In “Getting Closer to Home,” Henry H. McVey, Member & Head of Global Macro and Asset Allocation at KKR, outlines key global trends that he believes will impact asset allocations for the year.
“While the general backdrop for risk assets remains favorable, we are no longer advising folks to “Stay the Course” as we did in our January 2014 Outlook piece,” McVey writes. “Rather, given where we are in the cycle and the magnitude of gains in recent years, we have begun the inevitable process of “Getting Closer to Home” in terms of our asset allocation targets. In particular, we do advise folks to raise some cash and to tilt the invested part of the portfolio to become more opportunistic in 2015.”
In the piece, McVey also outlines key themes that make compelling “arbitrages” in the global macro landscape that CIOs and portfolio managers should pursue this year. These include:
- China’s slowing is not an aberration. As such, its role in the global economy is materially shifting, which means that McVey expects to see sizeable restructuring and recapitalization opportunities in sectors that previously over-earned and/or overstretched their footprints.
- Many corporations still have inefficient capital structures, including too much cash and too little debt, in his view. As such, investors can still benefit from corporate and/or shareholder actions to lower companies’ cost of capital and/or improve growth, including buybacks, dividends, capital expenditures and acquisitions.
- Despite a slew of liquidity in the system, many companies across both emerging and developed economies still can’t get proper access to credit. Hence, McVey still sees a compelling illiquidity premium that is worth pursuing, particularly in today’s low rate environment.
- McVey suggests harnessing volatility in the liquid commodity markets. He continues to favor private real asset investments with upfront yield, growth and long-term inflation hedging relative to traditional liquid commodity notes and swaps.
- Government deleveraging in the developed markets is disinflationary, which drives McVey’s thinking about the direction of long-term interest rates as well as the relative value of risk assets against the risk-free rates.
La Française REM purchased the PANORAMA SEINE and DOCKSIDE buildings, located 255 and 224 quai de la Bataille de Stalingrad respectively in Issy-les-Moulineaux (92130), ZAC des Chartreux, overlooking the river Seine, near Paris. Designed by architects Patrice Novarina and Atelier de Midi, and built by Sefri-Cime, the office complex was completed in 2008.
The acquisition includes two buildings: a seven-storey building (at 255) with 7,905 m² of office floor space; a two-storey building (at 224) with 2,082 m² of office space, including restauration facilities. The complex has 116 underground parking spaces. The global headquarters of the Sodexo group have been based there since 2008, under a twelve-year lease.
La Française REM was assisted by law firm Fairway Avocats and 14 Pyramides Notaires. The financing was provided by pbb Deutsche Pfandbriefbank, assisted by Lefèvre Pelletier & associés and Attorney Moisy-Namand. The seller was assisted by DTZ, as part of an exclusive mandate, and law firms K&L Gates and Le Breton & Associés.
Historically, until the 19th century, the Spanish dollar, the forerunner of the Mexican peso, was used in a number of regions around the world. The “Mexican peso” was legal tender in the United States until the Coinage Act of 1857.
Today, the country once known as New-Spain is still the exception in the “emerging markets” universe. The global economic slowdown has exposed the vulnerability of economies with excessive dependence on commodity exports: Russia, Brazil, Indonesia, Colombia and Venezuela are just a few examples. These low-diversity economies have suffered the backlash of falling commodity prices as well as expectations of a hike in interest rates in the United States.
Fortunately, many countries have learned the lessons of past crises, including the need to adopt a floating exchange rate and, more generally, economic policies aimed at budget surplus and contained inflation. Mexico is one such. Like other countries in Latin America, Mexico lost a decade in the 80s with soft growth (estimated at –0.3% over ten years) and very high inflation. Average annual inflation was 69% between 1980 and 1990 with a peak in annual inflation of 175% on 31 March 1988. The country defaulted on its external debt in 1982. In 1994, just after the signing of NAFTA (the North America Free Trade Agreement), Mexico was subject to increasingly speculative movements of capital whereas the currency was anchored to the dollar, and was forced to devalue.
