CC-BY-SA-2.0, FlickrMaurico Assael, Mildred Ottenwalder and Roberto Lizama. $100M Global Private Banking Team joins Investment Placement Group’s Miami Office
Investment Placement Group (IPG), an Independent Broker Dealer and IPG Investment Advisors, a Registered Investment Advisor, announced on Tuesday that former Wunderlich Securities advisors Maurico Assael, Roberto Lizama and registered sales assistant Mildred Ottenwalder have joined the firm’s newly established Miami, Florida office which is managed by Rocio Harb.
“We are very excited to become part of IPG. With our diverse client base in Latin America and the United States, IPG is the right platform and has the expertise to allow us to offer high quality service to our clients” said Lizama.
“The commitment of IPG to Latin American Investors was a key factor in our decision to join the firm. From the ownership, management team and support staff the knowledge of the international markets and needs of the investors are second to none” adds Assael.
“Maurico, Roberto and Mildred are highly capable and experienced team. They are the perfect fit for our firm and I am confident that they will have continued success at IPG”, said Gilbert Addeo, COO and Head of Business Development of IPG.
CC-BY-SA-2.0, FlickrPhoto: Linus Bohman. How QE Distorts Prices
One of the main differences between free market and communist economies is the role of prices. In free market economies, prices play a central role as they aggregate valuable information over demand and supply in a single figure that guides economic agents – producers and consumers – to make their choices. In communist economies, on the other hand, prices do not incorporate any information, since what is produced and consumed is defined in a plan decided by a central authority.
A prime example of free market economies are financial markets, a virtual place where millions of sellers and buyers continuously exchange standardised products. In these markets, and more than in any other markets, prices play a key role. This is the very reason why trade takes place.
A Quantitative Easing (QE) programme, as decided by a central bank, is a plan that consists of buying large quantities of assets whatever the price is. As a conse- quence, prices lose their precious information content that normally enables investors to switch meaningfully between different asset classes. One example for this is the current development of government bond yields. It makes no sense that long-dated German government bonds have a negative yield, nor does the fact that Italian yields are lower than their US counterparts. Even more shocking is that the Bank of England wasn’t able to buy enough gilts during the first days of its new QE, even though the price offered to pay was high and above market prices. Furthermore, it is common knowledge that gilts are overvalued.
QE programmes are designed differently across central banks, including to various degrees sovereign bonds, corporate bonds, asset-backed securities and equities. They all have in common to purchase mainly sovereign bonds. The yields of these government bonds play a central role in asset allocation as they are seen as risk free rates and thus set the basis for the pricing of all assets. Consequently, the distortion in this specific market segment, reinforced by negative interest rate policies of central banks, has a cascading effect on other assets, thus leading to mispricing of all financial assets.
According to the Financial Times, the market value of negative-yielding bonds amounts to USD 13.4tn, a mind-boggling figure that shows the extent of the price distortion in this key market segment. In addition to central bank purchases of other above-mentioned assets which directly distort prices of risky assets, liquidity and risk premiums are further altered by investors’ thirst for yields, forcing them to take more risk for a given return.
No matter how strongly distorted each individual market price is, asset prices remain consistently priced vis-à-vis each other. For example, the yields of US treasuries and German bunds – two assets that share very similar risk characteristics in the investors’ eyes – become similar once the currency hedging costs are taken into account; and this despite different economic conditions and different central bank behaviours. Equity markets have all gone up significantly, even to new highs in the US, as the thirst for yields has obliged investors to buy equities despite an overall general pessimism and meagre growth prospects. The same is true for corporate bonds. Finally, the VIX Index, nicknamed the fear index, is close to its lowest level, as if the world economy would be looking forward to a blue sky outlook.
While mispricing can be observed in all asset prices, financial markets behave consistently, in sync, according to their own logic. We are asking ourselves how long this situation will last and how far it can go. The situation will last as long as central banks’ credibility remains intact, or in other words, as long as they are willing and able to act convincingly in the eyes of market participants. And it can go as far as the most powerful and thus most credible central bank will be able to set prices at ridiculous levels. If this proves to be true, risk-free yields are set to converge to the lowest level and risky asset prices to increase virtually in- dependently from economic fundamentals. Like in communist economies, the outcome is ultimately equality, not fairness.
