Fitch Ratings has upgraded Peru‘s long-term foreign Issuer Default Ratings (IDR)to BBB+ from BBB. According to Fitch Ratings, Peru’s upgrade is underpinned by the strength of the sovereign’s external and fiscal balance sheets, continued growth outperformance in relation to BBB peers and a long track record of macroeconomic and financial stability. The rating agency also highlights Peru’s established track record of “policy coherence and credibility” and its “strong shock absorption capacity”. Finally, it adds that “continued pragmatism under the Humala administration and a steady progress on reforms suggests that the risk of a marked departure of economic policies has reduced”.
Fitch’s new rating for Peru, following an upgrade from Standard & Poor’s to BBB+ in August, places the Andean country above Mexico and Brazil and only below Chile in the region. Moody’s rates the country Baa2 with a positive outlook.
Macroeconomic vulnerabilities posed by strong credit growth and an elevated current account deficit (forecasted to reach 5% of GDP) appear manageable
The long-term local currency IDR to A- from BBB+. The Rating Outlook is Stable. Fitch has also upgraded the country ceiling to A- from BBB+ and affirmed the short-term foreign currency IDR at ‘F2’.
Despite the slowdown to an estimated 5.4% in 2013, Peru’s economic growth performance will be one of the strongest in the BBB category during 2013-2015. Growth prospects appear favorable in the coming years due to strong mining investment flows and the expected doubling of copper production by 2016.
Government debt remains low relative to rating peers and is expected to decline to 18.9% of GDP in 2013, likely approaching 15% over the forecast period. While foreign currency debt stands at 49%, which is above similarly rated peers, the strengthened net FX position of the central government partly mitigates this vulnerability.
Peru’s international reserves (33% of GDP) mitigate risks related to high commodity dependence, the large participation of non-residents in the domestic debt market and financial dollarization. The central bank has also been gradually increasing the flexibility of the PEN.
Macroeconomic vulnerabilities posed by strong credit growth and an elevated current account deficit (forecasted to reach 5% of GDP) appear manageable. After rapid loan expansion in 2011 and 2012, authorities took measures to bring credit growth under control and improve its composition, thus reducing potential risks to financial stability. Strong FDI flows, relatively manageable external financing requirements (at around 20% of international reserves in 2013-2014) and Peru‘s position as the second strongest net sovereign external creditor in the BBB category should allow the country, accoriding to Fitch Ratings, to navigate through temporary higher current account deficits.
Photo: Rock Cohen- rockcohen. Europe, On the Road to Recovery
The potential breakup of the European Union and the demise of the Euro now seem to be a threat of the past. Just twelve months ago, the old continent seemed to be in a freefall situation. Four peripheral countries were virtually intervened, and there were considerable doubts concerning Spain and Italy. The European Central Bank’s intervention, cutting interest rates, coupled with a large injection of public money, has managed to stop the bleeding.
Institutional players have been starting to invest in Europe waiting for a slow but sustainable recovery
During the past 24 months, financial markets focused in the U.S. stock market, taking advantage of the sharp rise in fixed- income prices. The latter has already concluded, and unless a disaster occurs, the future will bring higher interest rates. However, European stock markets as well as many Asian ones, lag far behind their American counterparts.
Investors typically buy based on expectations of change and on future valuations. Currently, and for the last few weeks, institutional players have been starting to invest in Europe waiting for a slow but sustainable recovery, which would help to reduce the valuation difference with other markets. The important thing is to find good managers who invest in companies which are fundamentally sound and which can also benefit from a very hard hit domestic market.
At this stage we see three different types of opportunities in Europe. The first is the market for assets in liquidation. These can be high-quality companies which are facing a lack of liquidity due to the lending restrictions practiced by the majority of the continent’s financial institutions. They would be companies with solid bases, but which are currently in need of support in order to progress. Normally, these companies are not listed on the stock exchange, and in many cases either still belong to family groups, or are non-strategic assets of some of the multinationals. The best way to find these investment options is through venture capital funds (“private equity”), with local presence and access to groups needing support.
