During last week, the three things that Pioneer’s European Investment-Grade Fixed Income Team talked about where:
1. ECB – “No Surrender” Bravissimo Mario! After a lacklustre performance at the December 2015 European Central Bank (ECB) press conference, ECB President Mario Draghi was back to his best at this week’s ECB press conference. In a virtuoso performance Draghi signalled that it will be “necessary to review and possibly reconsider in March” the ECB’s current stance, given that the expected path of inflation in 2016 is “significantly lower than the path in December”. To be fair, that was always expected, given the ongoing precipitous fall in the oil price over that period. But Draghi didn’t stop there, giving us other soundbites such as the “risks of second-round effects should be monitored closely” and the emphasis that there are “no limits” to the measures that the ECB will undertake to ensure that it meets its inflation target of “close to, but below 2%”. That comment about “risks of second-round effects” is as close as we will probably get to the ECB admitting that ongoing low levels of inflation is now impacting the general economy – the famous “unanchoring of inflation expectations” that the ECB fears so much. The second comment suggests that all options will be on the table at the March meeting, despite the minutes of the December 2015 showing a distinct preference for a deposit rate cut. Finally, President Draghi noted that the line of communication adopted today was “agreed unanimously” by the Governing Council, suggesting that their bar to further action is very low. At this stage, we believe that another 10bps cut in the deposit rate to -0.30% is likely, with other options such as an increase in the monthly pace of bond purchases, an extension of bond purchases beyond March 2017, and the loosening of current restrictions on bond purchases all open for discussion.
2. Italian Banking Sector – Reality Bites Media leaks last Monday (January 18th) suggesting that the ECB’s central oversight arm, the Single Supervisory Mechanism, was scrutinising the non-performing loans (NPL’s) and bad debts Italian banking system truly put the cat amongst the proverbial pigeons. While this news does not come as a surprise, the market became concerned that further provisioning may be required for the weaker Italian financial institutions, which would place additional pressure on solvency levels. At the same time, progress on the Italian bad bank appeared to have stalled, with a solution to comply with European Commissions State Aid rules proving elusive. The market reaction was swift and brutal, with both equity and bond prices plummeting. The subordinated bonds of the weaker Italian banks have been under significant pressure since the start of the year and are trading at around 75c per €1 face value. At Thursday’s press conference, ECB President Draghi confirmed that the ECB is not about to force higher provisions or capital raises on peripheral banks as part of its latest NPL exercise. Rather the focus is on improving processes and strategies around the resolution of NPLs across Europe (with the recent NPL information requests sent to a broad range of banks across the region, not just to Italian institutions). Further reports emerged that the creation of a bad bank may be agreed between the Italian government and European Commission over the coming weeks . Finer details remain light, but these reports were enough to drive a rebound in Italian bank spreads on Friday. While a step in the right direction, the Italian banks do not currently have sufficient capital or provisioning to transfer NPLs at market prices to a potential new asset management vehicle. This solution is unlikely to be the panacea to the sector’s problems, but will be welcomed nevertheless and hopefully help to kick-start sales in the NPL market. We have a cautious outlook on the Italian banking sector, and still prefer to sell into strength.
3. Oil is in a Bull Market Not the headline you might expect to see after the last couple of months, but technically it could be correct if the recent bounce in the oil price continues. The standard definition of a bull (bear) market is a 20% rise (fall) in the price of an asset. The oil price has appreciated by almost 18% from its intraday lows of last week to Monday morning. What is also interesting is the effect this has had on markets – it has been the main driver of a classic “risk-on, risk-off” sentiment. So as the oil price has risen in the past couple of days, we’ve seen equities recover, core bond yields rise, peripheral bond spreads tighten, the U.S. Dollar has appreciated against the Euro and the Japanese Yen and credit spreads globally have tightened. In turn, that backs up the view of the European Investment-Grade Fixed Income team that much of the price action in the first three weeks of the year is a response to the movements in the oil price, and not a reflection of changing economic fundamentals.