Mexican peso compared to the US dollar vs. American monetary policy in 1994
Despite these various destabilising episodes, Mexico remained firmly rooted in its industrial heritage. Contrary to what one might expect, and although it is one of the world’s leading oil producers at the intersection of two worlds (a rich service-based economy in North America and a South America still dependent on its below-ground wealth), Mexico’s economy is less focused on the export of primary products than its more southerly neighbours. Industry and especially services (tourism, telecoms, etc.) have played a vital role in the country for many years although there is huge disparity in terms of development between the Chiapas and the state of Sonora, or the Yucatán and the banks of the Pacific. Between the end of the 19th century and the 1930s, the development of the railway network boosted the integration of the north and north-east and greater economic proximity with the United States. Economic activity was to develop particularly with the maquiladoras, assembly plants and sub-contracting outfits for the United States which would drive the country’s modernisation.
In the 21st century, Mexico, heir to the Aztec administration, becomes increasingly dynamic. In an earlier blog, we mentioned the reforms adopted by the Mexican parliament. In particular, the reform of the energy sector will enable private players to participate thus tempering the bottlenecks that subsist at many levels. This is especially true for the petrochemicals, synthetic textiles and plastics sectors. NAFTA continues to be the driving force for the modernisation of the Mexican economy, with foreign investments no longer exclusively targeting energy but also the automotive industry, electronics, chemical and aeronautics. A number of big names in American and European industry have started to establish operations in the central industrial region: for example, Bombardier, Airbus and GE Aviation are investing in Querétaro. Since the 1980s, foreign direct investment in the aeronautical sector amounts to nigh on 33 billion dollars. According to the FT, in 2014, compared to 2009, Mexico had doubled its automobile production to 3.2 million vehicles. Honda, Mazda, Audi, Kia, Nissan and BMW have already invested or plan to invest several billion dollars to set up assembly lines in the country. All this comes against the backdrop of Mexico not only becoming increasingly competitive but also gaining in expertise versus one of its biggest rivals, China, whose currency has slowly but surely appreciated against the dollar since the summer of 2005.
Opinion column by Jean-Philippe Donge, Head of Fixed Income at BLI – Banque de Luxembourg Investments. This article is published on its blog: “From the peso oro to the maquiladoras”
The Internal Revenue Service announces the opening of the International Data Exchange Service (IDES) for enrollment. Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRS under the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.
More than 145,000 financial institutions have registered through the IRS FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information reports on financial accounts held by U.S. persons.
“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”
Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.
Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information.
Host country tax authorities in Model 2 IGA jurisdictions and financial institutions are encouraged to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES, a financial institution or tax authority will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll; there is a list of approved Certificate Authorities available on irs.gov.
For host country tax authorities in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. Financial institutions will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here. IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.
Further information on IDES can be found here. The IDES User Guide with instructions for enrolling and using the IDES can be found here. The IRS has posted Frequently Asked Questions about FATCA and IDES on irs.gov and will continue to update the FAQs as questions are received. In addition, there is a comments link on irs.gov to submit questions specifically on IDES and another for other FATCA-related questions.
Voya Financial announced that Paul J. Gennaro has joined the company as senior vice president, Corporate Communications, and chief communications officer. In this role, he will oversee all internal and external communications for Voya Financial, serving as a strategic advisor to senior management, setting the overall communications strategy, and both further defining and protecting the company’s reputation with key stakeholders. He will report to Chairman and CEO Rodney O. Martin, Jr.
“Paul is a recognized thought leader and has demonstrated experience working with several well-known global brands to help them strategically and effectively communicate with multiple stakeholders,” said Martin. “He has an impressive record, a diverse background of communications leadership roles, and significant experience overseeing programs to support a number of initiatives, including a successful initial public offering and a global rebranding effort. He will be a great asset as we continue to further define and protect our reputation in the industry and our brand in the marketplace. I’m pleased to have him on our team and I am looking forward to working closely with him as we continue to work toward achieving our vision to be America’s Retirement Company.”
