BBVA Group has taken a significant step by opening a new office in Houston, with the primary goal of leading the financing of the energy transition in the United States. This move aligns with BBVA’s growth plans in the U.S. and is integrated into its U.S. Corporate & Investment Banking (CIB) operations.
The Spanish bank made the announcement during the inaugural edition of Houston Energy & Climate Week, an event sponsored by BBVA in Texas.
“America has a unique opportunity to lead the transition to a more sustainable global economy. Complementing and closely integrated with our operations in New York, the Houston representative office— the world’s energy transition capital—will play a key role in our sustainability strategy,” said Álvaro Aguilar, BBVA’s head of strategic projects in the U.S.
BBVA’s sustainability strategy in the U.S. focuses on supporting companies in the energy sector and those promoting sustainable development. This includes traditional renewable technologies, such as wind and solar, as well as emerging cleantech solutions. The strategy also involves assisting companies in transforming their business models toward more sustainable alternatives through financing and advisory solutions.
These initiatives will contribute to BBVA’s global goal of mobilizing $331.8 billion in sustainable business between 2018 and 2025, of which $278.7 billion had already been mobilized by June 2024.
The new BBVA office in Houston joins the bank’s existing teams specializing in cleantech financing, which are based in New York, London, and Madrid.
With its historic leadership in the energy sector, and home to over 4,700 energy-related companies, Houston is positioning itself as the global capital of the energy transition. The city is a leading hub for companies pioneering decarbonization solutions.
Additionally, Houston was recently selected as the base for BBVA Mexico’s nearshoring unit, and BBVA Mexico’s U.S. branch is already operating from Houston. By the end of 2025, BBVA’s Houston office is expected to employ approximately 100 people, making it a key growth center for the bank.
BNY has announced Alts BridgeSM, a comprehensive data, software, and services solution built to meet the growing demand from wealth intermediaries looking to access alternative and private market investment products, through a simplified end-to-end investment experience.
Designed to deeply integrate into intermediaries’ existing desktops, beginning with BNY Pershing X’s Wove advisory platform and NetX360+, with cutting-edge AI and analytics tools that are designed to reduce manual processing and error rates, Alts Bridge creates a powerful solution for investors, advisors, and the home office, the firm says.
The platform will provide access to alternative and private market asset managers from around the world, the selection including 26 North, AB CarVal, Alternatives by Franklin Templeton, Apollo, Atalaya, Aviva Investors, Blue Owl Capital, Carlyle, CIFC, Coller Capital, Crescent Capital, Eisler Capital, Generali, GoldenTree, Goldman Sachs, Hunter Point Capital, Invesco, KKR, Lexington Partners a Franklin Templeton Company, Lunate, Marathon Asset Management, Partners Group, Polen Capital, RCP Advisors, and Stormfield Capital.
“Powered by BNY’s data and technology, Alts Bridge will connect clients across the wealth ecosystem and alternative markets in a unique and more seamless way. As a firm that supports more than $2.6 trillion of wealth assets1 and has relationships with more than 500 leading alternative managers, we believe we are uniquely positioned to unlock this market,” said Akash Shah, Chief Growth Officer and Head of Growth Ventures at BNY. “We’re combining the breadth and depth of BNY’s distribution team with our expertise across investment management, advisory, securities services, wealth technology, and wealth custody and clearing, enabling Alts Bridge to provide a comprehensive solution to find, access, and custody alternative and private market assets.”
The platform will offer features across the pre-, at- and post-trade processes, including an advisor education and fund discovery center, home office and asset manager tools, product overviews, automated document preparation, simplified order entry, and integrated reporting and investment management capabilities, BNY adds.
While 90% of advisors are targeting a 10-15% average portfolio weighting to alternative and private market investments, actual allocations remain in the low single digits. Global alternative assets under management are expected to reach $24.5 trillions in 2028, representing a forecast annualized growth rate of 8.4% from 2022 to 2028.
The platform is expected to be available to U.S. Registered Investment Advisors (RIAs) and Independent Broker-Dealers (IBDs) in fall 2024. The initial platform will be available to clients of BNY Pershing.
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In the world of investing, fixed income has traditionally been associated with stability and income generation. This role has been uniquely challenged since the spring of 2022, when the Federal Reserve (the Fed) embarked on a series of massive rate hikes – at one point, four 75 basis points hikes in a row – which the markets had not experienced in a generation. Not surprisingly, many fixed income strategies and indices posted the worst total returns in their history. Naturally, many investors flocked to the front end of the curve, taking advantage of elevated yields. However, the tide is turning, with the Federal Reserve expected to cut rates multiple times over the next year.