The second area where we see opportunities is in those countries that have had sharp declines in their real estate prices. In some cases, we are seeing their valuations bottoming out, while in others there may still be some further drops. The regulators’ new capital requirements are causing many financial institutions to package those assets on which their loans are not being paid or which they have received as guarantees, and are selling them in bulk to large funds. This move has been seen in recent weeks in Spain, Portugal and Ireland. Other operations are the purchase of corporate buildings with tenants (in many cases the vendors themselves sell it with a long-term lease and even with a repurchase agreement in time). This helps them to obtain the liquidity they need by removing an asset which may be substantial from their balance sheet, while being able to continue to occupy it. What is important in these cases is that the tenant is reliable, as the last thing we want is to be stuck with an unproductive asset. We are now seeing several cases of international HNWIs entering directly into this type of investment.
Finally, we are currently seeing an inflow of direct capital into the European stock markets, which in some cases have seen their indexes increase by more than 20% from their June lows. Despite these large increases, they still remain cheap, historically, in relation to other markets, as well as in relation to their price / earnings ratios. There are two ways to invest in this area, the easiest, fastest and cheapest is through a passive vehicle like ETFs; however, there is also an opportunity through active managers who can add value by taking advantage of specific growth opportunities of some sectors or of specific companies.
It seems, or I would like to think, that we have already seen the worst of the financial crisis, and that the old continent is beginning to enter into the growth path, and to be once again targeted by investors.
Opinion column by Santiago Ulloa, founder and managing partner at WE Family Offices.
Foto: Yeowatzup. Goldman Sachs Asset Management adquiere los fondos monetarios de RBS
Goldman Sachs Asset Management (GSAM) announced that it will acquire theGlobal Treasury Funds, which are a range of money market funds managed by RBS Asset Management.
GSAM has a long history of partnering with institutions to deliver liquidity solutions and over 30 years of experience managing money market funds using a conservative approach. This transaction complements GSAM’s strong fixed income and liquidity management businesses in Europe and globally.
“GSAM’s acquisition of these money market funds emphasizes our strong and continued commitment to providing liquidity solutions on a global scale,” said Timothy J. O’Neill and Eric S. Lane, co-heads of the Investment Management Division at Goldman Sachs.
“GSAM is a global leader in liquidity management with $195 billion in money market fund assets under management, 33% of which is in Europe,” said Kathleen Hughes, GSAM’s Global Head of Liquidity Sales and European Head of Institutional Sales. “This acquisition has the potential to nearly double the size of our Sterling-denominated offering and strengthen GSAM’s position in the European market, ensuring we are well positioned to deliver the scale and service that our clients have come to expect.”
Commenting on the transaction, Scott McMunn, CEO, RBSAM said: “From RBS’s perspective, this transaction represents another stage in our strategic plan to focus on our core customer franchises. We are confident that this represents the best deal for our clients.”
Both RBS and GSAM have said they are fully committed to continuing excellent service for RBS money market fund clients and will work in partnership to ensure a seamless transition. There will be no changes in how accounts will be managed during the transition period and no expenses will be borne by any of the funds or investors.
The transaction is expected to close in the first quarter of 2014, subject to approval by the Central Bank of Ireland and the Irish Stock Exchange (the Global Treasury Funds are Irish domiciled funds), as well as a fund investor vote.
Photo: Tom Steenkamp, Robeco's Investment Solutions. Factor Investing: From Theory to Practice
In this video, Investment Solutions’ Tom Steenkamp discusses Robeco research showing that the traditional small-cap, value, low-volatility and momentum factors not only improve equity portfolio efficiency but also work for credit and commodity portfolios.
MSCI, a leading provider of investment decision support tools worldwide, including indices, portfolio risk and performance analytics and corporate governance services, announced today that it has hired Chris Corradoas Chief Information Officer (CIO). Based in New York, Mr Corrado reports to MSCI’s Chairman and CEO, Henry Fernandez, and is a Managing Director and a member of the firm’s Executive Committee.
“The creation of a Chief Information Officer position marks an important step in the evolution of our firm,” said Mr Fernandez. “With over 30 years of experience in some of the most technologically sophisticated companies in the world, Chris will play a key role in ensuring that MSCI continues to offer our clients leading-edge products and services that are targeted to helping them achieve their business goals.”
Prior to joining MSCI, Mr Corrado was a Managing Director and Head of Platform Services at UBS where he oversaw technical infrastructure, global production services, application platform services and IT services. Mr Corrado started his career at IBM in 1981 before joining Morgan Stanley in 1985 where he spent over 11 years in a number of senior technology positions including CIO for Europe and Asia. He subsequently held CTO positions at Deutsche Bank and Merrill Lynch for five years. Between 2003 and 2012 he held CIO/CTO positions at Asurion, a technology insurance company, and at eBay and AT&T Wireless.
