Dan Norman, responsable del equipo de Senior Bank Loans en ING IM. Los Senior Bank Loans se beneficiarán de la búsqueda de rentabilidad en 2014
Senior Bank Loans set to benefit from hunt for yield in 2014. Dan Norman, Group Head Senior Bank Loans’ team at ING IM said: “We expect the current year to look a lot like the one just passed. Market technical in terms of demand relative to new issue supply should remain strong given the natural desire on the part of both institutional and retail investors, for floating rate assets to balance out the rate risk in their portfolios. Moreover, unless economic conditions take an unexpected and material turn for the worse, concerns over a rogue spike in default activity should remain on the back burner”.
ING IM notes that, given the average Index bid is close to par with most good loan assets at or slightly above, potential price upside is, by definition, limited. As for credit spreads, the investment manager recognises that they could tighten a little more from here, but it remains hopeful that most of the activity has taken place in terms of how it impacts the average Index and portfolio yield.
Dan Norman continues: “In sum, we fully expect the global hunt for yield to continue, and the loan asset class is well positioned to deliver on that thesis. If 2013 was best categorized as a “coupon plus a little” year, then 2014 is likely to be one in which investors should expect, realistically, the coupon. As such, our total return expectation for 2014 falls within the 4%-5% band.”
ING IM continues to find this return rate attractive on both an absolute and relative basis, especially when factoring in the outlook for longer rates and the likely value destruction in duration-rich investments. Furthermore the team believes this is also attractive considering the moves towards a lift in short-term rates, an environment in which the floating rate loan asset class has historically risen to the top of the return rankings.
Newton, part of BNY Mellon, has announced the appointment of Jim Wylie as Head of North America for Newton Capital Management, responsible for leading and developing Newton’s North American distribution and client servicing business. Based in New York, Wylie reports to Helena Morrissey, CEO of Newton Investment Management.
Wylie has an extensive global institutional and retail sales background and was most recently chief marketing officer and executive managing director of Turner Investment Partners. Prior to that, he was global head of sales at Acadian Asset Management.
Morrissey commented on the appointment: “Jim joins us with a wealth of relevant experience and will add leadership and strategic vision complemented by extensive global institutional and retail sales knowledge. He is highly respected within the industry and we are confident that he will significantly strengthen our distribution capability. As well as leading on all Newton’s strategic initiatives in North America he will also assume leadership of the current team of US-based sales, distribution and client service professionals. We are looking forward to working with him.”
Subject to regulatory approval, Wylie will be appointed as member of the Newton Board.
Wylie holds a BA in international relations and economics from Colgate University in New York and an MBA in Finance from Fuqua School of Business, Duke University in North Carolina.
Over 80% of institutional investors expect risk management to play an even greater role in the investment decision process in the future, according to a new study published by BNY Mellon, a global leader in investment management and investment services, in collaboration with Nobel Prize-winning economist Dr. Harry Markowitz. In addition, over the next five years 73% expect to spend more time on investment risk issues, while 68% expect to spend more time on operational risk issues. Only 25% of respondents, however, had a chief risk officer.
Entitled New Frontiers of Risk: Revisiting the 360° Manager, the new study looks at a broad array of risk-related topics and issues, including: market risk; investment risk measures; performance vs. liabilities; credit risk management; emerging markets and non-domestic investing; alternative investments; asset allocation; diversification vs. returns; liability-driven investing (LDI); operational risk management controls; operational risk insurance; liquidity risk; political risk; regulatory change; and best practices.
“Institutional investors are up against some formidable risk pressures, from new regulations to transparency concerns to investment risks across the board,” said Debra Baker, head of BNY Mellon’s Global Risk Solutions group. “For many, risk management has been a puzzling proposition – just when they think most risks have been measured, managed and mitigated, new ones emerge and old ones evolve. We see the need for a collective risk management framework that incorporates all areas of risks, their impact on each other, and one’s overall investment program. Using some form of quantitative scoring across major risk categories may be the next frontier of risk management.”
The new study arrives almost a decade on from the publication of BNY Mellon’s 2005 white paper New Frontiers of Risk: The 360°Risk Manager for Pensions & Nonprofits, which also included input from Dr. Markowitz. The 2005 paper highlighted how the need for more structured and holistic risk management was just beginning to be recognized, and the new study finds that, in the wake of the 2008 financial crises, risk management has now become a key priority of almost all institutional investors.