Let’s begin by discussing the post-pandemic interest rate environment, specifically the implications of the Fed’s hiking cycle. The Fed and other central banks used their policy rates as tools to bring exceedingly elevated levels of inflation back towards what they deem to be “normal” or within their respective target ranges. Risky asset markets rallied in response to the improvement in inflation data in the absence (so far) of a U.S. recession. Further, the hiking cycle led to attractive yield generation in short-term instruments like Treasury bills, money market funds, and certificates of deposit (CDs). As of mid-summer 2023, the 6-month Treasury bill yielded nearly 5.5%, the highest level since 2000. As yields rose, the money followed, with prime and taxable money market funds taking in a combined $965 billion in flows for the calendar year 2023, per Morningstar. Contrast this to the active taxable bond space, which has experienced a net inflow of just $33 billion over the same period.
Rising rates had the effect of increasing the coupons paid on new fixed income securities, which should support forward looking returns. But perhaps more importantly, the rate sell-off decreased the dollar price of bonds already in existence, many of which are government or investment-grade corporate bonds with low credit risk. As a result, the bond market is priced at a discount even though fixed income securities, with the exception of a default event, mature at “par” or $100. It is this “pull to par” that should drive attractive returns going forward as rates potentially fall in response to a Fed policy pivot.
The term “pull-to-par” refers to the tendency of fixed income securities to move towards their face value (par value, or $100) as they approach maturity. Bonds priced at a discount will see their prices rise as they get closer to maturity, while bonds trading at a premium (that is, above $100) will see their values fall to par over time. In today’s environment, with the Fed near the beginning of rate cuts (as of this writing), fixed income securities with prices below their par value have potential for meaningful price appreciation. That appreciation, in addition to regular coupon payments, leads to larger total returns for investors. We believe this total return likely eclipses the yields that may be earned on short-end instruments going forward.
To illustrate how unique the current fixed income environment is, let’s examine historical price data for various fixed income indices over the last 10 years. The chart below shows the average price for the Bloomberg U.S. Universal Index. For the vast majority of the 10-year period, the average price for the index was either near or above par, with the mean dollar price at about $100.50. Rising rates drove the average dollar prices of the index, and active portfolios as well, down to near unprecedented levels, below $92 as of July 31st, 2024. Given the quality of the constituents of the index, it is reasonable for an investor to believe that these bonds will pull back to par as they get closer to maturity, thereby providing investors with an additional boost to performance over and above just clipping coupon payments.
Another lens to look at the relative value of owning fixed income versus cash instruments can be seen in historical data on how both have performed in an environment similar to the present one, that is, with the Fed pivoting to rate cuts. We looked at data for the last four Fed tightening cycles going back to the mid-1990s to see how both cash and fixed income performed both prior to and when the Fed began cutting interest rates. We used the ICE BofA U.S. Treasury Bill Index as a proxy for short-term instruments and selected four Bloomberg indices representing both above and below investment-grade securities for fixed income. As the table shows, the subsequent two-year returns produced, in most cases, better economic outcomes when owning fixed income as opposed to staying invested in Treasury bills. These results are consistent when cash was deployed at the end of the hiking cycles or the beginning of cuts, though investors did better by not waiting for the Fed to deliver cuts first. In the current environment with the Fed posed to ease, and with an elevated chance of economic weakness going into 2025, fixed income has a similar potential to outperform cash instruments this time around.
By combining the return generators of coupons and the “pull-to-par” effect as rates potentially fall, investors may outperform Treasury bills, CDs, and money market funds in the months and years ahead. We believe active management remains valuable for capturing these excess returns and potentially adding alpha over benchmark indices. Many fixed income securities with attractive risk and reward characteristics, such as shorter-dated, investment-grade rated bonds within the asset-backed securities and residential mortgage space, sit outside of benchmarks and represent some of today’s most compelling opportunities.
The concept of earning coupon plus the pull-to-par represents a valuable opportunity for fixed income investors as the Fed considers rate cuts. By understanding how this phenomenon impacts fixed income securities’ total return, investors can capitalize on the current opportunity it presents. When combined with effective active management strategies, the pull-to-par effect may serve as a powerful tool to achieve outperformance and enhance overall returns. But timing is of the essence. Yields today still look to be interesting even in a high-quality portfolio. So now is the time to make those moves, not to wait until yields fall further
Opinion article by Rob Costello, client portfolio manager in Thornburg Investment Management.