Gennaro comes to Voya Financial with more than 25 years of experience and, during his career, has managed various facets of corporate and marketing communications, investor relations, public relations and government affairs. Most recently, Gennaro was senior vice president, Corporate Communications, and chief communications officer of AECOM, a $20 billion, fully integrated infrastructure and support services firm. At AECOM, Gennaro led all aspects of the firm’s global corporate communications, brand optimization and reputation management strategies. During his tenure at AECOM, which Gennaro joined in March 2006, he developed and executed communications strategies in support of more than 40 acquisitions, the company’s initial public offering and its global rebrand.
“I’m excited to join the Voya team and to be part of a company with a great vision and a commitment to helping Americans with their retirement readiness needs,” Gennaro said. “I look forward to helping build the Voya brand – and to helping Americans build a secure financial future.”
Prior to joining AECOM, Gennaro managed all global corporate and marketing communications for Johns Manville, a subsidiary of Berkshire Hathaway, Inc. He has also held communications leadership roles for global brands such as Ingersoll-Rand, Dell, and American Express. Gennaro began his career as a print/broadcast journalist and public affairs officer for the U.S. Navy.
Gennaro received a Bachelor of Science degree in aeronautics from Embry-Riddle Aeronautical University. He is a board member of Ethisphere LLC, serves on the board of advisors for the Emory University Center for Ethics, and also is on the board of directors for the DINFOS Foundation, which supports the U.S. Department of Defense Information School.
Gennaro is the recipient of several professional awards, including being named PR Week magazine’s PR Professional of the Year in 2013. He also received the 2013 John W. Hill Award from the New York Chapter of the Public Relations Society of America and, in 2010, the International Business Award for Communications Executive of the Year.
Franklin Square today has hired Berta Aldrich to serve as the firm’s Chief Marketing Officer. Ms. Aldrich joins the firm after spending the last 10 years with Vanguard, where she held executive positions in marketing strategy and planning, loyalty operations and investment education.
“Berta is a highly respected marketer and educator in our industry and we are delighted she has joined Franklin Square,” said Michael C. Forman, Chairman and CEO, Franklin Square. “Berta will help us further strengthen our position as a leader in alternative investments and our support for client and investor education programs.”
In her most recent position as Head of Marketing Strategy for Vanguard, Ms. Aldrich led the channel marketing efforts for the growth and expansion of its $1 trillion dollar Financial Advisory Services division. She previously served as Department Head of Vanguard’s Acquisition and Loyalty Marketing Operations, Marketing Executive to the Institutional Full-Service Retirement division and Head of Investor Education and Program Development. Before joining Vanguard, Ms. Aldrich had a 13-year career at the Principal Financial Group.
“Franklin Square is a leader in providing individual investors access to alternative investments historically reserved for large institutions,” commented Ms. Aldrich. “I am excited to join such an innovative, dynamic firm and a team that places such great emphasis on investor protection, client care and civic engagement.”
In 2013, Ms. Aldrich was named among Gramercy Institute’s 20 Rising Stars in Financial Marketing. She holds an MBA with honors from St. Joseph’s University and a BA in Finance from Iowa State University. Ms. Aldrich is a member of the board of directors for Camphill Special School and is a previous board member of the Mutual Fund Education Association.
Columbia Management announced today that it will rebrand its business as Columbia Threadneedle Investments in the first half of 2015. The new global brand will represent the combined capabilities, resources and reach of Columbia and UK-based Threadneedle Investments, offering clients access to the best of both firms and positioning the asset management group for a greater share of global growth.
