CC-BY-SA-2.0, FlickrPhoto: OnCall team. Investor Demand For Real Assets Will Surge By 2020
Private equity, real estate and infrastructure managers anticipate strong growth in assets in the next five years, according to new research Building for the future: How alternative investment managers are rising the demographic challenge from BNY Mellon, prepared in collaboration with Preqin. the study surveyed 340 private equity, real estate and infrastructure fund managers globally.
Global macro-economic, social and environmental shifts are fuelling a need for investments in real assets, property and infrastructure worldwide. The report forecasts that appetite for these assets among retail and institutional investors will continue to grow. Sixty percent of infrastructure managers, 44% of real estate managers and 39% of private equity managers surveyed expect their assets under management to grow by at least 50% in the next five years.
“Deep-rooted demographic and macro forces are driving an unprecedented need for investment in real assets such as transport facilities, communications networks, housing and hospitals. These demands far outstrip the reach of government and public finances, and this creates huge opportunities for private capital to play a part in people’s everyday lives,” said Alan Flanagan, global head of Private Equity and Real Estate Fund Services at BNY Mellon.
While institutional investors, most notably pension funds and family offices, currently demonstrate the biggest appetite for real investments, almost half of the private equity and real estate fund managers surveyed believe that retail investors will account for a higher level of capital inflows by 2020 than they do today. Investment will come from mass affluent and high net worth individuals in developing markets, the continued expansion of sovereign wealth funds, and increasing numbers of defined contribution schemes.
“Investors are turning more and more to real assets to find yield, diversify their portfolios, and steer through volatile markets,” said Flanagan. “The growth in real asset investments has been impressive and there is no sign of it slowing down. As a result, the marketplace has become increasingly competitive on deal sourcing, presenting challenges for managers to successfully deploy the capital they have raised.”
The majority of alternative investment managers surveyed have seen institutional investor appetite for real assets climb over the last 12 months. A third of real estate and 41% of infrastructure managers are seeing the most demand coming from public pension funds, followed by private sector pension funds. Private equity managers see the greatest interest coming from family offices, followed by public pension funds (26% and 25% respectively). The survey also revealed that more than a third of infrastructure and real estate fund managers had altered their investment approach, either by diversifying their assets or exploring different geographies and niche strategies.
The need for transparency, driven by clients and regulators, is prompting a growing number of managers to consider outsourcing certain functions. Overall, two-thirds of fund managers across all asset classes feel regulation might lead to outsourcing in the future. Cost was the most commonly stated reason to outsource, in addition to having access to enriched data and analytics from an outsourcing provider and access to the expertise of external staff.
“Investment managers’ business models must have flexibility to thrive in such a fast-evolving environment and also be able to meet growing regulatory reporting as well as institutional investor demands for transparency,” added Flanagan. “To maintain strong allocations and achieve sustainable growth, it’s vital that managers of assets are invested in their infrastructure and supported by the right operating models.”
CC-BY-SA-2.0, FlickrPhoto: Atli Hardarson. Do You Need Inflation Protection?
“We believe inflation risks are underappreciated and underpriced. Now may be an opportune time for forward-thinking investors to add inflation risk management to their portfolios,” says Stewart Taylor, Diversified Fixed Income Portfolio Manager at Eaton Vance on the company’s blog.
According to Taylor, it’s easy to understand the lack of investor demand for this asset class. The CITI Inflation Surprise Index has been negative 52 of the last 53 months. With the exception of the financial crisis, year-over-year (YOY) headline CPI has been lower than at any point since the late 1960s.
“What many investors don’t appreciate is how persistent weakness in energy and food prices has hidden the underlying growth in services inflation. While energy and food represent only 21% of the CPI, they explain about 80% of its change,” he says while highlighting:
Spot WTI crude is down 55% from June 2014, while the S&P Goldman Sachs Food Index is down roughly 50% from its 2011 high.
Over this same period, the YOY run rate for services inflation has averaged 2.5% and has climbed above 3% over the past few months.
Because of this, Eaton Vance believes that the bear market in food is over and that the energy bear market is either over or in its very late stages. “Strength in energy and food should quickly translate to higher goods CPI, which, in turn, should help boost the already elevated services CPI. There is also evidence of increasing wage pressures. The 3.4% YOY growth in the Atlanta Fed Wage Growth Tracker in April is the strongest growth since February 2009. Historically, wage pressures have been associated with periods of higher inflation” Taylor writes.