The European Fund and Asset Management Association (Efama) highlights in its document “The EU Must Adopt a New Deal to Mobilize EU Savings” that, according to the European Commission, more than €600 billion must be invested annually to achieve a successful green transition, as well as additional billions to support the digital transition. In light of this reality, Efama calls for the creation of the necessary investment conditions to address these challenges.
What exactly do these measures to create the “necessary investment conditions” entail? According to Bernard Delbecque, Senior Director at Efama, “a decisive shift in EU policies is needed, particularly in competition and industrial policies, to improve investment opportunities, boost the valuation of Europe-based companies in global stock indices, and increase investments from asset owners into EU companies. Once asset owners see more promising prospects in the EU, they will increase their investments in the region, thereby supporting the financing of the green and digital transitions.”
The report prepared by Efama states that to unlock private investment and finance the EU’s capital needs, it is crucial to leverage the potential of the Single Market and develop an effective Capital Markets Union (CMU) that offers more opportunities and better outcomes for European companies and savers. Additionally, it is imperative to redirect the European Commission’s Retail Investment Strategy to encourage EU citizens to invest more in capital market instruments and promote retirement savings, thereby increasing the pool of available savings to support the EU’s ambitions.
Impact on UCITS Funds
Efama sees addressing these challenges as urgent, as its report demonstrates that this situation is impacting the growing allocation of UCITS assets to U.S. equities, attributing this trend to the superior performance of U.S. stock markets. “By the end of 2023, 44.6% of UCITS equity portfolios were invested in U.S. assets, compared to 19.2% in 2012. The high exposure of European UCITS equity funds to foreign assets is specific to Europe, according to the study. In 2023, equity funds domiciled in the EU and the UK had 27% and 29% of their portfolios invested in local stocks, respectively, compared to 78% and 84% for equity funds in the U.S. and the Asia-Pacific region,” the report argues.
The document outlines several factors that may explain the lower domestic bias among European investors, such as the benefits of cross-border investments, the role of financial advisors, the development of fund platforms facilitating investments in funds tracking global indices, the relatively small size of EU stock markets, and the enthusiasm for leading U.S. tech companies.
“The strong performance of U.S. markets, which led to an increased allocation of equity assets to U.S. stocks, reflects a combination of factors and policies, including robust population growth, higher spending on research and development, substantial fiscal stimulus, and lower energy prices,” the report explains.
A Matter of Competitiveness
Efama’s main conclusion is that, to compete effectively on the global stage and foster the emergence of industrial leaders based in Europe, the EU must embark on a transformative path to boost economic growth, improve investment opportunities, generate higher investment returns, and increase the market capitalization of European companies. In their view, these are necessary conditions to attract more investment capital to the EU and ensure that European companies have access to financing throughout their development.
“This, in turn, could initiate a virtuous circle where higher economic growth strengthens asset owners’ confidence in the EU economy, thereby bolstering the ability of asset managers to provide a critical source of stable, long-term financing for European governments, companies, and infrastructure projects,” Efama concludes.
The Brazilian investment fund industry closed August with positive net inflows of 11.7 billion reais (more than 2 billion dollars), according to data from the Brazilian Association of Financial and Capital Market Entities. Cumulatively in 2024, financing has already reached 286.2 billion reais (more than 50 billion dollars), with a strong focus on fixed income funds, which continue to lead resource inflows.
In August, the fixed income class saw a 64.2% increase compared to the same period last year. Pedro Rudge, director of Anbima, attributed this performance to the prospects of maintaining the Selic rate at high levels, which benefits funds in this category. “With the current trajectory of the Selic, fixed income funds should maintain their appeal in the coming months, which is likely to bolster resource flows into this class and sustain the positive performance of the industry,” he stated.
Among fixed income funds, those classified as Low Duration Fixed Income with Investment Grade stood out the most. These funds focus on assets with low credit risk and an average duration of less than 21 business days, primarily investing in federal government bonds.
In addition to fixed income, Credit Rights Investment Funds (FIDC) also performed well, followed by pension funds and Private Equity Investment Funds (FIP).
On the other hand, the multi-market and equity classes showed a negative balance in August. ETFs (Exchange Traded Funds) also recorded a negative balance.
In terms of net assets, the fund industry reached 9.3 trillion reais in August, a 15% increase compared to the same month in 2023.
The judicial reform in Mexico seems imminent, and investors have taken precautions in anticipation of what is considered a profound change, the consequences of which—positive or negative—remain uncertain. This week will be decisive, as the reform has already passed without issue through the first of the two legislative chambers, the House of Deputies, where the majority of the ruling party pushed it through.