Mr Corrado’s appointment follows the recent hiring of Darla Hastings as Chief Marketing Officer, as the firm expands and strengthens its senior leadership team.
A few weeks ago, my curiosity over Macau’s transformation since my last visit led me to hop a ferry there from Hong Kong during a hard rain. In particular, I wanted to see firsthand all the new casino developments underway in Macau’s Cotai neighborhood.
The last time I toured Cotai in 2010, I recall being overwhelmed by the sheer powerful presence of its big-time, VIP game players. Steve Wynn was in town that day for a grand opening and serious, hard-core gamblers were all there were. VIPs would spend millions overnight at the baccarat table. Back then, insiders would tell me that in Macau, unlike in Las Vegas, people came strictly for the gambling and non-casino entertainment facilities were not needed. Indeed, Macau’s casino revenue has grown from US$10 billion in 2007 to US$38 billion in 2012, and revenues from the beginning of 2013 to August were up 16%.
But while the casino business may be showing healthy returns, Macau’s newest growth area has been in related, non-gaming hospitality businesses. Massive hotel construction projects are underway to accommodate the region’s ever-growing number of visitors—not only VIPs, but also a rising number of family tourists. Visitors to Macau reached 28 million in 2012, up from about 23 million in 2009. Several factors seem to be driving tourism flows, including Macau’s improved infrastructure, its more affordable and family-friendly hotel rooms and increasing entertainment events. Pop musician Justin Bieber is scheduled to perform at the Cotai Arena this month, and November brings one of the year’s biggest professional boxing matches to the Arena.
In terms of infrastructure, border checkpoint areas to Macau such as the Gongbei Border Gate have recently been expanded, and new facilities may soon increase daily capacity to 350,000 visitors, up from approximately 270,000 today. Other projects include a new Macau light rail system and a 26-mile bridge and tunnel project, due for completion by 2016. This bridge-tunnel will connect Hong Kong International Airport to Macau, and is expected to cut car travel time between both sides of the Pearl River delta from four hours to just 45 minutes.
With seven more casinos slated to open by 2017, the number of hotel rooms should increase to 41,000, up from approximately 25,000 currently. New development projects are also planned on nearby Hengqin Island, which is just one bridge away from Macau. These include golf courses, theme parks and aquariums.
What is most impressive about Macau today is the strong sense of collaboration and commitment from all involved parties: both Macau and mainland Chinese government officials and casino operators. While Asia’s other gambling centers (Singapore, Malaysia, Cambodia and the Philippines) have also seen waves of notable development in recent years, Macau, in my opinion, should be recognized as the gold standard of the gaming space in Asia.
Opinion column by Taizo Ishida, Portfolio Manager at Matthews Asia.
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Obesity rates and related chronic diseases have risen at an alarming rate, straining healthcare systems. To help address this problem, RobecoSAM’s Governance & Active Ownership team launched an engagement initiative to encourage food producers and retailers to offer healthier products. Engagement Specialist Michiel van Esch and Analyst Peter van der Werf discuss some of the key findings from the past year of shareholder dialogue, and looks ahead to the improvements they anticipate in the coming years.
Obesity puts a spotlight on food companies
Though obesity is caused by a combination of factors: an unbalanced diet, a lack of physical activity and genetics, food companies have borne the brunt of the blame as many stakeholders link obesity to the widespread availability of unhealthy processed foods and sugary drinks. Food companies that fail to respond to regulatory and consumer pressures aimed at tackling obesity face reputational risks and a negative impact on sales. But by being fully transparent about their products’ ingredients and nutritional value, companies can play an important role in providing consumers with healthier food options while benefitting from market opportunities related to the desire for a healthier lifestyle.
Solutions begin with awareness
RobecoSAM kicked off their engagement efforts by determining whether companies recognize obesity – and childhood obesity in particular – as a challenge that requires their attention. They found that all targeted companies publicly acknowledged the obesity challenge in their sustainability reports, annual reports or websites and were already taking steps towards developing healthier food products. Examples include CocaCola, which has been innovating with natural sweeteners and Unilever, which has been gradually reducing the amount of fat, sugar and other unhealthy ingredients from its products.
Their discussions with companies revealed that in many cases, management is keenly aware that health concerns may reduce demand for products considered to be unhealthy. More importantly, companies understand that reducing fats, sugars and salts without compromising on taste can create a competitive advantage.
