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Non-EU Managers Ditch European Investors in Face of AIFMD Grief

Alternative Investment Fund Managers Directive (AIFMD) headaches are causing some non-EU fund managers to forgo European investors, according to the latest issue of The Cerulli Edge-Europe Edition.

Cerulli Associates, the global analytics firm, says the hurdles and uncertainty linked to the financial directive are proving too troublesome for some managers. The chief operating officer of one hedge fund told Cerulli that U.S. and Asian managers are ignoring Europe, concentrating greater marketing efforts instead on domestic investors.

“At the crux of the debate is the question of whether the financial rewards outweigh the compliance costs,” says Barbara Wall, Europe research director at Cerulli, noting that the cost of becoming AIFMD compliant is estimated at between US$300,000 (€278,000) and US$1 million.

The directive subjects fully compliant AIFMs to a number of obligations, most notably the appointment of a depositary bank, restrictions around remuneration and additional risk oversight requirements. In return, full-scope AIFMs can in theory distribute funds to institutional investors across the EU without impediment.

The situation for EU managers of non-EU funds and non-EU managers of non-EU funds is, however, more complicated. While Guernsey, Jersey and Switzerland have been cleared by the European Securities and Markets Authority (ESMA) to use the AIFMD passport, the U.S., Hong Kong and Singapore have been told that more analysis is needed before a ruling can be made. “The delay is cause for concern. A speedy decision is needed–however, we are not hopeful of one,” says Wall, noting that the huge regulatory divergences between the EU and the U.S., particularly around the definition of an accredited investor, is an obstacle to equivalence that will not be easily resolved.

David Walker, director of European institutional research at Cerulli, adds it is a cause for concern if Europe’s growing web of regulation affecting alternatives managers means U.S. and Asian managers simply ignore European investors. “European allocators could effectively be denied some very talented managers, and returns they badly need in Europe’s low-interest rate, low-returns environment,” says Walker.

Managers without passporting rights can use the National Private Placement Regimes (NPPR). However, a lack of uniformity across the EU with regard to interpretation of NPPR is creating confusion, points out Cerulli. It notes that differences between countries on AIFMD regulatory reporting rules have resulted in some non-EU managers marketing into just a handful of jurisdictions, while others are moving onshore or launching UCITS. Also, there is no certainty as to how long NPPR will exist.

“Alternatives managers depending on reverse solicitation rely on being ‘found’ and then pursued by prospective clients–a fairly tall order–whereas regulation-compliant rival managers will be able actively to promote the benefits of their strategies, which does seem a rather easier path to sales,” says Walker.

Shareholders Approve Towers Watson-Willis Merger

| For Alicia Miguel | 0 Comentarios

Shareholders of financial services provider Towers Watson & Co and insurance broker Willis Group Holdings voted last Friday to approve their merger, the companies said in a joint statement.

The support by Towers shareholders comes after an $18 billion merger agreement between the companies was amended to increase the one-time cash dividend to be paid to Towers stockholders to $10 per share from $4.87, according to Reuters.

“We are pleased with the outcome of today’s vote and thank all of our shareholders for their support,” said John Haley, Chief Executive Officer of Towers Watson.

At the first vote to approve the merger, that took place in November, top Towers shareholders, including BlackRock Inc, refused to support the deal which proved to be a critical blow, and forced the company to adjourn the meeting until last Friday.

A key goal of the merger is to have Willis, the world’s third-largest insurance broker, combine with Towers Watson to add consulting operations and help take on bigger rivals.

The raised dividend proved enough to swing top Towers shareholders to switch their vote in favor of the deal, leading to the approval at Friday’s meeting.

Towers Watson Chief Executive John Haley will lead the combined company, and James McCann of Willis will be the chairman.

Market Volatility Causes an Important Reduction in Net Inflows in Long-Term UCITS and AIF in Q3 2015

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The European Fund and Asset Management Association (EFAMA) has published its latest quarterly statistical release which describes the trends in the European investment fund industry during the third quarter of 2015. Bernard Delbecque, Director of Economics and Research at EFAMA, commented: “Volatile markets in August and September triggered an important reduction in net inflows in long-term UCITS and AIF in the third quarter of 2015.”