The April CPI highlighted the changing inflation dynamic: The month-over-month change in headline CPI (0.4%) was the biggest monthly gain since February 2013. Also, at 2.1%, YOY Core CPI is now above the Fed’s 2% target; at 1.6%, YOY Core Personal Consumption Expenditures (PCE) (the Fed’s desired metric) is approaching its 2% target.
The trend in year-over-year Core CPI bottomed in early 2015 and has since been moving higher. Several alternate CPI measures that attempt to remove the most volatile index components to better ascertain the underlying trend also confirm this.
Taylor and his team think that investors are beginning to realize that the bear markets in energy and food are near an end. After roughly a year of outflows, net flows into TIPS funds and ETFs have turned positive over the past two months (ended April 2016), while break-even inflation rates on 5-year TIPS have begun to price in higher expected inflation. “We think these trends are still in their early innings.” And that “inflation assets are inexpensive relative to growing inflation risks.”
Photo: Sriyan Pietersz. Prominent ASEAN Analyst Sriyan Pietersz Joins Matthews Asia As Investment Strategist
Matthews Asia has announced the appointment of Sriyan Pietersz as Investment Strategist.
In this newly created role, Sriyan will be a key member of the investment team, responsible for developing research focused on economic and political developments within ASEAN (the Association of Southeast Asian Nations) and frontier markets in Asia. His in-depth knowledge and unique insights into the region will support the Matthews Asia investment team and complement their wider research efforts.
Sriyan will also play a key role in representing the firm’s deep expertise of the developments in the ASEAN region and frontier markets to the firm’s clients and prospects around the world. He will act as a spokesperson for the firm on ASEAN and play an important role in the delivery of Matthews Asia’s thought leadership initiatives related to investing in Asia.
Prior to joining the firm, Sriyan was a Managing Director at J.P. Morgan Investment Bank, where he spent over 11 years with responsibilities spanning both equity research and distribution. As Head of ASEAN and Frontier Markets Equity Research, he was responsible for formulating country equity investment strategy for Thailand/Vietnam, regional Southeast Asia asset allocation, thematic strategy, and macro/strategy on Asian frontier markets, as well as managing a team of 18 equity research analysts. A member of the Asia Pacific Research senior management team, Sriyan was consistently ranked in the Top-3 in Institutional Investor sell-side research polls during his time at J.P. Morgan. Subsequently, he spent time in equity sales as Head of ASEAN Equity Distribution. Prior to this, he spent over 10 years in senior equity research roles in Asia, managing teams of equity analysts and conducting both macroeconomic and equity analysis.
William Hackett, Chief Executive Officer: “We are very pleased to welcome Sriyan to Matthews Asia. With almost three decades of experience focused on ASEAN countries, he is considered one of the leading authorities on the region’s economy and equity markets. Our global client base will undoubtedly benefit from his insight and analysis into the ASEAN region. I am delighted we have been able to attract someone of Sriyan’s calibre to the firm and as we continue to see the region’s equity markets develop and new frontier markets begin to open to investors, his appointment further cements our reputation as a leading, forward-thinking Asia-specialist investment manager.”
Robert Horrocks, PhD, Chief Investment Officer: “With nearly three decades of experience conducting both country and equity analysis into the ASEAN region, Sriyan has developed a deep understanding of the region’s markets and the growing role they play in Asia’s economy. His considerable expertise will further enhance the knowledge that already resides within our investment team and help develop our thoughts around how we invest in these countries.”
Sriyan Pietersz, Investment Strategist: “I’m delighted to have this opportunity to join Matthews Asia, a leading Asia investment specialist, and privileged to work with and learn from an investment team that has delivered outstanding returns for its investors over the long term.”
CC-BY-SA-2.0, Flickr. AXA to Sell Its Investment, Pensions and Direct Protection Businesses in the UK to Phoenix Group Holdings
AXA announced today that it had entered into an agreement with Phoenix Group Holdings to sell its (non-platform) investment and pensions business and its direct protection business (Sunlife) in the UK. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, and is expected to occur in the second semester 2016.
The overall consideration for the sale of the UK Life & Savings businesses, including the transaction announced today, the sale of the offshore investment bonds business based in the Isle of Man announced on April 28th, and the sale of the wrap platform Elevate announced on May 4th would amount to ca. GBP 632 million (or ca. Euro 832 million). These transactions would generate an exceptional negative P&L impact of ca. Euro 0.4 billion accounted for in net income.
The operations affected by these transactions will be treated as discontinued operations in AXA’s 2016 consolidated financial statements. As a consequence, their earnings will be accounted for in Net Income until the closing date.
