Senior Portfolio Manager, continued “The fund is benchmark agnostic and our goal is to grow clients’ capital and not lose it. The economic robustness of quality companies helps to deliver returns when they are needed most – during challenging market conditions.”

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in more than 43 countries, the Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals.

What´s Really Restraining Bond Yields?

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In the latest edition of Global Horizons, “A Brave New World for Fond Markets” Jeremy Lawson and Sebastian Mackay -Standard Life Investments- look at whether bond markets are pricing in a great stagnation and how yields are likely to evolve through the rest of the business cycle.

“These are highly unusual times in the world of fixed income. The factors weighing on bond yields are numerous, complex and in some cases, unprecedented.” Said Jeremy Lawson, Chief Economist, Standard Life Investments

“Aftershocks of the financial crisis are still being felt, seven years after Lehman Brothers collapsed. Our analysis shows that the scarring from the crisis and prolonged private sector deleveraging has raised desired savings, weighing on domestic demand and inflation. Weakness in domestic demand in advanced economies has been amplified by policy mistakes and this has depressed labor markets, discouraged firms from investing, and held down inflation. Productivity growth, which had been in decline even before the crisis, has weakened further, underpinned by the drought in private and public capital spending.”

“Both by accident and design, central banks and regulators have been pursuing policies that lower real interest rates and term premia, enhancing the demand for all income yielding assets. Central banks have been forced to keep short term interest rates at or even below the zero lower bound, and to put in place unconventional policy measures aimed at suppressing real interest rates along the entire yield curve.”

Jeremy Lawson, adds “Looking ahead and taking account of these special factors – why should the market change its mind and begin to anticipate higher long term interest rates? We examine the potential triggers for long-term bond yields to shift in the US. If recoveries in the advanced economies become more self-sustaining and if emerging market economic and financial conditions do not deteriorate further, inflation expectations could pick up. The Fed should be willing to accommodate some increase in real interest rates. Investors might also demand more compensation for holding long-term interest rate risk.

“We conclude that it is unlikely that the long term interest rates will return to their pre-crisis norms. Our research suggests that the benchmark US 10 year government bond yield will peak at 3 to 4% during the current business cycle. This would be above today’s levels but well below the peak of previous business cycles.”

Global Fund Industry Assets Under Management Dropped by a 4% in August

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Global assets under management in the collective investment funds industry dropped by US$ 1.44 trillion or minus 4% in August and stood at US$ 34.7 trillion at the end of the month. Estimated net outflows accounted for US$ 20.8 billion while the remainder of the drop was due to market losses. Thus a provisional all time high in assets under management was reached at the end of April 2015 with US$ 36.4 trillion, according to Lipper Thompson figures.

All asset types posted negative average returns with Equity funds performing worst at minus 6.9% on average in US$ terms, while Bond funds where hit most net redemptions wise with minus US$ 38 billion. Some of this money, however, found its way into Money Market funds, which were able to attract US$ 28.5 billion net new money. However, the trend into money market funds slowed from the previous month as the market waited, “on hold”.

Taking a look at Lipper Global Equity Classifications, Equity Global ex US (+13.7), Equity Japan (+5.3) and Equity Europe funds with plus US$ 3.4 billion accounted for the highest estimated net inflows, while Equity US funds (+US$ 1.7 billion) were able to halt the outflows trend as observed in the previous two months. On the lagging side we find Equity Global (-10.5), Equity Emerging Markets Global (-9.1) and Equity Asia Pacific ex Japan funds with a minus US$ 8.2 billion in estimated net outflows.

On the Bond Classifications side, Bond Global (-6.7), Bond USD High Yield (-6.1) and Bond Emerging Markets Global HC with minus US$ 5 billion led the outflows table while only Bond USD Mortgages attracted significant net new money with plus US$ 1.4 billion. Money Market funds USD led the overall inflows table with plus US$ 30.1 billion followed by Money Market EUR funds with plus US$ 16.4 billion net new money.

“Rising volatility in equity markets and an uncertain outlook for fixed income, due to mixed signals from the FED, combined with a significantly expansive monetary policy from the ECB have left their traces in the global investment funds market in August, with investors remaining put or moving to the side lines,” commented Otto Christian Kober, Lipper’s Global Head of Methodology and author of the report.

“Bond fund outflows seem to anticipate rising interest rates as equity markets retreat from their all time highs”, added Kober.

Going Local Down in Acapulco

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Few global asset classes have experienced the same level of risk re-pricing as emerging market (EM) local currency bonds over the last three years. The yield on the asset class relative to a basket of developed market government bonds now stands at a six-year high, representing a pickup of 5.4%. Meanwhile, EM currencies have weakened to such an extent that many of them now appear very cheap on a range of valuation measures. However, we believe –says Standard Life Investment in their document- investors should refrain from viewing the asset class as a potential beta allocation opportunity. Rather, they should seek to understand the varied dynamics of the small number of large countries in the opportunity set.