Dr. Markowitz notes: “The crisis of 2008 was different. So was the crisis that started in March of 2000 with the bursting of the tech bubble. So will be the next crisis. The moral is that one will never be able to put the portfolio selection process on automatic. The trusted quant team needs to constantly evaluate the current situation. It should also make sure that higher management understands what assumptions are being made, how and by whom any exotic asset classes being used have been evaluated, and what the vulnerabilities are of the general approach that is being taken. Furthermore, the push to integrate risk-control at the enterprise level, rather than at the individual portfolio level, should be continued.”
Key findings of the new study, which surveyed more than 100 institutional investors, including pension funds and endowments & foundations, with approximately $1 trillion in aggregate assets under management, include:
No more chasing alpha: it is down with alpha and up with targeted returns. Institutional investors are placing greater emphasis on achieving absolute return targets as opposed to outperforming a market benchmark. Risk budgets, matching liabilities and avoiding downside risk all play an important role in this shift.
Increased use of alternatives: survey respondents have expanded their use of alternative investments to improve diversification and potentially help with downside risk. Institutional investors plan to increase their allocations to alternatives over the next five years.
A re-awakening of risk awareness: the 2008 financial crises caught many institutional investors off guard. The risk management procedures then in place were widely perceived to be insufficient for a crisis of such magnitude. The drive for more effective, holistic risk management was soon on.
Analytical tools on the front lines of risk management: analytical tools based upon risk-return analysis and performance attribution continue to be the most commonly used to model, analyze and monitor investments. Total plan/enterprise risk reporting tools are on the rise to encompass traditional and alternative investments, as well as liabilities.
Avoidance of unintended bets: a desire to avoidunintended leverage and to better understand underlying investments has grown markedly since the 2008 financial crisis and appears to be driving institutional investors toward solutions offering greater investment transparency.
Respondents to the 2013 survey indicated that the market events surrounding the 2008 financial crises and subsequent recession represent their biggest motivator when it comes to focusing on risk. More than 60% said increased management awareness of the growing field of risk management caused their firm to institute risk management practices.
Over the last five years, 59% of respondents felt their firms had benefited through the evolution of risk management, though many remained undecided about the impact, with results varying markedly by region.
In a significant shift since the 2005 survey, respondents rated “under-achieving overall return targets” and “underperforming versus liabilities” as their two most important risk policy measures. Between the 2005 and 2013 surveys, these two measures increased more than any other response within this category.
Photo: Dirtsc. Heptagon Capital Brings Two Global Equity Strategies to UCITS Investors
Heptagon Capital, the London-based investment management firm with $8.4bn assets under management, has just launched two new Global Equity funds on its Irish UCITS platform: the Oppenheimer Global Focus Equity Fund and the Kopernik Global All-Cap Equity Fund. This takes the number of funds on Heptagon’s $2.8bn AUM UCITS platform to five.
The Oppenheimer Global Focus Equity strategy is now available to professional UCITS investors. The strategy combines a thematic approach to idea generation with fundamental company analysis. Randall (Randy) Dishmon, the portfolio manager based in New York, started the strategy in October 2007. He looks for durable businesses, regardless of where they are located, with sustainable structural tailwinds and good economics. Entry points are critical; Randy seeks to buy when there is a large gap between market price and what the company is worth to an informed buyer. The investment horizon of 3-5 years is sufficiently long to allow real value to materialize. Although this is a high-conviction, actively-managed, benchmark-agnostic strategy (with an ‘Active Share’ of 96%), its risk profile is limited by the portfolio manager’s focus on price. Randy is an employee of OFI Global Asset Management, a wholly owned subsidiary of OppenheimerFunds, Inc.
The success of Randy’s approach can be seen by the recent ‘Best-in-Class’ award for his Oppenheimer Global Value Fund (GLVYX) Y shares at the 2013 Lipper Fund Awards in the US, beating the 75 other funds in his category. His strategy has continued its outperformance, and for the five-year period ended 12/31/13, Randy has achieved a 5 year annualised return of 28.33%, compared to 14.9% for the MSCI all country world equity benchmark.
The other fund that was launched is the actively managed Kopernik Global All-Cap Equity Fund, and its investment portfolio is being managed by Dave Iben of Kopernik Global Investors, LLC in Tampa, Florida. The strategy pursues a truly global, bottom-up, research driven, fundamental evaluation approach that focusses on identifying market inefficiencies through independent analysis. Dave and his team look for undervalued and unloved stocks that will significantly reward the long term, patient investor, who truly understands a company’s business, and where more normal, stable valuations for a business will eventually be achieved.