Threadneedle has assets under management (AUM) of $150 billion (as of September 30, 2014) and is the fifth largest retail asset manager in the UK (IMA as of October 31, 2014). Together, Columbia and Threadneedle have $505 billion in AUM across developed and emerging market equities, fixed income, multi-asset solutions and alternatives. Both firms are owned by Ameriprise Financial.
The new brand – Columbia Threadneedle Investments – will reinforce the strength of both firms in established markets of the U.S., UK, and Europe and enable the group to grow its presence in key markets, including Asia Pacific, Latin America and the Middle East, stated the firm.
The established investment teams, strategies, processes and legal entities at both firms will not change as a result of the new global brand. Similarly, existing funds will not change, nor will existing client portfolios and mandates.
“This is an important and exciting new phase for us. We are bringing together a combined offering under the Columbia Threadneedle Investments global brand for the benefit of our clients and our business,” said Ted Truscott, CEO – Global Asset Management, Ameriprise Financial. “Columbia and Threadneedle have been working together for more than two years to increase the breadth and depth of our offering to clients. Presenting the combined capabilities of both firms under a single brand is the natural next step.”
“We are introducing the Columbia Threadneedle Investments brand to reflect the significant resources and expertise available to our teams around the globe. By working together we add depth to our offerings, enabling us to make better investment decisions and ultimately generate better performance for our clients, and the new global brand reflects this. Clients around the world benefit from our combined research ideas and insights, trading techniques and portfolio strategies,” Truscott said.
“Columbia and Threadneedle share many philosophies and values, including a commitment to delivering the investment outcomes our clients expect,” said Colin Moore, Global Chief Investment Officer. “In a world where financial markets and economies are increasingly interconnected, being part of a strong global partnership with our colleagues at Threadneedle is a considerable advantage. Over recent years we have deliberately fostered an environment of information sharing and debate between Columbia and Threadneedle, and I believe the aggregate resource is world class. While our investment teams remain true to their respective styles and processes, the sharing of research globally allows us to make full use of our collective intellectual capital and better inform our decisions to the benefit of our clients.”
“Columbia and Threadneedle have a shared vision, business strategy and values, albeit with distinct investment capabilities, local distribution and unique product offerings,” said Campbell Fleming, CEO of Threadneedle. “Under the new brand we become a global group, presenting our combined resources, investment perspectives and expertise to better serve our clients, both individuals and institutions, around the world.”
The European Fund and Asset Management Association (EFAMA), has released its latest international statistical release containing the worldwide investment fund industry results for the third quarter of 2014.
Investment fund assets worldwide increased 6.2 percent during the third quarter to stand at EUR 27.24 trillion at end September 2014. In U.S. dollar terms, worldwide investment fund assets decreased 2.2percent to US$ 34.28 trillion on account of U.S. dollar appreciation during the quarter.
Worldwide net cash inflows amounted to EUR 290 billion, up from EUR 252 billion in the previous quarter. A turnaround in net flows into money market funds was the main driver behind this result.
Long-term funds (all funds excluding money market funds) continued to register net inflows amounting to EUR 223 billion during the third quarter, albeit down from EUR 301 billion registered in the previous quarter.
Worldwide equity funds recorded reduced net inflows of EUR 24 billion, down from EUR 48 billion in the previous quarter. Worldwide bond funds registered net inflows of EUR 79 billion, compared to EUR 112 billion in the previous quarter. Balanced funds recorded reduced net inflows of EUR 72 billion, down from EUR 81 billion in the second quarter.
Money market funds recorded a turnaround in net flows during the third quarter as net inflows amounted to EUR 67 billion, compared to net outflows of EUR 49 billion in the previous quarter. The United States registered net inflows of EUR 33 billion during the quarter, with Europe attracting EUR 13 billion in net new money.
At the end of the third quarter, assets of equity funds represented 40 percent and bond funds represented 22 percent of all investment fund assets worldwide. The asset share of money market funds was 13 percent and the asset share of balanced/mixed funds was 12 percent.