Markets are unsettled, with the exchange rate holding near 20 pesos per dollar, representing a 21% depreciation compared to the closing rate before the June 2 election. Meanwhile, the country’s main stock exchange continues its erratic trajectory, closing August with a 0.42% drop and accumulating a year-to-date decline of 10.85%.
Julius Baer highlights some expected effects on Mexican markets. One major consequence, should the judicial reform be approved, would be that credit rating agencies could downgrade Mexico next year. Currently, Mexico holds “investment grade” status from the three most important global rating agencies.
Moody’s rates Mexico at Baa2; S&P at BBB; and Fitch Ratings at BBB-. All three agencies have a stable outlook for Mexico’s sovereign debt. Just last Thursday, SURA Investments stated that it did not foresee adjustments to Mexico’s credit rating in the short term, which is understood to mean within the next 12 months.
However, other immediate indicators reflect the risks perceived by the markets regarding the judicial reform. According to Julius Baer, the Mexican peso will remain under pressure, prompting a revision of their year-end forecast for the currency to 20 pesos per dollar. It’s important to note that the peso was trading at 16.53 pesos before the June 2 election.
“The Mexican peso has depreciated 0.24% since Wednesday, surpassing the 20 USD/MXN level. It has weakened by 15% year-to-date against the USD due to fears of a U.S. slowdown, the unwinding of JPY-financed trades, and the constitutional reforms,” their analysis notes.
What Does the Judicial Reform Propose?
The controversial judicial reform proposes that all judges in the country, including those on the Supreme Court, be elected by popular vote in 2025 and 2027. This raises concerns that judicial decisions could eventually be biased toward those who supported the candidates.
Julius Baer warns that although the economic impact is not yet fully clear, markets are concerned about the potential weakening of the rule of law and the concentration of judicial and executive power, which could reduce oversight and accountability.
Just this past weekend, the U.S. newspaper *The Wall Street Journal* reported that U.S. companies had delayed plans to invest around 35 billion dollars in Mexico due to concerns about how the approval of the judicial reform could affect their businesses.
This amount is significant as it is nearly equivalent to Mexico’s average annual foreign direct investment.
UBS International has added Omar Castro and Javier Villanueva to its Coral Gables office, according to a LinkedIn post on Tuesday by Catherine Lapadula, Market Executive of UBS Florida International.
“I’m thrilled to announce that Omar Castro has joined our international division of UBS in Florida and will be based in our Coral Gables office!” Lapadula posted.
The bankers are joining from Merrill Lynch to cover the international market in South Florida.
Castro brings over a decade of experience from firms such as J.P. Morgan Private Bank, where he worked from 2012 to 2018, and Merrill Private Wealth Management, where he served from 2018 until joining the Swiss bank, according to his profile on the corporate social network.
Villanueva, joining alongside Castro, has more than 25 years of experience, having worked at firms including Santander, Banamex, JV Global Capital, and Merrill Lynch.
With the aim of further strengthening its capital base, the Chilean bank Bci returned to the local perpetual bond market. The firm issued its second AT1 bond in the international market.
According to a statement, the issuance raised 500 million dollars in fresh capital and achieved an issuance rate of 7.5%.
The bond is part of Bci’s strategy to optimize its capital structure and allows the bank to meet Basel III requirements a year ahead of the deadline set by the Financial Market Commission (CMF), they highlighted.
Earlier this year, the financial firm entered the perpetual bond market. In early February, it made its first issuance, also for 500 million dollars.
For Javier Moraga, manager of Bci’s Investments and Finance division, the outcome of this transaction “reflects international investors’ confidence and understanding of the bank’s development strategy.”
He also noted that the issuance strengthens the bank’s diversification of funding sources across the United States, Europe, and Asia.
In this regard, the executive highlighted the role of the team in charge of the launch, stating that they “positioned Bci in a very strong way for the implementation of new capital regulations in the Chilean market,” as noted in the press release.
Global investors focused on income generation enjoyed a strong second quarter in 2024, according to the latest edition of the Janus Henderson Global Dividend Index. Dividends increased by 5.8% on a headline basis, reaching a record high of $606.1 billion. The underlying growth rate was even higher at 8.2%, after adjusting for currency effects, particularly the weakening of the Japanese yen.
According to the asset manager, the initiation of dividend payments by major U.S. companies such as Meta and Alphabet boosted global growth in the second quarter by 1.1%. However, overall growth was widespread, with 92% of companies worldwide either raising or maintaining their dividends. Additionally, one-third of sectors posted double-digit underlying growth, while dividends declined in only three sectors.