When assessing investment opportunities within emerging markets, the company focusses on understanding the direction of travel of fundamentals for each country. This allows them to understand which are improving and which are deteriorating. The company´s relative value models for local market instruments determine whether these fundamental changes, or expected changes, are reflected in asset prices.

Its investment case in Turkey, for example, is less favourable. The country is heading toward fresh parliamentary elections, as the process of coalition building following the June elections appears to be failing. Meanwhile, they believe the country’s financing mix is extremely risky. “There are internal policy challenges that need to be resolved before we could become more bullish on local market assets. In Brazil, even though we believe that the government’s revisions to primary surplus targets for 2015 may present risks to debt sustainability, the market understands these risks better than those present in Turkey. Therefore, we would still consider holding Brazilian debt.”

Meanwhile –says the company-, the renewed slump in commodity prices continues to present challenges to those countries which rely on these products as a source of exports, government revenues or GDP growth. Any rebound in commodity prices – especially oil – would result in a more constructive view of fundamentals in Malaysia and Nigeria. Among oil exporters, Standard Life Investments believes Colombia should perform well in the months to come. “Its currency has undergone a drastic adjustment and we believe fiscal and monetary tightening is likely in the short to medium term.”

Emerging markets have been subjected to extreme stresses in recent years: the ‘taper tantrum’, China weakness and the precipitous decline in commodity prices having created something of a perfect storm. In such a scenario, investors can be guilty of exhibiting insufficient discretion, choosing instead to view all EM countries as equal. For those willing to take a more nuanced approach, however, this creates opportunities. Sound fundamentals and coherent, responsible policy making are still on display among many EMs, and their local currency bonds offer an attractive level of income in today’s low-yield world.

Mutually Inclusive

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A quiet revolution is happening in hedge funds. Investors continue to allocate to the asset class, but the way they are allocating is changing, while its investor base is growing broader and becoming more inclusive.

With both bond and equity markets facing major challenges, investors are increasingly seeking out strategies that are not tied so tightly to the performance of the broader equity and fixed income markets. This trend has been picked up over several years by the Morningstar and Barron’s Alternative Investment Survey of U.S. Institutions and Financials Advisors, the 2014-15 edition of which was recently released.

Reporting the views of nearly 400 investors, it found that 63% of advisors believe they will allocate more than one-tenth of client portfolios to alternatives over the next five years, compared with just 39% in the same survey for 2013.

But more interestingly, over several years the same survey has been showing continued growth in alternatives wrapped in more accessible registered fund structures that offer daily liquidity, as opposed to the more traditional, and exclusive, private funds. Assets in U.S. registered alternative funds have risen from less than $50 billion under management in 2008 to well over $300 billion as of mid-2015. While growth has slowed from what Morningstar and Barron’s described as the “eye-popping” rates of 2013, money is still flooding into “multi-alternative” and managed futures retail products, in particular, with many new funds having been launched to meet demand. Moreover, the trend is spreading outside the U.S.: Strategic Insight’s SIMFUND database reveals a similar trajectory, showing the number of liquid alternative European UCITS and U.S. ’40 Act mutual fund products tripling to well over 1,500 since 2008.

Structures, Not Just Strategies

Clearly, the latest developments in alternative investing are as much about investment structures as investment strategies. The survey report notes, for instance, that strong positive flows into multi-alternative regulated funds coincide with dwindling traditional fund-of-hedge-fund assets.

Indeed, while U.S. advisors, who tend to be heavier users of mutual funds for liquid hedge fund strategies, have been increasing their allocations, U.S. institutional investors more used to traditional hedge fund structures have been cutting back from the latter: The Morningstar and Barron’s survey found that those expecting to allocate more than 25% to alternatives declined from 31% a year ago to 22% today. The survey report suggested they “may be tempering their enthusiasm as a result of fees, lockups and poor transparency in traditional hedge funds, as was the case with CalPERS’ announced decision to withdraw from hedge funds,” and these concerns came up when investors were asked what makes them hesitate before making alternatives allocations.

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We believe that investors who are moving their exposure to hedge fund strategies into the regulated fund world are addressing these issues without throwing the baby out with the bathwater. Let’s take them one by one:

Fees. The typical fee for a hedge fund used to be a 2% asset-based management fee, with a 20% performance fee on top. Investing through a fund of funds at peak pricing could have added an additional 1% and 10%, respectively. Competition has brought costs down, but they remain high—and the addition of hurdle rates and high watermarks on performance fees adds complexity and variability.