Foto: AJ Cann
. El venture capital marca nuevo récord en 2015
2015 saw the aggregate value of venture capital deals increase for the third successive year to stand at $135.8bn, up from $93.5bn in 2014 and more than double the $57.1bn in 2013. Although the 9,202 deals recorded in the year is similar to both 2013 and 2014 (9,785 and 9,811 respectively), average deal size is up to $18.4mn in 2015 from $12.4mn in 2014. This represents a 6% drop from the 9,811 deals in 2014, but a 45% increase on the $93.5bn aggregate value recorded last year, according to Preqin.
Asia, in particular, has seen a significant uptick in venture capital deal activity, as Greater China recorded 1,605 deals, more than in Europe (1,373), while India recorded 927 deals, almost twice the number seen in 2014 (512).
Despite the overall healthy deals environment, significant gains in Asia were balanced by declining deal numbers elsewhere. Europe recorded 1,373 deals, its second annual decline from a peak of 2,002 in 2013, and the lowest number of deals recorded in the region since 2010. Similarly, although aggregate deal value in North America increased, the number of deals in the region fell 23%, from 5,587 in 2014 to 4,307 in 2015. While Preqin expects these totals to rise as new data becomes available, 2015 activity does not look likely to match the levels seen in previous years.
Stages, sizes and exits
Most venture capital deals occur earlier on in the lifecycle of a company, with 33% of deals completed at angel or seed stage and a further 26% at Series A; The average size of financing rounds has risen substantially over 2015. Series A financings rose 34% from $7.9mn in 2014 to $10.6mn this year, while the average venture debt financing increased from $9.6mn to $32.7mn. Investments made in Series D and beyond are now worth an average of $94.0mn.
The July financing of Didi Kuaidi was the largest venture capital deal of 2015 at $2bn. Of the 10 biggest deals of the year, five were in Asia, and five were in the US, with none taking place in Europe.
Overall venture capital exit activity declined in 2015 for the first time since 2008. The number of exits decreased from 1,138 in 2014 to 1,052 in 2015, while the total exit value declined 41%, from $125.1bn to $73.3bn.
“It was another strong year of financing in the venture capital industry. Asia once again developed strongly throughout the year, and achieved a notable milestone with Greater China recording more deals in a year than Europe for the first time ever. While North America, especially California, continues to dominate the venture capital industry, Asia is beginning to occupy an ever-larger share of the market.
Exit activity has been stifled through the year, with both the number and total value of exits decreasing from the levels seen in 2014. A tricky IPO market has made managers and investors wary, but there is still a lot of value being generated through exits from portfolio companies.” Says Felice Egidio – Head of Venture Capital Products, Preqin.
Reacting to the recent downturn in global equity markets, Francis Scotland of Brandywine Global, a Legg Mason affiliate, observed that there’s been a loss of confidence in the last month, which he attributed to a tightening global liquidity position; and capital coming out of financial assets worldwide. “We are in a correction that’s ongoing. I don’t expect it to be an extreme correction,” Mr. Scotland declared. “As a manager I like to use volatility to my advantage. I’m seeing compelling values come to the surface in U.S. stocks. The values tend to be in technology, financials, health care. A number of dividend growth stocks appear attractive. Quality-oriented stocks are doing better. That’s where the opportunities are.”
James Norman of QS Investors added that “people are re-evaluating where opportunities are. It’s hard to predict because a lot of it will be based on what investors believe. There’s going to be a lot of behavior involved in this. If people are nervous, markets will become more volatile. I think investors are nervous. We’ll have a lot of uneven economic data: some will surprise on the upside, some will surprise on the downside. It’s going to be very mixed. Going forward you need a diversified portfolio. Make sure you’re not exposed to too much of any individual economic risk or macro risk, whether oil prices, or China, or any of the things that China affects, and so on. That really is the best course of action. But it can go either way. If you look further out – three to five years – we think equities will be a very attractive place to be. However, it’s going to be a very bumpy ride over the next three to five years.”
Scott Glasser of ClearBridge Investments thinks the markets have retained many positives. “For stocks that are growing their earnings and giving capital back it is a fine environment,” he said. “We’re coming out of a period where we’ve had extremely low volatility, a function of a QE regime that had been in place for five plus years. Easy money and ultra low or zero interest rates promote a low volatility environment. We’re going back to normal and volatility will go back to at least normal. My expectation is to see higher volatility over the course of the next year… I don’t mind volatility,” he said. “From a client perspective it’s not fun to go through, but I think from a portfolio manager’s standpoint it actually gives us better ability to add value.”