Photo: Ennor. Alvaro Morales Appointed New Head of the Santander Global Private Banking Team
Santander is currently experiencing an overhaul of its Private Banking division. Amongst the most important changes is Alvaro Morales’ promotion to Head of Santader’s Global Private Banking team. He will continue to be based out of Miami, where up until now, he served as Head of Santander International Private Banking.
According to an internal memo by Angel Rivera, Head of Retail and Commercial Banking for Banco Santander, to which Funds Society had access, “The Retail and Commercial Banking division will also play a central role in the development of the Group’s Private Banking business, in the direct management of International Private Banking and in the support given to domestic private banks in the various geographies, taking greater advantage of the synergies of our international platform and all of the countries.”
The aim, according to the memo, is to continue improving the specialization of Santander Private Banking’s advisory service model with a segmented offer and a personalized specialist service model that provides each customer tailored solutions.
Morales has been working close to Santander since 1999 when he joined the group as Regional Director for Banco Banif. In 2007 he moved to London to run the UK’s Private Banking business of the bank. By 2009 he became Head of Santander International Private Banking and moved to Miami.
Carlos Díaz will remain in charge of products and market intelligence and will work with Álvaro in managing this unit. Blanca Vilallonga will now will be responsible for coordinating the division’s activities, implementing new ways of working, monitoring projects, ensuring compliance with work plans and measuring the impact they have on the organization.
Through the same internal memo Rivera signaled the following appointments:
Angel Rivera will directly assume leadership of Digital Transformation coordinating with the area of Innovation and with each country. It is a shared responsibility throughout the Group. Alberto Fernández Tomé will lead the Digital Solutions team, and Julián Colombo will continue to head the CRM and Business Intelligence team.
Fernando Lardies will be in charge of the new Network Banking project, wheras Javier Castrillo will be in charge of the Commercial Strategy and Best Practices team which includes:
Ignacio Narvarte who will be in charge of Means of Payment (issuing and acquiring).
Francisco del Cura who will remain in charge of Insurance
Frederico Bastos who will remain in charge of Businesses
Ignacio Gomez-Llano who will remain in charge of Quality and Customer Satisfaction
The memo also included Rivera’s appreciation to Gonzalo Algorri, former group director of Global Private Banking Santander, “for his contribution to the development of the Private Banking business and to all our colleagues who have left the Bank in recent weeks, for their contributions.”
CC-BY-SA-2.0, FlickrPhoto: Carlescs79, Flickr, Creative Commons. Santander AM Expands Selection to Passive Strategies
The Research and Selection team of Santander Asset Management (SAM) has started covering passive vehicles, on the back of demand for these strategies.
The move will see the Spanish firm’s recommended list or “manager matrix” increase from about 300 to almost 400 strategies, of which about 80 names will come from the passive sphere.
“This move [including the passive sphere] makes sense, it’s something that we have been discussing for a while, and finally we decided to merge both, passive and active within the same research team. I think it makes total sense,” José Maria Martinez-Sanjuán, head of Manager Research and Selection at Santander Asset Management told InvestmentEurope. “The fact is that there’s more demand, so we have to respond from a research point of view,” he said.
The growth in the ETFs segment illustrates investors’ bullish demand for passive strategies. According to ETFGI, assets invested in ETFs/ETPs listed globally reached a record high of $3.1trn (€2.7trn) at the end of April 2016.
This compares to $2.9trn in 2015, and $1.5trn in 2011 — a growth of 106% over the last five years. “If you see the flows of the industry, you will see that ETFs are only growing. There’s also a new wave of smart beta coming now to the market, so we need to be aware of this and understand the market evolution,” he said.
Martinez-Sanjuán said fee reduction plays a key role on the growth for passive vehicles, along with the ability to implement more easily strategic allocations through a core-satellite portfolio. Following this trend, the team led by Martinez-Sanjuán has developed a research process for passives, and it has just started to cover these strategies. “The coverage of passive vehicles is not as time consuming as the active world, but I guess that covering both gives you the global picture of what is going on in the industry and it is a value added piece of information for the investors,” Martinez-Sanjuán said.
“This is to help our various clients, so we can have a global view of any strategy, active or passive,” he said. Early this month, it emerged that SAM made two new appointments within its selection team. Last month, Wee-Tsen Lee joined Santander from Barclays Wealth to be responsible for manager selection global & US equities. In addition, Pryesh Emrith was promoted within Santander in March, to be in charge of US & global fixed income and multi-asset.