Engagement focus on company-wide obesity strategy
RobecoSAM focused its engagement efforts on broader objectives such as encouraging food producers to establish and disclose a companywide strategy to tackle obesity, set quantitative targets for developing healthier products, and commit to responsible marketing practices. Some companies are already taking steps in this direction. H. J. Heinz is developing an internal database to enable it to quantify and report on its global progress toward reducing unhealthy fat and calories and increasing nutrients such as calcium and fiber. Such an initiative as goes beyond focusing on a small a selection of the company’s healthiest products and truly allows the company to measure its progress on developing healthier foods across all product lines.
What next? Marketing practices offer room for improvement
RobecoSAM’s preliminary assessment is that most companies are taking some steps in the right direction, but there is a grey area between box ticking and a true commitment to improving the nutritional quality of food products.
But how are companies promoting their product lines? Children, in particular, are easily influenced by advertising, especially when popular cartoon characters and toys are used as a marketing tool. By adopting responsible marketing practices, companies have the opportunity to demonstrate their true commitment to tackling obesity, thereby avoiding reputational risks that can affect long term shareholder returns. Therefore, for the remainder of RobecoSAM’s engagement efforts over the next year and a half, they will focus on just that: the scope and relevance of companies’ strategies for tackling obesity and their commitment to responsible marketing practices.
Young wealthy investors are investing less of their portfolio in the stock market and more in alternative assets versus older investors. That was a key finding of a recent Accredited Investor Survey conducted by iCrowd. The survey confidentially polled a large sample of accredited investors – investors with over $1 million in investable assets, excluding the value of a primary residence, or individual annual income exceeding $200,000 – aged 18 and older. The survey gathered information about investors’ approaches to asset allocation, trust in Wall Street and the financial community, key investment decision drivers, and general awareness of online investment opportunities.
Wealthy Young Investors Fear the Stock Market, Turn to Alternative Investment Opportunities
According to the survey, 49% of young accredited investors (ages 18-29) are currently invested in private company securities (private placements and angel investments) compared with 21% of 45-60 year olds. Young accredited investors are also more interested in alternative investments. 18-29 year olds have allocated 7% to both private equity and hedge funds, in comparison with their senior counterparts, who have allocated only 4% and 2% respectively to the same asset classes. And with an average of only 30% of young investors’ portfolios in equities, as opposed to 48% of baby boomers, results suggest that the Facebook generation may be more receptive to less traditional asset groups.
The Facebook Generation’s Perception of Wall Street
While wealthy millennials allocate less to stock market investments, 22% of 18-29 year olds believe Wall Street firms act in their best interest while only 10% of 45-60 year olds and 12% of 60+ accredited investors indicated that they trust Wall Street firms.
“When it comes to investing, the Facebook generation takes a less traditional, and much more open approach than their parents did,” said Brad McGee, co-founder of iCrowd. “Young accredited investors are seeking diversified opportunities outside of traditional equities in order to protect and grow their nest eggs.”
Cause-Related Investing is a High Priority for Wealthy Millennials
More than one quarter of young accredited investors rank investing in a business that supports the local community as a top factor when making investment decisions, as opposed to 11% of total respondents. The importance of cause-related investing for millennials is not a new trend. According to the American Dream Composite Index, “Individuals ages 24-35 are much more likely to participate in traditional crowdfunding campaigns; those over 45 are significantly less likely to back campaigns.”
“Reward-based crowdfunding has been successful because it’s predicated on establishing emotional connections with donors,” said Brad McGee. “Investment crowdfunding is likely to find a niche with investors who want to allocate a portion of their portfolios to companies that create financial opportunities and whose values they support.”
Tech-Savvy Young Investors are More Attuned to Online Investment Opportunities
Markedly, forty-four percent of digital natives are aware that some online securities brokers allow investors to view investment opportunities in private companies, as opposed to 38% of baby boomers. The results suggest that digital natives are more aware of online investment opportunities, and 37% would consider investing in private companies and startups through an online securities broker.
Where Age Doesn’t Matter
With changes in securities regulations went into effect in September, small businesses are allowed to advertise when they seek capital, but they may accept investments only from “accredited investors,” who presumably have the resources to bear the risks and illiquidity of small company investments.
Regardless of age, 71% of accredited investors 18 and up who responded to our survey do not know they are considered accredited, and thus, eligible to invest in certain asset classes. The recent lift on the ban on general solicitation opens myriad doors for these investors, which they might ignore simply because they are unaware they qualify.