Commenting on the new fund launches, Tarek Mooro, Managing Partner and CEO of Heptagon noted: “We are extremely pleased to have brought two such high quality investment managers to the UCITS market. In line with our philosophy of identifying high-conviction, benchmark agnostic, outperforming managers, we feel very confident that these funds will significantly reward stakeholders over the coming years.”
Heptagon Capital LLP is based in London’s Mayfair and was founded in 2005 by former Morgan Stanleydirectors, including Tarek Mooro, Eran Ben-Zour and Fredrik Plyhr. Heptagon caters to institutional and Ultra High Net Worth investors, providing them with creative, class-leading investment ideas and risk management, across traditional and alternative asset classes.
David Wise wins gold in halfpipe in Sochi. Photo: Sochi 2014. Carrying the Torch for Retirement Security
I love everything about the Olympics, in particular what it showcases – sportsmanship, patriotism, and uncompromising dedication.
I can’t help being inspired by the countless examples of focus, endurance and strength. To me, the Olympics stretch the boundaries of what is possible. There is real human emotion, with the margin of victory often measured in hundredths of a second. Many of the athletes prepare for the better part of their lifetime for events that last just minutes, or less.
In stark contrast to the preparation of these Olympians, most workers dedicate little if any time to planning for retirement – an event that could last 20, 30 even 40 years. According to the Employee Benefits Research Institute, less than 2 percent of U.S. workers identify retirement planning as their most pressing financial issue, and 43 percent of workers reported that neither they nor their spouse are currently saving for retirement.[1]
I’m not saying that building a secure retirement is easy. It too requires discipline. Some of that discipline must come from within, as individuals shift some of their passion for spending to a passion for saving. Fortunately, some of that discipline can be automated, through participation in an employer-sponsored retirement plan such as a 401(k) account, with savings made automatically though payroll deduction.
In many ways, the keys to a secure retirement parallel the keys to success for Olympic athletes. Like athletes, savers must set goals, develop a game plan, make a long-term commitment and take action.
One of the winter Olympic sports I find most fascinating is the ski jump, because of the courage, control and composure it must take to ski down a hill at speeds in excess of 50 miles per hour, not to mention the part about flying through the air the length of a football field, then landing.
2014 marks the first time women will compete in this event. Just before year end, Jessica Jerome, age 26, became the first to win the U.S. Olympic Trials in women’s ski jumping. She didn’t decide at age 25 she wanted to be an Olympic ski jumper, this is something she’s been doing since she was 7 years old. And I guarantee her first jump was not off a 70 meter hill.
Her Olympic berth is nearly 20 years in the making. Secure retirements can take twice that long, but don’t demand anything near the intensity of effort. In building a retirement nest egg, starting early is key, but slow and steady wins the race. Saving just $5 per day, 365 days a year, for 40 years, translates into more than $500,000 in savings; at $10 per day you enter retirement a millionaire[2].
Perhaps what I love the best about the Olympics is that for most athletes, the journey started as a far-off and seemingly unattainable dream. There’s an opportunity for workers around the world to take inspiration from this, spending just a little more time defining what their medal-winning retirement would look like, and putting a plan into action to turn those dreams into reality.
[1] 2013 Retirement Confidence Survey, Employee Benefits Research Institute, March 2013.
Photo: Alvesgaspar. Encore Capital Group Takes Controlling Stake in Refinancia and Enters in Latam
Encore Capital Group, an international specialty finance company, has announced that it has taken a controlling stake in Refinancia, a leading debt purchaser in Colombia and Peru. Encore purchased 51 percent of the company in December 2013.
Encore’s acquisition of Refinancia establishes Encore’s presence in the high-growth Colombian and Peruvian markets, which together have nearly 80 million residents. Refinancia services distressed consumer debt, which it either purchases or services on behalf of others. It also offers merchant guarantee services, factoring arrangements, and a small credit card business in Colombia.
According to Ken Vecchione, Chief Executive Officer of Encore, the acquisition continues Encore’s purposeful expansion designed to capitalize on growth and consolidation opportunities both domestically and internationally. “This transaction opens up two new markets in which Encore can deploy capital at higher returns than are available in the U.S.,” he said. “In addition, Encore now has a beachhead in Latin America from which to expand, both geographically and into new specialty financial products designed for underserved consumers.”
Encore will bring to Refinancia its analytic strength, operational sophistication and deep knowledge of distressed consumers, creating opportunities for Refinancia to increase operating efficiencies and strengthen performance. Refinancia also shares Encore’s commitment to fair and ethical treatment of consumers.