The two new appointments are based in the group’s London headquarters and work for the Research and Selection team, which works within SAM’s Global Multi-Asset Solutions team and alongside Santander Bank.
SAM manages around €20bn as an asset manager, and a further €20bn are assets under advice. The firm advised a further €8bn for institutional clients.
. Pinebridge Investments Wins Key Industry Award From Institutional Investor Magazine
PineBridge Investments has been named Floating-Rate Bank Loan Fixed Income Manager of the Year at the Institutional Investor US Investment Management Awards. PineBridge received the award at a gala event on 19 May 2016 at the Mandarin Oriental Hotel in New York City.
Steven Oh, Global Head of Credit and Fixed Income said, “We are honored to receive this recognition from Institutional Investor, and proud of the value we have been able to deliver to our clients, through an experienced and stable team that has navigated market challenges through multiple economic cycles. ”
The Institutional Investor US Investment Management Awards, now in their seventh year, recognizes US institutional investors for their innovative strategies, fiduciary savvy, and impressive short and long-term returns, as well as US money managers in 39 asset classes and strategies that stood out in the eyes of the investor community for their exceptional performance, risk management, and service.
According to Institutional Investor, the winners were chosen from a short list of top-performing managers across a range of investment strategies identified by the magazine’s editorial and research teams in consultation with eVestment, a leading provider of institutional investment data analytics. Investment strategies were evaluated on such factors as one-, three-, and five-year performance, Sharpe ratio, information ratio, standard deviation and upside market capture. More than 1,000 leading US pension plans, foundations, endowments and other institutional investors were also surveyed and voted for the top-performing managers in each strategy over the past year.
PineBridge received the Global Balanced/Tactical Asset Allocation Manager of the Year Award in 2015.
CC-BY-SA-2.0, FlickrFoto: Ricardo Fernández. Hamilton Lane Believes it is an Exciting Time to Invest in Brazilian Private Equity
Hamilton Lane, a leading independent alternative investment management firm, opened its first Latin America office in Rio de Janeiro back in 2011, but they had already been operating with investors in the region since 1997. From this office, Ricardo Fernandez and his team recently closed USD 160 million on capital for the Hamilton Lane Global SMID Fund, a customized approach to private equity for South American Institutional investors. In his interview with Funds Society, Ricardo Fernandez talks about the successful closure of this fund and the private equity opportunities in Latin America.
Fernandez mentions that from their offices in Rio de Janeiro, they serve different institutional investors across the region, mostly corporate pension funds, private banks, and family offices, from Chile, Colombia, Peru and Central America. “Our firm works with local private equity funds, conducts operations with other managers, and also does co-investments. Our primary local investment started back in 1997, and we have been doing primary and secondary investments since then. These funds are normally targeted towards local institutional investors. On the co-investment side, Hamilton Lane acts as a General Partner by investing with other managers, facilitating their access to the investment and adding know-how to its investments.”
Amongst what they do with Latin American family offices, Hamilton Lane offers partnerships where “we provide them with our expertise in private markets and help set up their private equity investment programs and separate accounts.”
In his opinion, the current environment in Brazil, with a 3.8% contraction for 2015, “represents an exciting time to invest in private equity, as investors can take advantage of the good asset prices and benefit in the long term, looking at the next five to ten years. Some businesses and sectors continue to grow despite the current situation, but because of the lack of growth and financing alternatives, entrepreneurs don’t have a lot of options. Thus, they will look toward PE funds in order to get the financing they need to grow. In addition, valuations have come down and now there are attractive investment opportunities at the right multiple.” He concludes.
CC-BY-SA-2.0, FlickrPhoto: OTA Photos. Nikko Asset Management Launches Japan Focus Equity Strategy
Nikko Asset Management has launched a Luxembourg domiciled Japan Focus Equity UCITS fund managed by Yuki Watanabe.
The Japan Focus strategy aims to achieve long-term capital growth by investing in a portfolio of more than 30 stocks. The team takes an active investment approach based on thorough fundamental research, analysing long term structural trends and identifying companies that benefit from them.
The UCITS fund is based on an existing strategy domiciled in Japan, which has been managed by Watanabe since August 2012. As of 31 March, 2016, the fund has returned 26.15 per cent annually since September 2012 compared with an annualised 21.24 per cent rise in the TOPIX Total Return Index.