While many UCITS still charge management and performance fees at higher, “hedge fund” levels, some providers are consciously bucking that trend and bringing fund expenses in line with typical U.S. practices. Although generally higher than those charged on most long-only mutual funds, management fees on alternative ’40 Act funds are generally set to compete with those on other specialist mutual funds, and are lower than fees charged by traditional hedge funds because they do not have performance fees, which are prohibited for funds offered to retail investors.

Redemption terms. Many hedge funds allow only monthly or quarterly redemption and often include longer-term lockups after initial commitments. During the stressed markets of 2008, some hedge funds “gated” redemptions, only allowing a certain amount of cash to be withdrawn at any one time.

Mutual funds are required to offer daily redemption at a fund’s next NAV. (Again, while this is required for U.S. mutual funds, it is not always the case for regulated funds in other jurisdictions.) While some of the less liquid parts of credit markets may be out of bounds for funds offering daily redemptions, a multi-strategy, multi-manager liquid alternatives product offering daily redemptions at NAV should have access to a substantial portion of the hedge fund strategies available, minimizing selection bias.

Transparency. Hedge funds often only report to investors once a month, with a delay, and position-level transparency is not the norm. Multi-manager alternative funds often utilize a separate account structure, as opposed to the traditional fund-of-funds model, and this ensures position-level transparency for the portfolio managers on a daily, or even real time, basis. It allows for greater risk oversight and improves the ability of the portfolio manager to react to changing market conditions. Additionally, certain regulatory requirements applicable to registered funds require that all securities be maintained at a custodian bank and, therefore, the fund maintains total control over its assets.

Corporate governance.I t is not always clear that hedge fund directors are sufficiently engaged in governance, and in traditional funds of funds investors have little oversight of the selection of prime brokers, administrators and auditors. As part of the comprehensive regulation provided by ’40 Act and UCITS, regulated funds’ boards, which include members that are independent of the manager, provide a much-improved governance framework. For multi-manager funds, they can help improve the process of monitoring the underlying managers and often allow the fund, and not the underlying managers, to select and directly oversee other fund service providers.

Encouraging Trend

The fact that more and more products are being rolled out to fit this investor-friendly profile is encouraging. Morningstar and Barron’s have tracked 475 launches since 2009, and the 118 new products for 2014 represented a significant jump from the 89 that appeared in 2013.

This reflects an increasingly competitive hedge fund industry: Managers are both more willing to adapt their hedge fund terms to match those of regulated funds and more willing to launch regulated funds to access a bigger pool of investors. This is happening largely without injurious hedge fund-style terms being smuggled into regulated fund structures, or the watering down of hedge fund strategies. That is why we believe this growing phenomenon has earned its distinguishing descriptor: “liquid alternatives.”

Opinion by Fred Ingham, Head of International Hedge Fund Investments, and Ian Haas, Head of Quantitative and Directional Strategy Research, NB Alternative Investment Management.

AllianzGI Expands Fixed Income Expertise with Ex M&G Mike Riddell

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Allianz Global Investors has announced that it is further expanding its European fixed income expertise. As part of this expansion, AllianzGI has appointed Mike Riddell as UK fixed income portfolio manager.

With a track-record of European fixed income experience dating back to the 1950s, Allianz Global Investors is already one of the leading fixed income managers in Europe, with EUR 147 billion of European fixed income assets under management. Expanding its Eurozone fixed income capability to include a regional fixed income focus in the UK, fully integrated into AllianzGI’s established global fixed income platform, will help ensure AllianzGI continues to offer the blend of expert, active investment solutions that clients want.

Mike, who starts his new role on October 1, joins AllianzGI from M&G Investments, with a strong track-record across a range of fixed income funds. At M&G, Mike was an active contributor to the Bond Vigilantes blog, writing regularly on global fixed income topics, and was particularly well-known for his bearish view of China. Based in London, Mike, who has worked in international fixed income markets for nearly fifteen years, will report to Mauro Vittorangeli, CIO for Conviction Fixed Income at Allianz Global Investors.

Franck Dixmier, Global Head of Fixed Income at Allianz Global Investors, said: “Allianz Global Investors has a fixed income heritage stretching back many decades. Creating a dedicated footprint in the UK, one of the world’s most important and outward-looking financial markets, will perfectly complement our existing Eurozone expertise, giving our clients access to a one-stop shop for European fixed income.

“Mike joins us at an exciting time for our fixed income business, and I am sure that his deep experience of both UK and global fixed income markets will play a central role in building this new pillar in our international fixed income capability. Hiring such a senior, experienced fixed income practitioner as Mike underlines our ambition for our bond business in the UK.”

Mike, and a number of AllianzGI’s other fixed income experts, will be blogging at www.allianzglobalinvestors.co.uk/fixedincome from October 1st.