On 9 February, President Trump signed a two-year budget deal that funds the US federal government up to 23 March and suspends the debt ceiling for one year. The agreement averts another government shutdown, which has now happened nine times since 1990. The solution has been a boost to spending that adds to the growing deficit in order to finance operations and governmental agencies.
The above is just an example of how debt is increasing. In January 2018, the Institute of International Finance (IIF) calculated that in the third quarter of 2017, the debt of households, businesses, banks and governments all over the world soared to a record total of €193.3 trillion. With this figure, the debt-to-GDP ratio is 318%. Broken down by economies, 74% of the debt corresponds to developed countries and the remaining 26% belongs to emerging economies. And in terms of sectors, the distribution is as follows: Households 18.70%; non-financial corporates 29.53%; financial sector 24.82%; and governments 26.95%.
There is a growing trend over the last few years, and the expansive monetary policies of the main central banks (that have brought interest rates down to zero or lower) has a lot to do with it. It has allowed for cheap financing, which has been exploited mainly by businesses, and investors, in the context of excess liquidity and a low default rate, have taken on these new issues, which have generally been very oversubscribed.
As for the public deficit, how can it be reduced? Let us examine some of the main options:
Increase revenue through increased taxes and reduced spending. For example, by eliminating benefits. Governments do not like the sound of this option due to the political cost involved. Some countries may have room to manoeuvre when it comes to implementing expansive fiscal policies, as is the case in the US, but these policies mean added pressure on the debt and the sustainability of public finances.
Reduce interest rates which reduce financial cost. Up until now, this has been the case, but it could come to an end, because it seems that several of the main central banks are currently moving in synch towards toughening monetary policies. An increase in interest rates could hinder the solvency of those more indebted governments. For example, in China, where there a high level of debt with regards to the real estate sector and shadow banking and there is a risk that it will end up affecting sovereign solvency. Or Japan, with a government debt-to-GDP ratio of 223.8% (estimated total debt is 400%). With 10-year rates below 0.10% and savers who are continuously repurchasing the maturities, Japan so far does not seem to be causing too much concern.
Generate inflation. Central banks’ prime objective. Even if it remains low, the chance of surprise increased inflation is higher than in previous years, particularly within the context of more dynamic economic expansion that influences an acceleration in salary growth.
Economic growth is the most desirable scenario. Without a doubt, this is the healthiest option, which allows for an increase in tax revenue and, therefore, a reduction in debt and an increase in financial sustainability. In this regard, the positive outlook of international institutions like the IMF and the OECD, or the early data from business confidence indicators, which are often at all-time highs, allows us to believe that economic growth will contribute to this necessary debt reduction.
But if everything fails, in the event that we are unable to meet obligations, we are faced with the dreaded default, but we hope that debt is used prudently and that it does not reach this extreme.
It has taken us almost a decade to get over the last financial crisis caused by excessive leveraging. The combined action of the main central banks has played a fundamental role in restoring normality to economic activity. However, if history repeats itself, will they have enough margin to apply the same policies? Investors must be very aware of the indebtedness variable when selecting investments and demanding adequate return on each risk they assume.
At the time of writing, global public debt according to https://www.nationaldebtclocks.org/ is at $69,623,405,723,931. I suggest you visit the website and check the current figure.
Pixabay CC0 Public DomainPhoto: Iberia. OneLife Presents its First Roadshow: Life Assurance Solutions for Iberian & Latam Clients
OneLife will present its 1st edition of roadshows titled “Life assurance solutions for Iberian & Latam clients” which will take place on Tuesday, March 13th in Zurich and on Wednesday March 14th, in Geneva.
For the event, OneLife has partnered with almost 20 top professionals from Portugal, Spain, Brazil, Colombia, Mexico and Peru to bring you a high-quality programme that will showcase the technical capabilities and value proposition of Luxembourg unit-linked life assurance in the Iberian & Latam markets which, as you know, offer extensive business opportunities.
Amongst the speakers there are representatives of firms such as EY, Chevez, Uria Menendez, Cuatrecasas, Anaford, Sanchez Devanny, Dentons, Posse, Herrera y Ruiz, Brigard y Urrutia, Charles Monat Associates, Eversheds Sutherland Nicea, Espanha Associados, and Carnegie.
The Zurich event will take place at the Hotel Kameha Grand Zurich. While the Geneva one at the Grand Hotel Kempinski. Both events will take place between 8:30 and 17:30.
For further information and registration, follow these links: Zurich and Geneva.