Three potential symptoms could indicate that this situation is in its terminal phase. First, the credibility of central banks and governments is directly challenged, resulting in rising and diverging government bond yields as risk is repriced. Second, the currency market absorbs a part of the mispricing by rebalancing economies and markets via sizeable exchange rate adjustments. Third, the loss of credibility is directly reflected in the domestic loss of purchasing power, in other words inflation. This type of inflation, however, is not due to the usual too much money chasing too few goods, but to a lack of confidence in the government. This can potentially lead to hyperinflation, as extreme events such as Germany in the 1920s, Hungary in 1946, Zimbabwe in the late 2000s and Venezuela today remind us.
While we do not see any of these symptoms flourishing, a way to protect against this eventuality would be to invest in gold, an asset which is not under the direct control of institutions and an alternative to cash whose costs have increased dramatically with the introduction of negative rates.
In this context, the case of Japan is interesting in many respects and is a source of hope in the view of our analysis. For more than two decades, Japan has experienced a zero economy. This is an economy where growth, inflation and yields have been low. According to the IMF, government debt to GDP has been multiplied by 5 since 1980 to about 250% nowadays and is unsus- tainable. In addition, Japan has experienced various government and central bank policies with essentially no effect: yields have not repriced and growth and inflation have not come back. The Japanese yen has moved in the opposite direction to the Bank of Japan’s intention, indicating that investors are challenging the credibility of the Nippon central bank, but without triggering a full-fledged credibility crisis. Japanisation of financial markets and Western economies could thus be a benign outlook.
The wide use of unusual monetary policies in the Western world, in particular QE, has distorted massively all asset prices. While assets are mispriced, it remains true that they are consistently priced vis-à-vis each other. As long as central banks remain credible, this situation could last longer. Currently, no terminal phase symp- toms are observed, which means that the convergence in prices should continue. Gold is a good hedge against an abrupt end of this system, unless we all become Japanese.
Sayonara (さようなら) .
Yves Longchamp, is Head of Research at ETHENEA Independent Investors (Schweiz) AG.
Capital Strategies is Ethenea distributor in Spain and Portugal.
Michael Parsons, CEO at Wren Investment Office - Courtesy photo. WE Family Offices and MdF Family Partners Join Forces to Support the Launch of a London-Based Independent Family Office
American based WE Family Offices and MdF Family Partners, an independent multi-family office advisor in Spain joined forces last year to broaden resources and enhance client service abroad. The two firms formed a strategic alliance – remaining separate companies but creating ways to collaborate and share resources.
These collaborations include their support of the newly launched Wren Investment Office, a London-based, independent wealth advisory firm serving ultra-high net worth families. The association and collaboration of WE, MdF and Wren represents a global alliance of independent family offices and comes at a time when wealthy families are seeking advisors that combine local roots and a global outlook and capability to help them manage their increasingly globalized wealth enterprises. Though WE and Wren remain separate firms, our association strengthens our ability to serve families all over the world.
Mel Lagomasino, CEO of WE Family Offices, and Michael Zeuner, managing partner of WE, will serve as non-executive directors at Wren. “The launch of Wren Investment Office is an exciting development. The philosophy of sustaining family wealth by managing it like a well-run company has been highly successful here in the US and it is a philosophy our colleagues in Europe fully subscribe to,” Lagomasino comments. “The team at Wren shares our commitment to independence, a simple fee structure and adherence to always putting clients’ interests first. We look forward to working with Wren. Our alliance with Wren is a significant step toward building a truly independent, aligned and global wealth advisory service platform for ultra-wealthy families.”
Wren Investment Office will serve as an independent family advocate, helping families to view their wealth as an enterprise and manage it as they would a business. The three firms, Wren, WE and MdF, will remain separate companies and will continue to advise and serve clients independently, but through their developing alliance will collaborate to leverage the investment opportunities, relationships and services of each firm. This will provide wealthy families access to a global platform with servicing options in the UK, Europe and the United States. This comes as WE Family Offices surpasses $5 billion in assets under advisement, while serving 70 global client families. MdF has assets under management and advice of approximately €1.5billion serving over 30 clients from its offices in Madrid, Barcelona, Geneva and Mexico.