Recent bond yield spreads are signaling familiar territory, though US equity REITs have a decidedly different plan of action during this credit cycle, according to Fitch Ratings in a new report.
Bond yield spreads between equity REITs and corporate industrials have tightened to levels last seen during 2006-2007, the tail end of the last REIT credit cycle. However, a closer look by Fitch shows that equity REIT behavior has changed markedly over the last six years.
For one, “REITs are showing less tolerance for development risk, a likely byproduct of the economic crisis,” said Director Stephen Boyd. “While most REITs have sufficient access to capital to fund development, their hesitation to grow pipelines aggressively has more to do with a desire to preserve financial flexibility by limiting their exposure to non-income producing assets.” REITs are also showing less enthusiasm for share repurchases during this cycle, a more discerning approach that Fitch views as a credit positive.
Another notable change that Fitch has observed is a conscious move away from the “bigger is better” diversification strategy, utilized by some REITs during the last credit boom. ‘The REITs of today are diversifying in a more prudent and thoughtful manner that plays more to their strengths,’ said Boyd.
So what are the primary concerns that should be foremost on investors’ minds during this REIT credit cycle? They are a combination of risks both familiar and new, according to Fitch. In addition to the recurring threat of higher interest rates, REITs of 2013 are also contending with changes in tenant space usage requirements and leasing patterns stemming from technological developments that, for the most part, they did not encounter six years ago. That said, the generally more prudent approach to portfolio and liability management has positioned equity REITs well for the foreseeable future.
The report “Contemplating the REIT Credit Cycle” is available here.
Foto: W. Moroder. KKR Acquires the European Credit Investment Manager Avoca Capital
KKR,has announced a transaction to acquire Avoca Capital, a leading European credit investment manager with approximately $8 billion in assets under management. Financial terms of the transaction were not disclosed.
Founded in 2002, Avoca has a long track record as one of the leading investment firms in the European leveraged credit markets. Avoca invests across five strategies — European loans and bonds, credit opportunities, long/short credit, convertible bonds and structured and illiquid credit. The Avoca platform has experienced strong inflows in recent years as institutional investors seek access to credit asset classes with a focus on attractive returns and downside protection.
Henry Kravis and George Roberts, co-founders and co-CEOs of KKR, stated: “We believe the European credit space offers significant opportunity. To date we have built our European credit business focused on originated credit opportunities such as private credit and special situations, providing $2 billion of capital in just the last two years to European companies.”
“Avoca has a very strong track record, an entrepreneurial management team and excellent capabilities that are complementary to ours in European senior and liquid credit. This acquisition will enable us to expand our credit platform to offer a full spectrum of credit opportunities globally for our clients.”
Alan Burke and Dónal Daly, co-founders of Avoca, stated: “European credit markets are likely to grow significantly over the decade ahead as banks deleverage and take time to rebuild their capital bases. This transaction creates a broad based credit business that will be at the forefront of the developments in European credit markets in the years to come. We are very excited by the enhanced opportunities the transaction will bring for the Avoca team and its clients.”
As European banks have shifted assets to comply with Basel III regulations on capital and leverage, alternative capital providers that are able to make longer term investments are providing financing to European companies while providing institutional investors with the returns they need to pay their pension and insurance obligations.
Upon closing the transaction, KKR will have approximately $28 billion in credit assets in its multi-strategy credit platform operating globally in San Francisco, New York, Dublin, London and Sydney. The combined European credit business will have approximately 80 people on the ground and €8bn ($11bn) of European credit assets ranging across the entire capital structure in credit from senior loans to long short credit, structured credit, mezzanine, special situations and convertible bonds.
Alan Burke, Avoca co-founder and CEO, will lead KKR’s European credit platform and together with Nat Zilkha will help drive the future growth of KKR’s global credit business. Both Alan and Nat will report to Craig Farr, who has responsibility for KKR’s global credit and capital markets businesses. Dónal Daly, co-founder and Chairman of Avoca, will become a Senior Advisor to KKR at transaction close.
All Avoca employees in Dublin and London will join KKR on transaction close. Investment teams and processes for both KKR and Avoca, including the portfolio management of the respective firms’ strategies, will remain unchanged by the transaction. Avoca’s Dublin office will remain a core part of the combined franchise. The transaction, which is subject to customary regulatory approvals, is expected to close in the first quarter of 2014.