In the fixed income arena, Michael Buchanan of Western Asset Management said, “We should continue to expect elevated fixed income volatility… One answer to what’s driving this increase in volatility is regulatory. Post-crisis, many firms – especially dealers and market makers – have been operating with a higher level of regulation, whether Volker Rule, Basel III, you name it. They’re operating defensively, with less inventory…the key point is that, especially given where valuations are now, you can take advantage of this opportunity. As much as it hurt in 2015, it’s likely to contribute to performance in 2016.”
“Global equity markets have really had quite a strong six years plus,” he said. “The things that had been very cheap six years ago have now gotten not cheap, and arguably maybe a little bit towards the upper end of normal. That’s sort of like a rubber band. When that rubber band is pulled tight, it’s much more sensitive to somebody pulling at it and vibrates a lot more… Three things we’re focusing on, that are going to drive a lot of the volatility but also a lot of opportunities because there’s a lot of dispersion, are: we are at fair valuations; investors are worried about growth going forward, but it’s going to be slow growth; and macro risks, since people are more sensitive to them when valuations are towards the higher end. Whether it’s China, oil, the U.S. Federal Reserve raising rates, people just become very concerned.”
“Because of that we’re seeing a lot of dispersion in individual country returns,” Norman said. “We’re also seeing a lot of dispersion in sector returns, so there are very large differences… All markets will see a high correlation but a very different magnitude of return,” he said.
In regards to China, Scotland mentioned “Philosophically, this is an economy where success has been measured by their ability to control the outcome. Moving forward, they really should be measured in terms of letting go.” Norman said. “China will be sort of a lumbering awkward teenager trying to figure it out. But at the end of the day, they will figure it out, because they have to. They’re also really a state-controlled economy and they will make it work – whatever it takes.”
When asked about oil, Buchanan said, “It’s tough to say near-term where oil is going… We strongly believe – and we think it’s a 2016 event – we’re going to print the bottom on oil, and that you will see a migration higher in terms of pricing… It’s just a matter of time before you start to see production come down in a meaningful way. At the same time, we do see demand continuing to grow. That supply-demand dynamic should go a ways towards addressing the imbalance.”
La Financière de l’Echiquier (LFDE) has been offering Swiss investors long-term savings solutions for more than 10 years. It currently manages EUR 250 million for a customer base in Switzerland of IFAs and private banks through a limited number of independent and conviction-driven active management funds (equities, fixed income and diversified). The company marks a new milestone in building long-term relations of proximity with Swiss customers. It has thus recently obtained the regulatory authorizations required to open its subsidiary that will be based in Geneva.
“This step opens up an important new chapter in our entrepreneurial development. I am proud and happy to be able to demonstrate by this strong measure our commitment to establishing a lasting presence in Switzerland based on direct contacts with investors”, commented Didier Le Menestrel, Chairman of LFDE.
“After Italy and Germany, this new subsidiary highlights the strategic importance of the Swiss market in LFDE’s business development project. We believe that our value proposition is more than ever relevant for addressing the issues facing Swiss investors on an everyday basis. The presence of an office will allow us, in all humility, to better identify the needs of our customers and prospects in order to further improve the relevance of our solutions”, added Dominique Carrel-Billiard, LFDE’s Chief Executive Officer.
Benjamin Canlorbe, who was appointed Country Manager Switzerland in September 2015, will manage the subsidiary. His mission will be to strengthen the brand’s local presence and develop assets under management in the French and German speaking areas of Switzerland.
For more than ten years, Benjamin Canlorbe has been developing LFDE’s presence in the segment of French wealth management advisors. With a Master’s degree in economics, Benjamin worked for three years for BNP Paribas’ Credit Risk department in the Netherlands and France. Joining LFDE in 2004, he was first tasked with monitoring and developing relations with wealth management advisors before becoming the customer relations manager for the independent financial planners’ segment.