UCITS net sales declined to EUR 55 billion, down from EUR 114 billion in Q2.Long-term UCITS, i.e. UCITS excluding money market funds, also posted a steep decline in net sales during the quarter to stand at EUR 33 billion at the end of Q3, down from EUR 144 billion in Q2.

Demand for equity funds decreased from EUR 22 billion in Q2 to EUR 13 billion in Q3. Bond funds registered a turnaround in net sales to post net outflows of EUR 19 billion, against net inflows of EUR 32 billion in Q2. Net sales of multi-asset funds net sales decreased from EUR 72 million in Q2, to EUR 34 billion in Q3.

Cumulative UCITS net sales totalled EUR 452 billion during the first three quarters of 2015, up from EUR 404 billion registered in the first three quarters of 2014.

Cumulative net sales of long-term UCITS also increased during the first three quarters of this year to EUR 414 billion, up from the EUR 399 billion registered in the first three quarters of last year.

Money market funds recorded a turnaround in net sales to post net inflows of EUR 21 billion in Q3, against net outflows of EUR 30 billion registered in Q2.

AIF net sales amounted to EUR 33 billion, down from EUR 48 billion in Q2. The reduction in AIF net sales can be primarily attributed to a decrease in demand for AIF multi-asset funds, from EUR 32 billion in Q2 to EUR 16 billion in Q3.

AIF bond fund net sales saw increased outflows of EUR 4.5 billion, compared to outflows of EUR 2 billion in Q2. Net sales of AIF equity funds decreased from EUR 3.6 billion in Q2 to EUR 3.2 billion in Q3.

European investment fund net assets decreased 4.1% during the third quarter of 2015 to stand at EUR 12,114 billion at end Q3 2015. Net assets of UCITS decreased by 4.7 percent to stand at EUR 7,784 billion at end Q3, while total net assets of AIFs decreased by 3.0 percent to stand at EUR 4,330 billion at quarter end.

A Spectre is Haunting the World, the Spectre of Deflation

| For Gabriela Huerta | 0 Comentarios

Open up a financial newspaper and you will see the word “Deflation” again and again in articles on the general economic situation, usually in combination with the words “fear”, “concerns” or “risk”. This negative association is reinforced by the fact that Mario Draghi, president of the European Central Bank, often speaks of a “deflation risk” which must be combatted.

Given the big impact that central banks have on financial markets through their key rates and other monetary policy measures, it is important for investors to understand what influences these institutions and what they have to do with deflation and deflation risk.

To address this topic, I will present a short series of blog posts on deflation from an investor’s point of view.

The first point to understand is what exactly is meant by “deflation”, how we experience it in everyday life, what causes it, and why it occurs so seldom on a macroeconomic level. In the following posts I will address related themes, such as “deflationary spiral”, “excessive debt and deflation“, and, above all, what this means for an investor.

Deflation is defined in economics as an across-the-board, significant and sustained decline in prices of goods and services.

The main cause of falling prices is greater efficiency, i.e., the ability to offer a better product or service and/or the ability to offer it at a lower price. This phenomenon can be seen in computers and consumer electronics. An iPhone today costs about one third what an Apple Macintosh computer cost in 1984 (about USD 2500) and is capable of doing so much more.

But there are other, less well-known examples of deflation caused by enhanced efficiency. According to the Cologne Institute for Economic Research, in Germany prices of the main staple foods (butter, sugar, milk, bread, etc.) have risen in nominal terms since 1960 and even since 1991. On the other hand, in 1960 an “average” worker had to put in 51 minutes to buy 10 eggs; in 1991, nine minutes, and in 2009, only eight minutes. More generally, in 2009 a German worker had to work only one third as long in order to buy the same basket of goods as in 1960.

