Financial Flows, the Fountain of Youth for an Ailing Water Infrastructure

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Pixabay CC0 Public Domain. Flujos financieros: la fuente de la juventud para unas infraestructuras hidráulicas enfermas

Adequate water supply is essential for the human life as well for economies and businesses to thrive. Yet adequate water supply has become more of a luxury than a basic right due to a growing global water crisis where water supply is limited, quality issues prevail, and infrastructure is either old and breaking down or even non-existent in the case of the developing world.

Allianz Global Investors believes that the implications of inadequate water infrastructure and lack of access to fresh, high quality water supply has far reaching consequences impacting nearly every individual, economy, and business around the world. “Investments in new and upgraded water infrastructure are therefore necessary for high quality water supply access and effective wastewater treatment today and into the future. Such investments can support the development of resilient infrastructure which can more effectively meet both todays and future challenges tied to growing populations, urbanization, climate change and even cyber-attacks”, says the asset manager in a recent analysis.

Given the necessity for such investments, the US Senate recently approved the US Drinking Water and Wastewater Infrastructure Act of 2021, which authorizes USD 35 billion of water related investments to be allocated to improving wastewater, stormwater, drinking water and water recycling across the nation. It is one the few areas with bipartisan support in the US which highlights the urgent need for water investments.

Will funding run dry?

The makeover of US water infrastructure which still has to be passed by the House is just one part of the larger USD 2 trillion infrastructure bill. As unanimous as the consensus is about the urgency to make the world’s biggest economy’s drinking water, wastewater, and stormwater systems future-proof, is the remaining investment deficit as the USD 35 billion will only slightly move the needle. In 2019 alone, the accumulative investment gap on water infrastructure was USD 81 billion.1Other calculations suggest annual needs of more than USD 100 billion each year for the next 20 years.2

Allianz GI points out that the consequences of funding shortfalls for water-reliant businesses and households are “enormous” as breakdowns and quality incidents will continue to plague local communities and disrupt future economic growth. “So, filling this financial void is vital not only to allow for the current US water infrastructure to function properly but also to make it resilient for future requirements“, they add.

The state of US water infrastructure

The United States’ public drinking water, wastewater, and stormwater systems resemble an outdated patchwork rug formed by pipes and lines from different centuries and with different levels of functionality. Because many pipes and pumps are nearly a one hundred years old and are operating at higher capacity than initially designed for, they are past the end of their usable life, leaking large amounts of water and oftentimes failing to meet today’s needs.

The asset manager highlights that municipalities are facing the question whether to upgrade, replace, or fortify these systems and how to make the water infrastructure future-proof to tackle severe weather events brought on by climate change. Additionally, they face the challenge to connect all US households to a regulated and safe water system. Currently, around a fifth of all households rely on septic tanks over public wastewater systems, and over two million lack properly connected drinking water and sanitation systems.3 Around a quarter of Americans are very concerned about the quality of their community’s drinking water.4

The leaking lifeline

A modern and robust water infrastructure is vital to the country’s economic development as it secures not only the supply of water but also prevents the spread of illness and diseases, fosters economic growth, and ensures a higher living standard.

“The more water infrastructure leaks treated water, the more capital is lost negatively thus impacting both local residents and the local economy. It also affects the competitiveness of a city as a business located in an area with adequate water supply and infrastructure is more competitive and fosters long term growth”, they comment. According to ASCE’s 2021 Infrastructure Report Card5 there is a daily loss of approximately 6 billion gallons (approx. 22.7 million m³) of treated water due to water main breaks occurring at one-minute intervals, amounting to a yearly loss of 2.1 trillion gallons (approx. 7.9 trillion m³).