Wikimedia CommonsFoto: Tangopaso . Crédit Agricole Private Banking se transforma en Indosuez Wealth Management
Crédit Agricole Private Banking, one of the world’s leading international wealth managers, announces that its operations across Europe, the Middle East, Asia-Pacific and the Americas will henceforth be united under a new organisational structure and a unique worldwide brand Indosuez Wealth Management, which will become the global wealth management brand of Crédit Agricole group.
This rebranding is the culmination of the Indosuez Wealth Management group’s strategic transformation that began in 2012 and is based on the foundations of the bank’s identity – its 140 year heritage, business model, ambitions and footprint across the globe. According to a press release, the single brand “reflects Indosuez Wealth Management’s international reorganisation and is part of a wider process of aligning subsidiaries in different geographies to offer a streamlined and cross-border service to families and entrepreneurs across the globe.”
Globalising the brand is a major step for Indosuez Wealth Management, creating a single identity for clients and employees alike. Jean-Yves Hocher, Deputy CEO of Crédit Agricole S.A., in charge of Major Clients, commented: “The Wealth Management business is fully in line with Crédit Agricole’s customer-centric, universal banking model. Our aim is to offer our customers the full range of the Group’s expertise. The transformation of Indosuez Wealth Management is clear evidence of our ability to provide high value-added services to the broadest possible range of clients, while continuing to work in synergy with the Group’s other business lines, in the very best interest of our clients.”
Christophe Gancel, CEO of CA Indosuez Wealth (Group), said: “This is a major milestone in the company’s development. We have been committed to a major overhaul of our organisation since 2012 in order to optimise our resources and enhance our offering. This new organisation, combined with the new Indosuez Wealth Management global brand, will help us pursue our strategic goals while enhancing our visibility, supporting improved co-ordination and skills transfer. Indosuez Wealth Management conveys the commitment and high expectations we set ourselves in serving our clients, wherever they are across the globe.”
The name Indosuez has a rich heritage dating back to Banque de l’Indochine, founded in 1875. Since then, the bank has built a strong reputation advising entrepreneurs and families across the world, providing bespoke financial advice and tailored investment services. Today, Indosuez Wealth Management has 30 offices in 14 countries serving high-net-worth and ultra-high-net-worth clients worldwide and manages client assets totalling €110 billion (at 31.12.15).
The bank’s core offering is organised around three divisions:
‘Structuring Wealth’, which helps families and entrepreneurs develop efficient wealth structures covering private and professional assets and liabilities (this division now includes a global corporate finance offering);
‘Investing Wealth’, for best-in-class, tailored investment solutions, in all asset classes, with high value-added services;
‘Banking and Beyond’, which covers precision banking, lending, privileged access to our network and opportunities to meet and discuss with experts through our events.
According to Juan Nevado, Fund Manager at M&G, over the past weeks, negative sentiment triggered by China’s economic slowdown and continued declines in the oil price have driven a bear market across ‘risk’ assets such as equities and credit. “Investor pessimism has reached levels where some have begun to ask whether we are about to enter the next global recession. The M&G Multi Asset team’s base case at present is that, while there are very real risks in parts of emerging markets, this is unlikely to trigger a global recession. As such, we view markets movements in some areas at least as somewhat ‘episodic’ and are therefore watching carefully for potential opportunities to exploit,” Nevado says.
In summary, the team’s view is that:
Weighing the magnitude of the sell-off against the fundamental backdrop suggests to us that we are in an ‘episode’ in which market movements are being driven by fear, not facts. With valuations in some areas having been behaviourally driven to attractive levels, we believe this could present a chance to exploit compelling opportunities across selected risk assets. When it feels most uncomfortable to be buying assets is exactly the point at which we should be, one of the strongest indicators to us that we are in an Episode is that is feels so emotionally challenging to take it on.
Fundamentals in developed economies are strong enough that we have conviction that the West is not entering recession.
Areas such as Europe and Japan have been growing, but slowing a little and missing inflation targets. Therefore, we think policymakers in these areas are likely to be inclined towards further easing. We also think it’s plausible that the Federal Reserve will not seek to continue raising US interest rates in this environment, echoing the Bank of England’s statement this week that it will not raise rates for now. So central bankers are likely to remain in supportive stance.
There are genuine risks in China and other Asian/emerging markets to worry about.