A further important cause of deflation – surplus supply and flat demand – is currently being illustrated in oil prices. Keep in mind, however, that demand for oil is not fully price-elastic. That means, for example, that if oil prices rise there will be only a slight decrease in driving, and if oil prices fall there will be only a slight increase in driving. Moreover, it is easy to expand or shrink supply in the very near term. The “oil tap” can be opened up or closed relatively easily.

For various political and economic reasons, oil producers are not currently on the same page and are trying to sell as much oil as possible. This has led to a global glut in oil, and the price of all types of oil has fallen by more than 50% in the last 18 months.

But why has this long- and short-term deflationary trend very seldom or never led to macroeconomic deflation? There are two reasons.

On the one hand, lower prices put more money in consumers’ hands, which they use to purchase more goods, the same goods in greater quantities, or goods of higher value. This alters the basket of goods on which basis the consumer price index is calculated. This change in consumer behaviour offsets the deflationary impact.

On the other hand deflation naturally depends on money supply and growth in money supply. And, although money is created from lending by commercial banks, it is ultimately the central banks that determine growth in money supply. In the past politics led to too much money creation which triggered (moderate) inflation.

Even so, deflation has occurred in the past. In my next blog post I will describe when and how it has done so.

Alejandro Moreno Appointed New Head of Distribution for Northstar

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Northstar, a firm dedicated to provide financial solutions to meet the needs of non-US clients, announced the appointment of Alejandro Moreno in the role of Head of Distribution. Alejandro Moreno brings over 19 years of experience in global financial organizations. Alejandro has joined Northstar from Sun Life Financial International, where he was most recently Head of Global Relationships. At Sun Life, Alejandro managed the global key account and sales teams and the firm experienced significant growth across all territories under his stewardship. Prior to joining Sun Life in 2008, Alejandro spent 12 years at Putnam Investments where he held a variety of positions within the firms’ offshore business. Alejandro completed his undergraduate program at CENP in Madrid and is bilingual in English and Spanish.

Northstar’s CEO, Michael Staveley, commented: “We are delighted that Alejandro has joined us in the newly created role of head of distribution and we look forward to him playing a central role in the firms continued growth. Alejandro will be working closely with the other members of the executive team and directors as we seek to expand the firm’s global distribution network and enhance our product range. The Northstar platform has been in operation for 17 years and this key hire is a further demonstration of our longstanding commitment to the international business.”

Northstar was first established in 1998 as Nationwide Financial Services (Bermuda) Limited and renamed Northstar in 2005, the firm offers a range of attractive fixed-rate and variable investment plans to a global client base. The firm’s fixed-rate products offer competitive guaranteed interest rates coupled with the option of added principal protection. Northstar’s variable products offer investors access to a broad selection of funds from a range of leading asset managers, with unlimited free transfers between underlying investment options. Working with an extensive range of distribution partners such as banks and other financial institutions, Northstar has clients in over 100 countries.

Despite Outflows, Investor Confidence in European Funds is Coming Back

| For Gabriela Huerta | 0 Comentarios

According to the latest Investment Funds Industry Fact Sheet from the European Fund and Asset Management Association (EFAMA), which provides net sales of UCITS and non-UCITS, during September 2015, total net assets of the European investment fund industry decreased by 2.3% percent to stand at 12,109 billion euros.

With information from 27 associations representing more than 99 percent of total UCITS and AIF assets, the main developments that month can be summarized as follows:

UCITS net sales decreased to 1 billion euros, down from net inflows of 9 billion euros in August. The decrease can be attributed to net outflows from money market funds.
Long-term UCITS (UCITS excluding money market funds) experienced a rebound in net sales of 12 billion euros, compared to net outflows of EUR 3 billion in August.
Equity funds enjoyed a turnaround with net sales of EUR 3 billion, up from net outflows of EUR 3 billion in August.
Net outflows from bond funds amounted to EUR 1 billion, compared to net outflows of EUR 12 billion in August.
Net sales of multi-asset funds remained steady with inflows of EUR 8 billion in both August and September.
UCITS money market funds recorded net outflows of EUR 11 billion, compared to net inflows of EUR 12 billion in August. This reflected usual end-of-quarter redemptions.
Total AIF net sales saw net outflows of EUR 6 billion, down from inflows of EUR 6 billion in August.