Wren will be operating from its new premises at 8 Wilfred Street, London SW1E 6PL and has Michael Parsons as its CEO.
CC-BY-SA-2.0, FlickrPhoto: Robert Spector and Richard Hawkins, fund's lead managers. MFS Launches Global Opportunistic Bond Fund
MFS Investment Management recently announced the launch of MFS Meridian® Funds – Global Opportunistic Bond Fund, a flexible fixed income fund designed to generate returns from a diversity of alpha sources through variable market conditions.
The investment strategy, available to investors through the Luxembourg-domiciled MFS Meridian Funds range, is based on the belief that global fixed income markets offer a diverse range of opportunities to add value, including global sector allocation, security selection, duration and currency management over a market cycle.
Primarily, the fund focuses its investments in issuers located in developed markets, but may also invest in emerging markets. The fund will invest in corporate and government issuers and mortgage-backed and other asset-backed securities, as well as investment-grade and below-investment-grade debt instruments. Through this diverse opportunity set, the fund aims to allocate risk where it is most attractively priced in order to generate returns.
While the portfolio has the ability to meaningfully allocate to various sectors, including riskier segments of the fixed income markets, the fund utilises a benchmark-aware approach that seeks to balance higher yield and total return potential while still providing the diversification benefits traditionally offered by fixed income. However, it is important to remember that diversification does not guarantee a profit or protect against a loss.
‘The need for enhanced fixed income return potential is real in the current slow-growth, low-rate environment. In our view, different sources of alpha are likely to drive performance, depending on market conditions, and so the ability to allocate across different opportunities enhances efforts to generate performance’, said Lina Medeiros, president of MFS International Ltd.
In an effort to manage exposure to particular areas of the markets, the fund is expected to use derivatives primarily for hedging and/or investment purposes.
Richard Hawkins and Robert Spector serve as the fund’s lead managers and are responsible for asset allocation and risk budgeting in the portfolio. They work with a group of sector-level portfolio managers.
In addition to providing insights on relative value for their sectors, this group is responsible for buy and sell recommendations within their sectors.
This highly experienced team has a long track record managing global portfolios, with extensive investment experience in various asset classes and regions around the world.
Photo: Luigi Bellini / Courtesy Photo. “These are Interesting Times for Private Debt Transactions and the European Alternative Loan Market”
From the 28th of September to the 5th of October, a team of ACPI Investments specialists will be visiting Chile to discuss opportunities in European private debt. In an exclusive interview with Funds Society, Luigi Bellini, partner and Head of the Institutional and Family Office platform at ACPI, talks about investment opportunities offered by the European alternative lending market. According to Bellini,the difference between the demand for loan financing and loan availability is particularly acute in Europe, where banks have traditionally played a major role in the capital market.
“Following the global financial crisis, bank lending remains constrained, and there are borrowers with good characteristics who wish to borrow. Meanwhile investors are looking for fixed income strategies that offer uncorrelated returns with low volatility” said Bellini.
ACPI is active in the private loan market, targeting asset-backed loans in the range USD10-30mn with a 2-3 year maturity. ACPI looks for relationship-sourced loans with short maturity and good asset backing as it believes these offer an attractive risk reward profile. Having being active in private loans for some years, ACPI now intends to launch a private loan fund to capitalize on the opportunity in the European private loan space.
“We have put a lot of thought into how to structure the fund”, said Bellini. “We believe prospective investors will respond positively to our approach”
The Latin American Market
As regards Latin America, ACPI has placed a lot of emphasis and effort in the region, and will continue to do so in the coming years. In a few days, Bellini and his team will be visiting Chile, one of the region’s most mature markets, where the firm has an established group of clients. “Chile is a market that has traditionally been more influenced by the United States, now is a good time to start talking about European markets, and there is quite a bit of appetite for private transactions” said Bellini.