Geographic Analysis
The second quarter is the peak season for dividend payments in Europe. Payouts rose 7.7% year-on-year, reaching a record $204.6 billion for the region. France, Italy, Switzerland, and Spain all saw record dividend payouts. More than half of Europe’s dividend growth came from banks, which have benefited from higher interest rates. In contrast, Germany saw a 1.2% decline in payouts, mainly due to Bayer’s significant dividend cut. In the U.S., dividends increased by 8.6%, with 40% of that growth attributed to Meta and Alphabet paying dividends for the first time.
The second quarter is also seasonally significant in Japan, where dividends increased by around 14% on an underlying basis, setting a new record in yen. However, the weak exchange rate prevented record payouts in dollar terms. Toyota Motor, the largest dividend payer in Japan, made one of the largest increases after reporting record profits in its last fiscal year. Elsewhere in the Asia-Pacific region, dividends remained stable in Hong Kong but fell sharply in Australia due to a cut by Woodside Energy. Singapore, Taiwan, and South Korea all posted double-digit growth.
Sector Analysis
Once again, banks were the primary drivers of dividend growth, accounting for one-third of the underlying year-on-year increase. European banks contributed the most, although this trend was evident globally. Insurers, automakers (especially in Japan), and telecommunications companies also played a significant role in the second quarter’s growth.
Outlook and Trends
Following a strong second quarter, and given the substantial contribution that new dividend payers could make this year, Janus Henderson has raised its 2024 dividend forecast. The asset manager expects companies worldwide to distribute a record $1.74 trillion, marking a 6.4% underlying increase compared to 2023 (up from the 5.0% estimated in the first-quarter report) and a 4.7% headline increase (compared to the previous 3.9% estimate).
“We had optimistic expectations for the second quarter, and the outlook was even brighter than anticipated thanks to the strength in Europe, the U.S., Canada, and Japan. Economies around the world have generally weathered the impact of higher interest rates well. Inflation has slowed, and economic growth has been better than expected. Moreover, companies have proven resilient, with most sectors continuing to invest for future growth. This favorable environment has been especially positive for the banking sector, which enjoys solid margins and limited credit deterioration, boosting profits and generating ample cash for dividends,” said Jane Shoemake, Client Portfolio Manager in the Global Equity Income team at Janus Henderson.
In her view, the initiation of dividend payments by major U.S. media and technology companies such as Meta, Alphabet, and China’s Alibaba, among others, is a highly positive sign that will drive global dividend growth by 1.1 percentage points this year. “These companies are following a well-established path seen in growth sectors over the past two centuries, reaching a stage of maturity where dividends are a natural way to return excess cash to shareholders. By doing so, they have surprised skeptics who believed this group of companies was different. The stock market evolves over time as sectors rise and fall to meet society’s changing needs. Paying dividends will also increase their appeal to investors for whom dividends are a vital part of their investment strategy and could encourage more companies to follow their lead,” Shoemake added.
BNY Mellon announced that it has reached a definitive agreement to acquire Archer, a leading technology service provider of managed account solutions for the wealth andasset management industry.
“Archer provides asset and wealth managers with comprehensive middle-office and back-office solutions to meet the managed account needs of institutional, private, and retail investors,” the firm’s statement says.
Through its fully integrated, cloud-based platform, Archer helps its clients expand distribution, streamline operations, launch new investment products, and deliver personalized outcomes to a broader market, the text adds.
With the integration of Archer’s managed account solutions, capabilities, and professional services team, BNY will enhance its enterprise platform to support retail managed accounts, a market expected to grow at a double-digit compound annual growth rate to over eight trillion dollars in assets in the next three years in the U.S., according to data from Cerulli.
“Managed accounts are one of the fastest-growing investment vehicles in the asset management industry, enabling investment advisors and asset managers to deliver personalized portfolios to retail investors at scale,” said Emily Portney, Global Head of Asset Servicing at BNY.
In addition to enhancing BNY’s current capabilities in asset servicing for managed accounts, Archer will provide BNY Investments and BNY Pershing’sWove wealth platform for advisors with expanded model portfolio distribution and access to Archer’s multi-custodial network, the company notes.
“Today’s asset and wealth managers have a strong desire to create multi-asset solutions through a variety of products, along with direct indexing and tax-optimized portfolios, to meet the needs of their distribution partners and investors,” added Bryan Dori, President and CEO of Archer.
The transaction is expected to close in the fourth quarter of 2024, subject to regulatory approvals and other customary closing conditions.