However, even if Asia continues to weaken, we are unlikely to see a contagion effect developing into a global recession. A slowdown in China will not have the same impact at the aggregate global level as a similar slowdown in a major developed economy would.
The collapse in the oil price is partly fundamentally driven because OPEC are operating at maximum output. We still believe the boost this provides to consumers, businesses and oil-importing countries should be a net positive for the global economy.
Those predicting these two factors (Chinese slowdown and the oil price) will trigger a global recession need to provide better evidence and explanation of how this would happen to persuade us that they are right.
We do not believe there is much evidence for this. It is sentiment, not facts, driving the market sell-off. Investors are overly fearful, partly because the memory of 2008 still lingers, and when investors are in pessimistic mood, they will seek the negatives and ignore the positives in any situation.
In this context, when we see valuations cheapen so significantly in a relatively short period of time (six weeks in this case, perhaps not as clearly ‘episodic’ as August 2015 in terms of the speed, but certainly in terms of the magnitude) we start to look for opportunities to exploit.
With valuation as our guide, we are not forecasting the future, we are simply aiming to put the odds in our favour. The risk premium on growth assets has skyrocketed since November 2015 and this suggests to us potential opportunities on which to position for the most attractive prospective returns.
From February 2016, Robert Senz will be the new Head of the 20-strong cross-border Fixed Income team of Erste Asset Management. He will report directly to Gerold Permoser, Chief Investment Officer (CIO) of EAM. The current Head, Alexander Fleischer, will take an educational leave at his own request.
Robert Senz has more than 25 years of experience in the fixed income area as well as a successful professional track record for example as Chief Investment Officer for bonds with Raiffeisen Capital Management. Gerold Permoser said “with Robert Senz we ensure the continuity of our successful active investment approach. Mr Senz has years of experience, he has received numerous awards, and is highly client-oriented. This will help us strengthen and further expand the already high degree of acceptance displayed by our clients and sales partners.”
“I am very much looking forward to this task, and I am convinced that I will continue the successful path together with the team of Erste Asset Management,” Rober Senz, concluded.
Foto: Giordano Lombardo, CEO and Group CIO of Pioneer Investments. Pioneer Investments alcanza un récord de más de 15.000 millones de euros en ventas netas en 2015
Global asset manager Pioneer Investments continued to deliver strong results posting record inflows of €15.2 billion globally in 2015. Year-on-year net sales were up 15% and assets under management were €224 billion at the end of December 2015, up 11% from December 2014. Reflecting asset growth across all business units, Pioneer Investments saw notably robust flows from Italy and Germany, as well as positive momentum in Asia and Latin America.
According to Morningstar mutual fund flows data, the firm ranked 4th worldwide in the multi-asset space and 9th in the alternative fund segment, thanks to the strong flows into Pioneer Investments’ multi-asset and liquid alternative strategies. These growing asset classes complemented Pioneer Investments’ longstanding fixed income and equity franchises, which continued to contribute to the firm’s results in 2015.
Giordano Lombardo, CEO and Group CIO of Pioneer Investments, commented, “It’s gratifying to see the continued trust our clients have shown in us. We are singularly focused on this responsibility, particularly given the current market volatility and liquidity conditions, as well as macro concerns such as the effectiveness of monetary policies at this stage, the outlook for China, and the trajectory of emerging market economies.
“We are committed to preserving our clients’ capital by continuing to adhere to our time-tested investment approach including remaining focused on risk-management, seeking opportunities for our clients during periods of market weakness, investing with a long-term view for our clients,” he added.
Against a backdrop of record low yields and diminishing returns from traditional asset classes, Pioneer Investments has continued to evolve its product offering, providing innovative investment solutions to its clients. For example, Pioneer Investments’ target income range, designed to provide investors with an enhanced income stream garnered over €10 billion in assets in less than four years since launch. Pioneer Investments’ high-conviction equity offerings such as the US Fundamental Growth, and European Potential strategies were also amongst the top asset gatherers. On the fixed income side, Pioneer Investments expanded its offering in 2015 with the launch of an innovative global GDP-weighted bond strategy and an Emerging Markets Bond short-term strategy.