ACPI Investments also has relationships with investors from Mexico and Brazil and has two other markets in the region within its radar screen: Colombia and Peru.
ACPI Investments’ Background
ACPI Investments Limited (“IL”) was established in 2001 and is headquartered in London, specializes in wealth management, taking care of the financial interests of some 95 families worldwide. ACPI offers a wide range of investment opportunities including via its managed funds and private equity and private debt.
ACPI Investments Group Limited manages more than 3.5 billion dollars in assets through a number of subsidiaries. It has offices in South Africa and Jersey and in India via a joint venture with a local company.
ACPI IL is authorized and regulated by the Financial Conduct Authority in the United Kingdom and registered with the SEC.
ACPI IM Limited is based in Jersey and authorised by the JFSC.
CC-BY-SA-2.0, FlickrPhoto: geralt / Pixabay. Afores Reduce by Almost 4% Their Exposure to International Equities in 2016
Although assets under management between December 2015 and August 2016 show a growth of 10%, half explained by the bi-monthly contributions made by workers affiliated; in the same period, is observed, a reduction in international equity investments and an increase in government debt (with lower duration) at the aggregate level.
The environment of volatility that has characterized this year, has led the Afores to show prudence and diversification in investments both in equity and also fixed income, and this situation has been reflected in a reduction in international equity positions and lower duration in debt instruments.
According to Consar, Assets Under Management ended August at 2,784,587 million pesos (mp) amounting to 148 billion dollars. Between December 2015 and August 2016 assets grew 243,624 mp, equivalent to 10%.
The resources invested in government debt in December 2015 was 50.2% and by August 2016 this percentage increased by 4.6% reaching 54.7%. This growth is largely explained by the reduction of investments in international equities from 16.2 to 12.6% reflecting a contraction of 3.6%. Domestic equities remained virtually unchanged, going from 6.4 to 6.6%
Investments in government bonds have also shown prudence and so far this year, a reduction of three months in the weighted average maturity to be added to the reduction of 12 months in 2015. Currently the Afores at the aggregate level are investing at 11.6 years. It is noteworthy that this indicator can be distorted by the derivative positions that the Afores that are allowed to use them keep.
In the case of investments in international equities, lower amount and greater diversification is observed among the 19 countries and global indexes that invest Afores.
Between December 2015 and August 2016 a contraction of 61,661 mp (-15%) was observed in international equity investment to finish August at 350,858 mp, equivalent to 18.6 billion dollars.
Regarding the weighting in international equity between the second quarter of 2015 and the second quarter of 2016, the weight of investments in the United States declined from 45% to 37% which means a reduction of 8%; while the weight of global indices rose from 22% to 31% which means an increase of 9%. In reviewing the list of countries in which the Afores invest, four Afores diversified between 1 and 4 countries and global indices; 5 Afores have 8; one Afore 13 and another 19. Pensionissste only invests in one country; Inbursa in two; Coppel three including global indices; Principal four; Azteca, Banamex, Invercap, Metlife and XXI-Banorte 8; while Profuturo 13 and Sura 19.
Nowadays it prevails a complicated environment for which it can be expected that this prudence and diversification by the Afores will continue, where the question is whether this defensive environment will also be reflected in the participation of Afores in new issues as for example CKDs, for which the pipeline includes about 20.
CC-BY-SA-2.0, FlickrGuy Stern, Head of Multi-Asset Investing.. Standard Life Investments Launches Enhanced-Diversification Multi-Asset Fund
Standard Life Investments, the global investment manager, has launched the Enhanced-Diversification Multi-Asset Fund (EDMA) in response to a growing client demand for multi-asset growth funds that manage downside risk.
EDMA is part of its multi-asset range for investors who want to balance capital growth against volatility in financial markets. With EDMA, the fund manager aims to generate equity-type returns over the market cycle (typically five to seven years in duration) but with only two-thirds of equity market risk.
Guy Stern, Head of Multi-Asset Investing, explained “the Fund differs from many traditional multi-asset growth approaches. EDMA holds a range of market return investments (such as equities, bonds and listed real estate); however, we also use enhanced-diversification strategies which seek to provide additional sources of return and high levels of portfolio diversification“.