The market share of the ten largest countries/regions in the world market were the United States (50.3%), Europe (28.7%), Australia (4.9%), Brazil (4.7%), Canada (3.7%), Japan (3.2%), China (1.8%), Rep. of Korea (1.0%), South Africa (0.5%) and India (0.4%). Taking into account non-UCITS assets, the market share of Europe reached 36.3 percent at end September 2014.
Robeco has appointed Maureen Schlejen as head of institutional sales and account management in charge of the Benelux and Nordic countries.
Based in Rotterdam, Schlejen will lead a team of account managers and be responsible for building Robeco’s institutional client base in the Netherlands, Belgium, Luxembourg and the Nordics.
Schlejen has been with Robeco since 1995, most recently as senior account manager institutional clients. She replaces Eric van der Maarel, who left the firm to join Aegon.
Prudential market experts expect moderate growth in 2015 – led by the United States – as global economies continue to recover. Outlining their views at Prudential Financial, Inc.’s 2015 Global Economic and Retirement Outlook discussion, they said any growth is likely to be uneven across the globe and in the face of increased and prolonged volatility.
Ed Keon, managing director of QMA, said the current environment will lead to continued low yields for bonds and yet another strong year for the stock market.
“Bond yields have stayed low after the end of quantitative easing for a simple reason: bond demand is very strong, and bond supply is modest. Strong demand and modest supply means high prices in any market, and leads to low yields for bonds,” Keon said. “In the short run, stocks can continue to perform well as low interest rates support higher than normal valuations, but higher valuations carry a long-term cost. Eventually expected returns of stock and bond portfolios might be lower than historical norms, creating challenges for many investors.”
Mike Lillard, chief investment officer of Prudential Fixed Income, agrees that the outlook for stocks is more attractive than for bonds. Lillard also believes interest rates will remain low with the health of the economy weighing heavily on any Federal Reserve decisions.
“June would be my liftoff date for a rate hike from the Fed, but they will do it very slowly and patiently. If the economy begins to soften, however, they will stop to avoid sending us into another recession,” said Lillard. “They are going to be highly data dependent, and at the end of the day, our expectation is that they won’t be able to get short term rates very high.”
Quincy Krosby, a Prudential market strategist, warned that the recent slide in oil may not be as beneficial as Fed members make it out to be. She also questions whether a rate hike by the Fed could ultimately harm the economy.
“While consumer spending may have increased in the United States, the Fed needs to worry more about what lower energy prices mean globally. It could be signaling a decrease in demand in places like China, Europe, and Japan, which could lead to decreased production and job cuts in the energy sector,” said Krosby. “Taking that into account, the Fed also has to keep in mind that when rates rise, something always breaks. There’s no telling what asset class may start the ball rolling, but it can’t come as a surprise. That said, it has been the velocity of the oil price plunge that caught markets off guard. Consumers, however, are net beneficiaries of lower prices.”
John Praveen, chief investment strategist for Prudential International Investments, cautioned that divergent monetary policies from central banks are likely to lead to volatility in the coming year and that current and future geopolitical risk cannot be dismissed.
“The start of quantitative easing in Europe and possibly Japan will allow for greater expansion in those markets compared to the United States, yet any unforeseen risks could derail that proposition,” Praveen said. “Europe was supposed to be on an upswing in 2014, but Putin’s actions held any potential rally in check. With such interconnected global economies, any geopolitical or major risk can hold everything back.”
Sri Reddy, head of full service investments with Prudential Retirement, recognizes that this low growth environment described by Prudential’s market experts will challenge investors to think creatively when it comes to retirement income and will cause a shift in how retirement products are structured.
“This prolonged low interest rate and low growth economy has investors looking for new options to generate retirement income,” Reddy said. “Things like automatic enrollment plans, auto escalation options, and enhanced defined contribution plans need to become more of an industry norm to secure retirement income for today’s workers. With people living longer than ever before, the industry needs to continue to adjust.”