Pixabay CC0 Public DomainPablo Sprenger, CEO at SURA Asset Management México . Sura AM is Targeting the Private Banking Client In Mexico
Mexico represents a very important market for SURA Asset Management, with 23% of its assets under management and 39% of its client base. Its Afore is the third in the system in assets and fourth in clients with 460 billion pesos under management (almost 25 billion dollars). In 4 years they have gone from 13 to 15% of the afores market, which according to Pablo Sprenger, CEO at SURA Asset Management Mexico, is due to a superior performance, a positive commercial effort, and its client’s high contribution rate. Although for SURA AM “Afores are still of utmost importance”, the executive points to the fund market, where they have almost 70 billion pesos, or 3.750 billion dollars in AUM, as their next main challenge.
“The average Mexican still has a long way to go in developing a savings culture. It’s not so much that they don’t save, but that they don’t use sophisticated instruments in order to do so; so there is an important opportunity to show them those,” comments the Head of the company that until now was focused on the mid- segment and is now betting for serving the high-end segment and competing with private banks.
During 2017, the fund segments grew three times more than the market; as their AUM increased by 30.8% while the industry grew by 9.9%, and in voluntary savings in the afore they grew by an impressive 47%. Sprenger attributes this success to “offering: Good product with good performance, to our team, and to the service we offer through technology, for example that you can buy a fund directly on the web, which we would like to be the best investment website in Mexico in 2018, the offices, the training, and our call center”. By 2018 they plan to grow 40% in funds and 35% in voluntary savings.
In order to serve the private banking client, their main efforts will focus on “positioning, as we have products and performance”. According to Sprenger they will offer even more open architecture products (they already have funds from GBM, Franklin Templeton, BlackRock and Actinver). In addition, they are analyzing how to offer brokerage firm products to their clients, either by developing that area or by partnering with a good company.
On the macro situation, the executive comments that “the world will not come to an end due to Trump. Mexico is more than NAFTA. We have institutions that do work. Although 2017 was highly volatile and volatility is the new standard, the result of the election will not change Mexico’s destiny. Mexico is a country that has advanced a lot over the past 30 years. Undoubtedly there is uncertainty and volatility, but in the end, Trump doesn’t have a majority in congress and the markets have already noticed.”
Short-term Opportunities
In the short term, Sprenger recommends staying away from the US. for high valuations. Neither does he recommend Brazil or Chile. However, he considers that “Mexico does have investment opportunities, as do Japan and some countries in Europe.”
Pixabay CC0 Public DomainRitz-Carlton Cancún. LatAm's Family Offices and the Sell-Side Gather at the Latin Private Wealth Management Summit in Cancún
The Latin Private Wealth Management Summit will take place on May 3-4 at The Ritz Carlton in Cancun. The event is the premium forum that brings together solution providers with the most recognized single and multi-family offices in LATAM in a private luxurious venue, destined to explore topics and issues, create business and debate about solutions for the private wealth industry in the region.
Along with the content, there will be formal networking opportunities between investors and money managers, thanks to Marcus Evans’ “one on one” model of pre-schedule business meetings. Between the presentations and meetings, attendees can network during the coffee breaks, meals and cocktail hours!
Attendees have included:
Alfonso Carrillo, Partner, Family Office Mexico SC
Antonio Gastelum, Presidente, Antonio Gastelum Inc.
Javier Mtanous Arocha, Partner, MG Capital
The event is directed to CIO’s, VP’s, Directors, Founders and Investment Leaders from: Multi Family Offices, Single Family Offices, and/or Investment Advisors.
For more information, please contact Deborah Sacal +52 55 4170 5555 ext. 2437 or visit this link.
CC-BY-SA-2.0, FlickrPhoto: Banco de México
. Carstens: “Authorities Should be Prepared to Act on Cryptocurrencies”
Authorities must be prepared to act against the invasive spread of cryptocurrencies to protect consumers and investors, Bank for International Settlements (BIS) General Manager Agustín Carstens said.
In a lecture “Money in the digital age: what role for central banks?”, Carstens said that for money to keep its value, it must be backed by accountable institutions which enjoy public trust. Here, central banks are key.
“The meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust,” Carstens said in the lecture in Frankfurt, organised by Sustainable Architecture for Finance in Europe (SAFE), the Center for Financial Studies and the Deutsche Bundesbank. “Private digital tokens masquerading as currencies must not subvert this trust.”
New technologies hold great promise, for example in making payment systems more efficient. But new currencies are not required for that promise to be realised. Authorities have a duty to make sure technological advances are not used to legitimise the profits from illegal activities, and to educate and protect investors and consumers, Carstens said. They must also ensure cryptocurrencies do not become entrenched and pose a risk to financial stability.
“Novel technology is not the same as better technology or better economics,” Carstens said.
“That is clearly the case with Bitcoin: while perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster.”
Large price swings, high transaction costs and a lack of consumer and investor protection make cryptocurrencies unsafe and unsuited to fill money’s role as a shared means of payment, store of value and unit of account, he said.