Kenneth Mendiwelson, Chief Executive Officer of Refinancia, said, “We are excited to join Encore and gain the financial and operational support of a world leader. In turn, Refinancia provides Encore with immediate access to emerging markets in Peru and Colombia, and positions Encore for growth throughout the Latin American region. We look forward to working together to reach new levels of success.”
According to Vecchione, Encore has been deploying capital through Refinancia since late 2012 and plans to continue this activity. “We are taking the same approach with Refinancia that we took with Cabot, in which we acquire a controlling interest in the company with the expectation of increasing our ownership interest over time. In the meantime, the majority of the capital we invest is staying within the business to fund future growth.”
Foto: PaulDAmbra, Flickr, Creative Commons.. “Construimos nuestro portafolio en base a la convicción, no siguiendo el peso del índice”
Aberdeen’s high yield team gives a brief overview of its investment process.
What is your investment process?
We are long-term buy and hold investors, not short-term traders. We look at the risks and strength of the underlying creditor protection and side-step complex instruments we do not understand. We look to avoid sectors that experience long-term structural decline, such as IT or technology companies, we prefer industries with a more mature profile. We build a portfolio based on conviction rather than benchmark weight but with enough diversification to limit the impact of defaults.
Meeting with company management is also important and in this regard we typically favor those with experience navigating through a full business cycle.
How do you choose which issues to invest in?
If we like a company then we look at the range of issues available in which to invest and on a valuation basis we decide which deals offer us the best opportunity. When we invest in senior or subordinated debt we look for certain capital structures.
For senior debt we look at bonds with a ratio of 1 to 4 times leverage and for a subordinated bond it is a ratio of 4 to 6 times leverage. When the market sells off senior debt becomes cheaper therefore allowing us to buy bonds relatively cheap while reaching our yield target. We regard non-index issues as a key part of our investment strategy.
This unconstrained approach allows us to benefit from yield pick up from some non- benchmark issues.
Do rating agencies influence your investment decisions?
While we are actively aware of company ratings and any potential hurdles that get highlighted by the agencies, we are not actively concerned as we conduct our own bottom-up research before choosing to invest. Our process is fundamentally driven, meaning that we carry out our own analysis in order to generate a much deeper financial understanding of a company. For example we occasionally find value in CCC rated bonds, yet just because the rating agency has given this bond a rating that reflects a high degree of risk it doesn’t necessarily reflect its true value. We will speak to the agency if they choose to upgrade or downgrade a bond we own and we may potentially view these actions as a trigger point to buy.
What experience does your team have in high yield?
Aberdeen has considerable expertise in this market, having managed a dedicated high yield portfolio for over 13 years. Our knowledge in this asset class is extensive, with over 50 years dedicated experience in high yield bond markets.
James Swanson, estratega jefe de MFS Investment Management. Tres focos de preocupación para 2014 y todos conciernen al crédito
MFS International Team of Jose Corena, Managing Director, and Paul Brito, Associate Director, are hosting a dinner in Miami the 18th of March with Jim Swanson, MFS Chief Investment Strategist.
The event, by invitation only, will gather the investment professional community in Miami. James Swanson will offer his perspective on the global markets and what MFS is doing to pursue the best opportunities for investors today.
James Swanson, CFA, is an investment officer and chief investment strategist of MFS Investment Management. He is also a fixed-income portfolio manager. He is a frequent guest commentator on the markets on CNBC, Fox Business and Bloomberg Television and is often quoted in leading national and financial publications, including The Wall Street Journal, The New York Times, the Los Angeles Times and Investor’s Business Daily.
For more information on the diner, which will take place in Capital Grille, 444 Brickell Avenue, please contact Juan Garcia, at jugarcia@mfs.com or call 1-800-738-3669, x54195.
Photo: Alvesgaspar. Was The Last Decade Too Kind to Emerging Markets?
John Stopford, co-head of Investec Asset Management’s multi-asset team, discusses the potential to add emerging market exposure from an income perspective.
The last decade saw a number of key developments which helped emerging markets to deliver exceptionally strong returns. These included the rise of China as a leading economic power, the consequent commodity bull market, the Global Financial Crisis, a surge in capital flows supported by low interest rates and money printing in the developed world which led to a reassessment of the relative risks of emerging market investments.
More recently, the gloss has come off the developing world. Equities, bonds and currencies have all underperformed their developed market counterparts, in some cases dramatically. China has gone from being the main driver of growth to the epicentre of investor’s fears about the sustainability of Emerging Market outperformance. Investor inflows have turned to outflows as growing pessimism has replaced rampant optimism.