  • Within the next four years, almost three-quarters of all dams will be over 50 years old and gradually deteriorating. If not upgraded and rehabilitated, they will be vulnerably exposed to possible disaster scenarios leading to a loss of human lives and to a considerable damage of properties and existing infrastructure.
  • Following the estimations of the Association of State Dam Safety Officials6 there are more than 2,300 state regulated high-hazard-potential dams in poor or unsatisfactory condition and in need of remediation.
  • Urbanization combined with the age profile of wastewater treatment plans is increasingly resulting in system overloads and failures.
  • 15% of wastewater treatment plants have reached/exceeded their designed capacity.

These are just a few examples illustrating the poor conditions of US water infrastructure and the dire need for infrastructure capital expenditure. The situation has far-reaching consequences and urgent action is needed to upgrade and modernize the world’s biggest economy’s drinking water, wastewater, and stormwater systems.

The investment gaps

For Allianz GI, while the infrastructure investment proposals currently making their way through the US Congress would be a step in the right direction, the US water infrastructure gap is still immense. Estimates indicate that over USD 2 trillion in water investments are needed over the next 20 years to close the funding gap and develop adequate water infrastructure across the nation. For example, the amount needed to replace the remaining lead pipes in the US is already over the projected USD 35 billion in the current proposal as estimates are as high as USD 45 billion to complete the replacements.

According to estimates of the Environmental Protection Agency (EPA) there are between 6.5 million and 10 million lead service lines in the US. On average, it costs about USD 4,700 to replace one single lead service line. Even if the EPA’s estimate is higher than needed in certain cases, the projected funds would quickly run dry.

Several angles for active investments

“Undoubtedly, the US Drinking Water and Wastewater Infrastructure Act of 2021 reflects a decisive first step to closing the existing funding gap. On the other hand, while it is ambitious it’s still short of meeting the most pressing water challenges as it cannot even address the remaining lead pipes which threaten the safety of US citizens. There are still substantial funding gaps that require capital expenditure to be addressed. That said, if this bill is passed later this summer, it will be a positive for water space and for water investments given the water equipment and projects that will be needed to make the upgrades”, explains the firm.

When considering the several aspects water infrastructure covers, we can clearly identify where active investments are needed and how they could pay off.

  • Replacement of lead pipes and service lines: The removal of all lead service lines in the United States not only ensures clean drinking water for every American but it is also contributing to improved public health by preventing severe chronic diseases like lead poisoning, ultimately easing the financial burden on health systems. Additionally, it is likely to result in an attractive investment opportunity in companies that provide piping systems. Investor-owned networks can also play a role here as they can make improvements independent of infrastructure stimulus, many times at lower costs than municipalities.
  • Leaking lines: To maintain and stop the loss of precious treated water companies have developed smart technologies and tools to detect leaks in water pipes.
  • Emerging contaminants and Per- and polyfluoroalkyl substances (PFAs)7: Specialised companies that offer advanced water treatment technologies can detect and remove emerging contaminants from drinking water and help protect citizens from developing cancer after consuming poor water quality for years at a time.
  • Aging wastewater treatment plants: The replacement of wastewater treatment plants reaching the end of their lifespan opens up interesting investment opportunities for companies who are experts in wastewater management and designing wastewater treatment plants.

Lookout

While the USA and a big part of the world is focussing on how the US Drinking Water and Wastewater Infrastructure Act will contribute to revitalizing the aging US water infrastructure, positively impacting economic and job growth over the medium to long-term, there are still many under-researched and prominent risks. Just take cyber security, a topic gaining increasing importance for the protection of water infrastructure against cyber criminals. The cyber-attack on the water supply in Oldsmar, Florida and the Cybersecurity and Infrastructure Security Agency’s call to “install independent cyber-physical safety systems”8 is just one piece of evidence of the high relevance cyber security has for a future-proof water supply.

Investment implications

Global Water strategies help to address the very real water-infrastructure and water-quality related challenges in the US and the rest of the world by investing in pure play water companies delivering solutions to the most pressing challenges. “Investments may not only generate financial alpha given structural support of the theme, but also environmental and social alpha given the solutions-oriented approach. Such investments can help to upgrade and build resilient water infrastructure that is well prepared to face the challenges tied to climate change and ongoing population growth and urbanization”, says Allianz GI.