Central banks and financial authorities should pay particular attention to the ties linking cryptocurrencies to real currencies, and ensure they do not become parasites on the institutional infrastructure of the wider financial system. To ensure a level playing field for all participants in financial markets, access to legitimate banking and payment services should be limited to those exchanges and products that meet accepted high standards, Carstens said.
“This means ‘same risk, same regulation’. And no exceptions allowed,” he said.
Foto cedidaMariano Belinky, courtesy photo. Mariano Belinky, New Head at Santander Asset Management
Banco Santander appointed Mariano Belinky as Head of Santander Asset Management (‘SAM’). Belinky joins SAM from Santander InnoVentures, the Bank’s $200 million fintech investment fund, which he has led successfully for the past three years.
Before joining Santander InnoVentures, Mariano Belinky was an Associate Principal at McKinsey where he advised global banks and asset managers across Europe and the Americas. He also worked in the research technology team at Bridgewater Associates in the United States, and as a trader in equity derivatives markets in his native Buenos Aires. He holds a bachelor’s degree in computer science and philosophy from New York University.
Víctor Matarranz, Head of Wealth Management, which comprises private banking and asset management, said: “By combining Santander’s experience and expertise in asset management with the Group’s technological capabilities, we can transform the services we offer our clients. Mariano has an outstanding track record in driving innovation and delivering for customers and I am confident he will help Santander Asset Management achieve its full potential.”
Santander Asset Management has a history spanning more than 45 years and a presence in 11 countries in Europe and Latin America. It manages €182 billion in assets across all types of investment vehicles, from mutual and pension funds to discretionary portfolios and alternative investments. SAM’s investment solutions include bespoke Latin American and European fixed income and equity mandates. The company employs more than 700 professionals around the world.
Belinky replaces Juan Manuel San Román who is leaving the Group for personal reasons. Victor Matarranz said, “I’d like to thank Juanma for his service to the Group and his support during the transition.”
Manuel Silva will continue to head the Santander Innoventures investment team and Mario Aransay will continue to lead portfolio partnerships for the fund.
Photo: U.S. Department of State. The politics of NAFTA: we now see elections in Mexico and US first and NAFTA in 2019
The slow pace of NAFTA negotiations so far, suggests that politics will come into play pushing negotiations to 2019. The sixth round of NAFTA negotiations ended in Canada with slight progress, but without addressing any of the controversial topics raised previously by the US delegation. Stands out also that the US has not changed a bit the metric it uses to evaluate the fairness of the trade deal: the goods trade deficit. Even though we don’t agree with such a metric as it puts trade deals as a zero sum game (and the US has an overall trade deficit with the world as a consequence of consuming more goods and services than the ones produced in the US), when the real benefits are in higher employment, lower prices, higher profits on both sides of the border. Nevertheless, the fact remains that the US has a trade deficit with Mexico.
The US cannot close a deal before its November elections that does not seem clearly advantageous to them, when Republican are expected to lose the House. Trump campaign on the premise that NAFTA is a bad deal to US workers and it has to be changed or terminated. By the same token, Mexico cannot accept a deal that seems at a disadvantage to Mexico, as the Government can be severely questioned and affect its candidate going into the presidential elections. We believed Trump doesn´t want to withdrawal from the agreement before the Mexican elections as several US studies suggest that it will favor the left party in the Mexican elections and it would be preferable for the US to deal with the right for other issues like immigration border security and drugs. We also believed that Trump has listened to the Republican states like Texas, the auto industry and agriculture organizations that favor NAFTA.
After the Mexican elections, the US might try to force a deal advantageous to the US with a real threat of withdrawal. In our view, the issues and the likelihood of democrats advancing in both houses will set the tone for the aggressiveness of the US stance regarding NAFTA. In any case, we believed that there will also be pressured from the president elect in Mexico to postpone the negotiations until he sits in office. In that case, the most likely scenario is that the deal will be negotiated in 2019, either with (or without) the US already withdrawn from the deal and coming back to the table before the six month notice expires.
The silver lining of the politics of NAFTA adds new risks to the equation as we don´t know who in Mexico will end up negotiating the deal and its priorities. Also, as now the elections of Mexico go before we have a NAFTA deal, the electorate will be actually choosing the President that will negotiate NAFTA and define the foreign policy of the next six years. In this scenario, the elections become even more important than before when the expectation was for a NAFTA deal before the elections. Also, we don’t know at this point what the mandate from the electorate the next Mexican president will have. It is important to consider at this point, that Trump won the election in the US as he was able to capture the anguish of the US population against the widening of the distribution of income by blaming the political class and promising to “drain the swamp”, and against lost and better jobs by halting immigration and an America first policy of nationalism. These concerns are global, as seen defining other elections like Brexit and Mexico certainly is no exception. The time has come for Mexico to define its future.