Net assets of UCITS stood at EUR 7,815 billion at end September 2015, representing a decrease of 2.2% during the month, while net assets of AIF decreased by 2.5% to stand at EUR 4,294 billion at month end.

Bernard Delbecque, Director for Economics and Research at EFAMA commented: “The rebound in net sales of long-term UCITS, even though modest, suggests that investor confidence began to strengthen again in September, after a few weeks of turbulence in the markets.”

Two-Thirds of Marketing Managers Plan to Add Staff to Support Digital Transformation

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New research from Cerulli Associates finds that two-thirds of marketing managers plan to add to their staff to support their digital transformation needs, focusing on content, data analytics, and technology-skilled individuals.

“When marketing managers are asked which trends are impacting their job, most respond with answers that are directly associated with digital transformation,” states Pamela DeBolt, associate director at Cerulli. “Acquiring more technologically-oriented personnel allows managers to enhance their ability to deliver content through budding digital channels, such as blogs, videos, or social media. Another opportunity for hiring comes in the form of more analytically-oriented candidates. More and more, marketing groups are performing their own segmentations, engaging in predictive analytics, and attempting to measure marketing return on investment (ROI).”

In its new report, Cerulli explores digital marketing and how firms are using these digital technologies to promote their brand, build preference, and increase sales through various sales marketing techniques.

“Digital is a positive game-changer for marketing groups, contributing to more targeted segmentation, expanded delivery mechanisms, and more opportunities to build firms’ brand,” DeBolt explains. “Firms have been able to use innovations in technology to improve the scale and efficiency of digital marketing, and to get a better handle on the idea and implementation of big data for business intelligence/predictive analytics. To take advantages of these opportunities for growth, marketers must recognize the importance of adding skilled employees to better shape their organization to navigate the challenges they will face.”

“The recent resurgence of product lines-in terms of both size and complexity-has led to a new demand for marketing professionals,” DeBolt continues. “The acceptance and embracing of technology into the marketing process has added a new flavor to marketing organizations. More quantitatively-focused candidates have become highly desirable, as marketing heads look to fill positions surrounding analytics and measuring ROI.”

Has Volatility Fueled Active Management?

| For Gabriela Huerta | 0 Comentarios

During the last six years, US equities experienced a nearly uninterrupted rally. An unusually accommodative monetary policy environment coupled with economic and earnings growth helped fueled the U.S. stock market—things, however, are starting to change.

The Federal Reserve (Fed) is signaling its intention to normalize monetary policy, which could happen as early as this month. At the same time, earnings growth outside of energy is modest and valuations are on the expensive side of fair value. It is therefore likely that investors going forward will not only have to adjust to more modest returns from U.S. stocks, but they may also have to brace for heightened volatility at a time when U.S. fixed income will continue to yield low level of returns.

In order to maintain the same level of returns, investors will have to change their strategies. One way to do so in the equity market would be to look for beta by pursuing cheaper markets (sectors, factors, geographies) with fundamental tailwinds, as well as strategies that have long-term structural support. For example, exposure in Europe or Japan—other developed countries with improving economic activity, accommodative monetary policy, cheaper currencies and strong profit growth.

Another strategy would be to combine active and passive management. While passive management has outperformed active management in the last years, this was done at a time during which the stock market was moving higher and was immersed in a low volatility environment, where generating alpha proves to be more difficult. Nowadays, investors can potentially benefit more from security and risk selection, be it via actively-managed exchange traded funds (ETFs), multi-asset managers, long/short managers or traditional active equity managers. However they must keep in mind two essential issues with active management:
• Finding a top-tier investment manager who will benefit from this shift in the investment environment is not certain, and
• Alpha generation is basically a zero-sum game over time. In aggregate, investors compete to generate alpha, creating winners and losers.