Foto: B Rosen
. La desaceleración de los EM y los resultados corporativos encabezan la lista de preocupaciones de los advisors
A slowdown in emerging markets, U.S. corporate earnings and U.S. economic slowing ranked as the top three concerns among investment managers polled in Northern Trust´s fourth-quarter 2015 survey. Fewer managers than in the past expect U.S. economic activity and corporate earnings to accelerate, a developing trend Christopher Vella, CIO, and Mark Meisel, SVP, Northern Trust Multi-Manager Investments, noted last quarter that continued this quarter. A large percentage of managers expect U.S. economic activity to remain stable, yet a small but increasing segment of managers expect a period of deceleration.
The study shows that only 21% of managers view U.S. equities as undervalued, down from 34% last quarter and the lowest percentage since the survey began in the third quarter 2008. Investment managers view the valuation of European equities in the best light, with approximately 85% rating them as either undervalued (54%) or appropriately valued (32%). Investment managers are most bullish on non-U.S. developed equities. Emerging market equities ranked second. Within economic sectors, information technology and financials ranked first and second in bullishness.
The results also show that two-thirds of managers expect little to no impact on global equity markets from the Fed’s interest-rate increase; If the price of oil remains low for another year, only 25% of managers believe it will be negative for the U.S equity market; 84% of managers believe the probability of a global recession due to a slowdown in emerging markets is 25% or lower; Only 23% of managers expect corporate earnings to increase, the lowest reading in this survey since the first quarter 2009; A large percentage of managers, 64%, expect U.S. GDP growth to remain the same, but only 23% versus 48% last year expect GDP to accelerate; 41% of investment managers view U.S. equities as overvalued, the largest percentage of managers since the survey began in the third quarter 2008.
Foto: aehdeschaine. Legg Mason sigue creciendo: adquiere Clarion Partners, una minoría en Precidian Investments y combinará Permal con EnTrust Capital
As we published earlier this month, Legg Mason has announced that it has agreed to acquire a majority equity interest in Clarion Partners, a leading diversified real estate investment firm based in New York that manages approximately $40 billion across the real estate risk/return spectrum. Clarion Partners will operate as the primary independent real estate investment affiliate for Legg Mason and Steve Furnary, Chairman and CEO of the firm, will continue in his current role.
Under the terms of the transaction, Legg Mason will acquire an 83% ownership stake in Clarion Partners for $585 million.In addition, Legg Mason will pay for its portion of certain co-investments on a dollar for dollar basis, estimated at $16 million as of December 31, 2015. The management team will retain 17% of the outstanding equity in Clarion Partners. Legg Mason’s ownership percentage and the purchase price may be adjusted lower if the management team elects before the closing to retain more than 17% (not exceeding 20%). The firm’s previous majority partner, Lightyear Capital, will sell its entire ownership stake in the transaction. The deal is expected to close in the second calendar quarter of 2016.
The company also announced it has entered into a definitive agreement to combinePermal, Legg Mason’s existing hedge fund platform, with EnTrust Capital. EnTrust is an independent hedge fund investor and alternative asset manager headquartered in New York with approximately $12 billion in total assets and complementary investment strategies, investor base and business mix to Permal. The business combination will create a global alternatives firm with over $26 billion in pro-forma AUM and total assets of $29 billion. As a result of the combination, Legg Mason will own 65% of the new entity, branded EnTrustPermal, with 35% being owned by Gregg S. Hymowitz, EnTrust’s Co-founder and Managing Partner. The new company will be led by Mr. Hymowitz, who will become its Chairman and Chief Executive Officer. Key investment and business professionals from both firms will continue to serve the investors of the new organization.
And, last, the same day Legg Mason also announced that it has acquired a minority equity position in Precidian Investments, a firm specializing in creating products and solutions related to market structure issues, particularly with regard to the ETF marketplace. Precidian powers its own ETF products subadvised by unaffiliated managers and works with financial services firms to jointly develop solutions, structures and products to meet investor needs. Under the terms of the transaction, Legg Mason purchased a new class of preferred equity, entitling it to the rights of a holder of 19.9% of common equity, with the option to acquire a majority interest in the common equity. Other terms of the transactions were not disclosed.