Foto cedidaCourtesy photo. Exan Capital Starts the Year Buying a 144 Million Trophy Property
900 G Street NW, a trophy 112,635-square- foot office building in the East End submarket of Washington, DC, has new owners. The property sold for $144 million to an affiliate of Masaveu Real Estate US that was advised by EXAN Capital. The strategic acquisition of 900 G will grow Masaveu’s footprint in the U.S. with a portfolio value of more than $720 million. ASB completed the transaction on behalf of the Allegiance Fund, its $6.2 billion core investment vehicle that owned the property.
ASB developed 900 G Street in partnership with MRP Realty and subsequently acquired MRP’s interest after the project reached stabilization in 2016. The property is now 95% leased to high profile and blue-chip legal and government affairs tenants including Simpson Thacher, Swiss RE, Rio Tinto, Herman Miller, Truth Initiative, and BMW.
The project was designed by Gensler and earned NAIOP’s award for Best Urban Office Building up to 150,000 square feet in 2016.
Larry Braithwaite, Senior Vice President and Portfolio Manager of ASB’s Allegiance Fund, said: “We saw a strategic, and somewhat unique, opportunity to take advantage of domestic and international capital demand for new Class A product after successfully leasing up this one of a kind trophy project.” “Given current supply/demand dynamics in the market, and the strong interest in assets of this caliber, the sale facilitated our plan for prudently managing the Fund’s overall portfolio,” Braithwaite said.
At about about $1,270/sf, This is a record per-foot price for a Washington office building. Last June, Norges Bank Investment of Norway and Oxford Properties of Toronto paid $1,180/sf, or $151 million, for the 128,000-sf building at 900 16th Street NW from a JBG Cos. partnership in a deal handled by JLL.
Pixabay CC0 Public DomainJamesQube. Quaero Capital and Tiburon Partners Join Forces
M&A’s are off to a good start of the year. QUAERO CAPITAL and London based Asian fund management specialist Tiburon Partners have announced that, subject to FCA and FINMA approval, they will join forces.
The tie-up, under the QUAERO CAPITAL brand, will form a single business managing more than USD 2.3 billion.
In line with the shared boutique philosophy the combined business will remain 100% employee owned and continue to focus on highly concentrated, actively managed, value strategies.
QUAERO CAPITAL CEO Jean Keller said, “We are delighted to be joining forces with another excellent value specialist as our skills and expertise are wholly complementary. We are also excited to have a substantial presence in London – one of the key centres for investment talent in the world.”
Tiburon Partners’s senior partner Rupert Kimber said, “QUAERO CAPITAL’s managers think and work like us. They have a similar investment approach based on value orientated, concentrated portfolios. So, naturally, we are keen to partner with a firm which shares our philosophy, and can take our offering more widely around Europe.“
Foto cedidaGabriel Anguiano, Photo PROBITAS 1492 . Probitas 1492 is the First Lloyd’s Syndicate to Open in Mexico
Probitas 1492 has opened its office in Mexico City, becoming the first Lloyd’s syndicate to join the Representative Office of Lloyd’s in Mexico. The regional office will service the wider Latin America region.
Gabriel Anguiano, Head of Strategy & Business Development for Latin America, commented “We’re really excited to be opening the regional office, as part of our continued strategy to get closer to the source of business and further penetrate Latin America. We see this as a major step in establishing a local presence, with local people, local knowledge, local wordings in the local language. We see our presence in the region as a vital component in providing outstanding levels of service. The support we have had from cedents and brokers to date has been very encouraging. The new team is looking forward to continuing to develop and reinforce these relationships.”
The regional hub will initially provide facultative reinsurance for both casualty and property.
Gabriel Anguiano will lead the Mexico strategy spending time between London and Mexico City. He is joined by Property Underwriters, Roberto Gómez and Jocelyn Naranjo. Lorena Solís, Casualty Underwriter, completes the core team. Full technical underwriting support will be provided by Probitas’ London based Chief Underwriting Officers Jon Foley and Neila Buurman.
Ash Bathia, Probitas 1492 CEO, said “We are delighted to be the first Lloyd’s syndicate to build a local presence in Mexico to service the Latin American markets. This is a long term strategic play for Probitas and underpins the syndicate’s commitment to the region.”
Probitas 1492 have worked closely with Lloyd’s and Daniel Revilla, Lloyd’s Regional Head for Latin America and Lloyd’s Representative in Mexico, stated “Mexico is the largest source of premiums for Lloyd’s in Latin America, accounting for nearly a third of the region’s total premium. Having Probitas develop a local presence is fully aligned with Lloyd’s strategy in Latin America. Close proximity to local (re)insurance stakeholders will allow Probitas to conduct business that would not otherwise flow through the Lloyd’s market.”