“Our Japan Focus fund has been launched in response to investor demand for specialist expertise in actively managed investments in Japan,” says Watanabe, Senior Fund Manager of the Nikko AM Japan Focus Fund. “We have strong relationships locally which provide our team with unique insights into the underlying companies, and the ability to tap into opportunities that may have otherwise been overlooked.”
The fund provides access to Nikko Asset Management’s proven investment team and market leading resources. The company has approximately 200 investment professionals operating in 11 countries, nine of which are based in Asia.
CC-BY-SA-2.0, FlickrPhoto: Vinoth Chandar. Missing the Target?
With the popularity of target date funds swelling assets to more than $763 billion at the end of 2015, defined contribution plan sponsors now have a sea of choices. But many are still trying to navigate the target date fund landscape based on common myths, which could steer them off course from their participants’ best interests. It’s time to dispel the myths and get back to what we think matters most based on participant time horizons and risk profile – asset allocation and robust risk management.
Myth 1: Target date funds that are passively managed have less risk.
The move to passive management, driven in large part by fee pressure, is undeniable. And, 50% of plan sponsors surveyed in the 2015 MFS DC Investment Trends Study think that passively managed funds have less risk than their active counterparts. But here are two problems: First, passively managed funds take the same risk as the market and often concentrate on stocks that become overvalued. Second, there is actually no such thing as a passively managed target date fund.
While some target date funds invest exclusively in passive funds, the fund managers still make active decisions with respect to asset class allocation, underlying fund selection, glide path design, portfolio rebalancing and risk management. On the latter, recent volatility reminds us just how important those active management decisions can be, particularly with respect to strong risk management.
Myth 2: Target date funds managed tactically can avoid market downturns.
The truth is, not many target date funds take this approach because adding value consistently through tactical asset allocation is not easy. In fact, target date fund managers have few opportunities to make market or asset class calls, because they are constrained to making decisions based on the underlying funds.
Here’s the concern: tactical investing done in a material way can change a fund’s risk profile. That happens inadvertently to funds that fail to rebalance after relative market performance causes deviations in the funds’ asset classes or underlying fund weights. Allowing the markets to dictate a fund’s tactical asset allocation this way can be dangerous – with potentially negative surprises for investors expecting a very different risk profile.
Myth 3: Target date fund glidepaths can be built based on the “average” participant.
Constructing a glide path that is optimal for a representative participant, is by definition sub-optimal for everyone but that participant. It’s like being a shoe manufacturer who makes only size nine shoes because that’s the average. The trouble is, the shoes don’t fit most of the population.
Glidepaths by design are meant to accommodate a wide range of investors. So, the discussion shouldn’t really be about “to” or “through” glidepaths or a one-size-fits-all participant profile, given how dramatically demographics vary from plan to plan. Instead, we need to make the right asset allocation decisions for the end investor. That means building a portfolio that properly balances capital appreciation against principle preservation in relation to the time to the target date. We believe glidepaths should reflect a high level of risk tolerance early on and a high level of risk aversion as the target date approaches. Studies show that 80% of participants take their money out of the plan within three years of retirement. So, a glide path that reaches its final resting spot 15 years past that target date creates a very aggressive “to” portfolio for investors who leave the fund right at or shortly after retirement.
Myth 4: You can judge a target date fund manager’s skill based on shorter track records.
Target date funds are by their very nature long term investments and investors seem to get that. A recent report from Morningstar called “Encouraging signs for target-date funds” suggested that target date fund investors might be more patient than other fund investors. As evidence, they pointed to target date fund investor results that were 74 basis points higher than their funds’ total returns, compared to the negative return gaps experienced by other fund investors who trade in and out. So, if investors are more willing to stay the course long-term in a target date fund, why are more than 50% plan sponsors looking at three-year track records, as we found in a recent study(iv)? To get a more complete picture, see how a target date fund has performed peak to peak or trough to trough – through a full market cycle.
Myth 5: Risk management is an afterthought.
When it comes to long-term outperformance, minimizing losses on the downside is just as important as capturing the upside. Many target date fund investors found that out the hard way after the global financial crisis. The fact is, there is greater persistence in risk than in return. So if you get the risk side of the equation right, you can manage a target date fund’s risk profile more effectively through time. That takes a sound investment process where risk management is baked in at every level.
As target date funds continue to evolve and grow in popularity, it’s easy to lose sight of the features that align best with participant needs. We believe putting a priority on active risk management and asset allocation will help plan sponsors make choices managed for their participants’ long-term horizons.
Ryan Mullen is MFS Senior Managing Director, Head of Defined Contribution Investments.