“By taking relative value positions as well as making investments in the currency and interest rate markets, we can develop risk relationships that are quite different from traditional investments. These types of investments are valuable when constructing a diversified multi-asset portfolio as we would expect them to limit downside risk during market falls”.
EDMA is co-managed by Jason Hepner, Scott Smith and James Esland and benefits from the expertise of SLI’s established and award-winning multi-asset investing team. The Fund is a Luxembourg registered SICAV and is a sister fund to the Enhanced-Diversification Growth Fund OEIC launched in November 2013.
CC-BY-SA-2.0, FlickrPhoto: alobos Life. LarrainVial AM and UBP Strike Business Deal
The asset management division of Swiss group Union Bancaire Privée (UBP) has entered into a strategic agreement with Chilean boutique LarrainVial Asset Management.
According to the terms of the deal, UBP’s asset management team will be sub‐advising on a European equity mutual fund registered in Chile and managed by LarrainVial AM.
At the same time, LarrainVial AM’s expertise on Latin American equity and fixed income will be leveraged by UBP to support its global emerging markets capabilities.
LarrainVial AM is a non‐bank asset manager based in Chile, with approximately $3.5bn (€3.1bn) in assets under management, providing a range of Latin American equity and fixed income strategies.
UBP held CHF113.5bn (€103.6bn) in assets under management as at 30 June 2016, of which CHF24bn (€21.9bn) are managed by its investment arm.
CC-BY-SA-2.0, FlickrPhoto: Viri G. Is the Fed Bluffing?
In the days prior to the Federal Reserve’s annual Jackson Hole Economic Policy Symposium at the end of August, senior Fed officials started to make the case that markets had become too sanguine about further rate hikes this year. Janet Yellen’s conference opener restated the Federal Open Market Committee’s tightening bias, saying “the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time.” There was no softening or policy pivot here. In fact, she added that “the case for an increase in the federal funds rate has strengthened in recent months.” That was the most forceful endorsement of another rate hike from Yellen yet.
The rest of the conference, titled ‘Designing Resilient Monetary Policy Frameworks for the Future’, produced few new insights. The agenda focused on policy efficiency, especially what can be done to improve the pass-through of monetary policy to broader financial markets, and emphasized greater coordination between fiscal and monetary policy. Other speakers argued for maintaining the large Fed balance sheet for the foreseeable future and affirmed Chair Yellen’s view that the current set of policy tools – including the ability to pay interest on excess reserves, large scale asset purchases, and explicit forward guidance – are sufficient to deal with future downturns.
Yellen even provided model-based estimates showing quantitative easing and forward guidance would be as effective as allowing policy rates to fall deeply into negative territory in a future recession. That’s as clear a repudiation as you will get from her of the negative interest rate policy followed by the European Central Bank (ECB) and the Bank of Japan (BOJ). One presenter at the symposium, Marvin Goodfriend, did promote the merits of unencumbering interest rate policy at the zero bound. He argued that the current low levels of nominal bond yields leave little room to push short rates much below longterm interest rates. Yet, for such a policy to function effectively, we would have to seriously reduce Americans’ preference to use cash for transactions, which would resist negative rates. It’s hard to see negative interest rates as anything but an interesting thought experiment for the Fed.
Markets moved sideways
Reflecting the uncertainty about US monetary policy, both equity and the broader fixed income markets trended sideways last month. Both the S&P 500 and the Barclays Aggregate index were essentially unchanged in August; incidentally, both are up about 6% for the year so far.
What still worked in August was the reach for yield. The Barclays High Yield index gained 2%, pushing its year-to-date performance to over 14%. Also not surprising in an environment of possible Fed rate hikes was that financials were the best performing sector in the S&P 500 and the US dollar gained a few tenths of a percent against other major currencies.