So, was the last decade a short-lived boom, or do emerging markets represent an enduring investment opportunity?
Emerging market investing was not just a passing fad, but an enduring opportunity, albeit with setbacks along the way
Our belief is firmly the latter. Developing economies are engaged in a multi-generational process of convergence with the developed world. Not all economies will make it, but the progress of the last 25 years has been staggering, and the aspirations of billions of people in a much more open global society seem likely to provide a powerful impetus for further development.
This process has never been a straight line. There have been plenty of crises and setbacks along the way, although encouragingly these have often acted as a spur to necessary reform. It is generally hard to make difficult decisions in good times, but greater challenges have tended to focus the minds of policymakers. The current period is no different. Last year’s plenum in China, for example, puts it on a much more sustainable medium-term footing, even if implementation is not without its challenges. We think similarly, wide-ranging reforms in Mexico bode well for growth and inward investment.
The global environment is likely to be less helpful for emerging markets in the next few years than over the previous decade, but market pricing has already adjusted significantly to reflect this. Yields have risen sharply in bond markets, also equities and currencies have declined, materially, taking many markets to what we think are cheap levels.
In an income context, we see benefits to adding emerging market exposure
In an income context, we see opportunities to add emerging market exposure. Yields on many bonds look increasingly competitive in an absolute sense and on a relative basis against alternatives such as high yield, which appears pretty fully priced. For example, Brazilian three year bonds paying almost 13% price in a pretty downbeat future. Emerging market equities and related securities also offer good opportunities, although pay-out rates make them less compelling in many cases for income-seeking buyers. Global mining stocks, however, are a variant on the theme, with pretty decent yields.
Markets have sold-off to reflect a more challenging environment and now offer attractive yields – but selectivity is required across markets
Some selectivity is required because not all emerging markets and securities are created equal, especially if some of the drivers of the last 10 years have lost their power. We believe, however, that it is better to buy markets when they are less popular and cheap than when they are everyone’s favourite holding. The shift towards pessimism across emerging markets suggests that investors should be looking to add exposure, even if it is too soon to go ‘all in’. In addition, a belief that developed economies can decouple from problems in the developing world are probably almost as misplaced as they were the other way around.
Photo: Tungsten. The MFA Introduces Online Hedge Fund Glossary
Managed Funds Association, the global trade association representing the hedge fund and managed futures industry, has announced the launch of a comprehensive online hedge fund glossary in collaboration with Latham & Watkins LLP through its Book of Jargon® – Hedge Funds. This resource, available on MFA’s website, provides users with a complete set of key terms, phrases, and definitions specific to all aspects of the global hedge fund industry.
The new hedge fund glossary on MFA’s website offers users access to an interactive library of more than 900 terms, including acronyms regularly used to describe key industry terms, as well as jargon adopted by professionals in the hedge fund industry. The Book of Jargon® – Hedge Funds is also available as a free app that allows users to access the information on Apple’s iPhone and iPad devices. The hedge fund glossary is a meaningful addition to MFA’s full complement of educational offerings for the public, investor, and fund manager communities. These resources include MFA’s online video series on hedge fund basics, educational presentations and infographics, as well as a comment letter database detailing the industry’s position on regulatory matters affecting financial markets participants.
“The launch of the hedge fund glossary further exemplifies MFA’s commitment to educational offerings for hedge fund professionals and serves as another helpful resource for those looking to learn more about how our industry functions,” said Richard Baker, MFA President and CEO of the Managed Funds Association. “These global businesses can be complex, but we believe our glossary allows those who are curious and interested in hedge funds to gain clarity on the basic elements, strategies, and terms that govern the day-to-day operations of the industry,” Baker said.
“We are pleased to collaborate with the MFA on this project to make our Book of Jargon® – Hedge Funds available on the MFA website. We are delighted to support the MFA’s endeavor to provide the hedge fund community with educational resources,” said Steve Wink, corporate partner and co-chair of Latham & Watkins’ Hedge Fund Task Force.
“Covering deal terms from ‘A/B Exchange’ to ‘VWAP’ and more than 900 terms in between, we’re pleased to provide MFA’s members and the wider financial community with this interactive library of the A’s – Z’s of hedge fund jargon,” said Christopher Clark, litigation partner and co-chair of Latham & Watkins’ Hedge Fund Task Force.
Content in the glossary will be regularly updated by Latham & Watkins to reflect changes in legislation, terminology, and definitions that are relevant to the global hedge fund community. The full glossary is available online here, and Latham & Watkins’ Book of Jargon® – Hedge Funds app is available for free from the iTunes App Store here.