Although the dataset is admittedly small, historical data shows that in US large caps, periods when alpha generation improves happen to coincide with periods of stress in financial markets. So, while alpha generation may be thought of as sourcing opportunities to generate a higher return, it may equally be thought of as being underweight risks during times of heightened financial and economic stress. Thus, it might be safer to have a more thoughtful approach to combining alpha and beta strategies going forward.

In regards to the fixed income sphere, (where given the low level of interest rates it doesn’t take much of a reversal in interest rates to wipe out a year’s worth of coupon income), in order to boost returns and generate sufficient income, investors may feel compelled to migrate to ever riskier credits, extend maturity/duration, or allocate to less liquid securities. However, like with equities, there is an option other than pure market beta. Instead of taking more risk, investors could consider how they build alpha generation tools into their fixed income portfolio. One way to do so would be employing global multi-asset income solutions as a way to limit volatility while also pursuing objectives like income and total return. Tools such as unconstrained bond funds, global long/short credit or credit ETFs can be a good way of diversifying your fixed income sources.

With the world ‘normalizing’ comes the worry of higher volatility. Yet, it also presents an opportunity for alpha generation that has somewhat evaded markets in recent years. Investors can take advantage of that through picking the right active fund manager, through flexible multi-asset portfolios while also employing beta strategies to boost returns through tactical sector, geography and factor tilts.

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This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.

The European Fund Universe Lost 193 Products On Q315

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According to Thomson Reuters Lipper‘s latest Launches, Mergers, and Liquidations report, as of the end of the third quarter 2015 there were 31,982 mutual funds registered for sale in Europe. Luxembourg, hosting 9,136 funds, continued to dominate the fund market in Europe, followed by France, where 4,631 funds were domiciled.

Amongst European Funds, equity ones ontinue to dominate the scene with 37% of the funds available for sale, followed by mixed-asset funds at 27%. Bond funds stood at 21%, while money market funds represented 4% of the market. The remaining 11% of “other” funds were real estate funds, commodity funds, guaranteed funds, and funds of hedge funds.

As Detlef Glow, Lipper’s Head of EMEA Research, and Christoph Karg, Content Specialist Germany & Austria, state, during Q3, 646 funds (322 liquidations and 324 mergers) being withdrawn from the market and only 453 new products being launched, the European fund universe shrank by 193 products. The specialists note that “Since the European
fund industry is enjoying high net inflows for 2015, it is surprising the industry is still cautious with regard to fund launches.” Adding that “there is still a lot of pressure on asset managers with regard to profitability, which is also driving the cleanup of the product ranges,” and so “the consolidation of the European fund industry might continue over the foreseeable future.”

You can read the full report in the following link.

U.S. Institutional Assets Grew 6% in 2014

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The latest research from global analytics firm Cerulli Associates found that assets overseen by different types of institutional investors in the U.S. rose about 6% in 2014, compared to 9.8% in the previous year.

“Institutional assets experienced more modest growth than the strong equity markets of last year,” said Chris Mason, research analyst at Cerulli. “This modest overall growth masked substantial growth among several institutional channels, representing continued addressable market opportunities for institutional asset managers.”

One area of significant growth was in the growing demand by institutional investors for more customized investment solutions. “Custom solutions assets have more than doubled since 2010 from about $500 billion to more than $1 trillion last year,” stated Mason. “Cerulli’s projections show increasing demand for custom solutions in the next five years from corporate pension plans, public plans, and non-profits.

Cerulli’s research also finds that asset managers and investment consultants are moving rapidly to address the demand for sustainable investments by U.S. institutional investors. “Asset managers and investment consultants that focus on environmental, social, and governance (ESG) factors will benefit from increased demand as different stakeholders place more pressure on investment committees to consider such factors in their investment decision-making process,” explained Mason.

According to a proprietary survey done in partnership with The Forum for Sustainable and Responsible Investment (US SIF), 64% of responding asset managers indicated that they believe it will be “very important” for managers to offer ESG capabilities in the next 2 to 3 years in order to compete in the marketplace.