Fundamental contradictions
Janet Yellen’s manifestly improved confidence has some backing from US fundamentals. While economic growth in the second quarter was revised down to just 1.1%, much of the weakness was due to a decline in inventories, typically a transitory headwind to growth. In fact, private domestic demand – consumption, housing, and business investment – increased at a more impressive 3% rate, up from just 1.1% in the first three months. Job growth has rebounded, too. After averaging just 84,000 new jobs in April and May, the following two months saw that trend increase to 274,000. Most forecasters are looking for a solid 2.7% growth rate in the current quarter; our forecast, at 3.2%, is even more optimistic. So, the Fed’s central case of a moderately growing economy that will continue to push the unemployment rate lower remains strong.
Still, not all the evidence is pointing in the same direction. The two main US consumer confidence surveys have been on diverging trajectories in recent months. One showed consumers feel their current circumstances haven’t been that good since the summer of 2007, which suggests the pace of consumer spending should accelerate. The other survey has deteriorated below last year’s average, pointing more to weaker spending. It’s a similar story on the manufacturing side: One of the two major purchasing managers’ indexes supports a tentative reacceleration, while the other just indicated a renewed contraction in manufacturing activity.
The Fed may not pull the trigger this year
Those contradictions are not enough to change the Fed’s central, moderate growth case. But they likely sow enough doubt about how sustainable a summer growth rebound is. Doubts like these are what persuaded the FOMC in each of this year’s five meetings not to raise rates. We think that is essentially what the committee faces when it meets later this month. With inflation still well below the Fed’s 2% target, the FOMC is under no pressure to raise rates other than the pressure it has created itself.
After the December 2015 rate hike, the FOMC still provided forward guidance of four additional increases this year. In March the committee cut that guidance to just two. The second half of the year should look similar to 2015, when the FOMC cut guidance in September from two to just one rate hike for the year and delivered that hike at the December meeting. The added complication this year is, of course, November’s presidential election, which may lead to an increase in economic policy uncertainty. That’s the main reason our forecast schedule has the next rate hike penciled in for the first quarter of 2017 and not December 2016.
Another rate hike will do very little to change the outlook for Treasuries. The Fed may be contemplating further policy tightening, but the ECB, the Bank of England, and the Bank of Japan are still looking for policy easing. That should keep yields low in much of the rest of the developed world, which serves as a valuation anchor for longer dated US Treasuries. However, US inflation trends are gradually improving behind the scenes. After averaging close to 0% for most of 2015, it took just three months for headline inflation to jump to a new 1% trend earlier this year. The same base effects are likely to push next year’s average above 2%. That should modestly pull up longer term Treasury yields. We still expect 10-year Treasuries to trade around 1.5% at the end of this year and around 2% at the end of 2017.
Markus Schomer is managing director y Chief Economistde PineBridge Investments.
This information is for educational purposes only and is not intended to serve as investment advice. This is not an offer to sell or solicitation of an offer to purchase any investment product or security. Any opinions provided should not be relied upon for investment decisions. Any opinions, projections, forecasts and forward-looking statements are speculative in nature; valid only as of the date hereof and are subject to change. PineBridge Investments is not soliciting or recommending any action based on this information.
CC-BY-SA-2.0, FlickrPhoto: Dell Inc. Five Things Millennial Women Need to Know About Their Money
According to Joslyn G. Ewart, Founding Principal of Entrust Financial and writter of Balancing Act: Wealth Management Straight Talk for Women, millennial women have redefined what success is and they work hard for their assets.
As women of wealth, what do they need to know about taking care of their money? In her opinion, first and foremost affluent millennial women need to take charge of their money. Whether they earned it, inherited it, or received a substantial divorce settlement, the decision to take responsibility for their wealth is paramount. She presents five tips to do so:
Take charge of your wealth planning.
Avoid the “Just sign here, honey!” syndrome, as described above when that special someone is given authority over your personal finances.
Consider the benefits of finding a competent wealth advisor to help you achieve all that is important to you with respect to your money.
Make a spending plan.
“Get started.”
“I predict a couple of phenomenal outcomes when affluent millennial women choose to take charge of their money. The first is they will be better able to take care of themselves and their families no matter what curve balls life throws their way. The second is that women are charitably minded, more so than men, and often serve as a catalyst for social change, change that benefits not only their families but all of us.” Says Ewart.