This approach allows investors the ability to participate in a compelling long-term growth opportunity and contribute to the solutions of modern water infrastructure, a lifeline to society and the economy.

1 https://infrastructurereportcard.org/cat-item/wastewater/

2 http://www.uswateralliance.org/sites/uswateralliance.org/files/publications/VOW%20Economic%20Paper_0.pdf

3 https://www.asce.org/uploadedFiles/Issues_and_Advocacy/Infrastructure/Content_Pieces/the-economic-benefits-of-investing-in-water-infrastructurereport.

pdf

4 http://uswateralliance.org/sites/uswateralliance.org/files/2021%20Value%20of%20Water%20Survey%20Analysis%20Slides.pdf

5 https://infrastructurereportcard.org/

6 https://damsafety.org/media/statistics

7  https://www.epa.gov/pfas/basic-information-pfas

8 https://us-cert.cisa.gov/ncas/alerts/aa21-042a

JP Morgan AM Acquires Campbell Global, a Firm Focused in Forest Management and Timberland Investing

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Pixabay CC0 Public Domain. JP Morgan AM compra Campbell Global, firma especializada en gestión e inversión en el sector forestal

In an effort to directly impact the transition to a low-carbon economy and provide ESG-minded investment opportunities related to climate, conservation and biodiversity, JP Morgan Asset Management has acquired forest management and timberland investing company Campbell Global, LLC.

Although the terms of the deal with Campbell Global’s parent company, BrightSphere Investment Group, were not disclosed, the asset manager has stated in a press release that the acquisition does not impact current investment strategies for Campbell Global clients. It also revealed that the transaction is expected to close in the third quarter.

Campbell Global is a recognized leader in global timberland investment and natural resource management. Based in Portland, Oregon, the firm has over three decades of experience, 5.3 billion dollars in assets under management and manages over 1.7 million acres worldwide with over 150 employees. JP Morgan AM has indicated that all employees will be retained and Campbell Global will remain headquartered in Portland.

The deal will make the asset manager “a significant benefactor for thriving forests around the world”, including in 15 U.S. states, New Zealand, Australia and Chile. Carbon sequestration in forests worldwide will play an important role in carbon markets, and the firm expects to become an active participant in carbon offset markets as they develop. Besides direct access to Forestry sector, the transaction will provide alignment UN Sustainable Development Goals and Principles of Responsible Investing.

“This acquisition expands our alternatives offering and demonstrates our desire to integrate sustainability into our business in a way that is meaningful. Investing in timberland, on behalf of institutional and high net wealth individuals, will allow us to apply our expertise in managing real assets to forests, which are a natural solution to many of the world’s climate, biodiversity and social challenges”, said George Gatch, CEO of JP Morgan AM

John Gilleland, CEO of Campbell Global, commented that they have always held that “there should be no tradeoff” between investing wisely and investing responsibly. “We made our first institutional investment in timberland 35 years ago, have since planted over 536 million trees, and emerged as a leader in sustainable forestry. We look forward to continuing these efforts with JP Morgan. Importantly, this transaction further positions Campbell Global to serve our existing world-class clients at the highest standard“, he added.

“Acquiring Campbell Global provides us with an opportunity to strengthen and diversify our ESG focus, including building a robust carbon sequestration platform,” said Anton Pil, Global Head of J.P. Morgan Global Alternatives. “Timber investing further enhances our asset class offerings in our alternatives business, ultimately passing along the unique benefits of forest management to our clients. Our knowledge of real estate and transport markets, in particular, is expected to provide opportunities to optimize the usage of timber and wood products more vertically.”

The investment offering will sit within JP Morgan’s Global Alternatives franchise, with 168 billion dollars in AUM, and will tap into the continued growth of private markets. JP Morgan is an expert in investing in real assets, with leadership positions in real estate, infrastructure, and transport and as well as private equity, private debt and hedge funds. In their opinion, Campbell Global adds to this portfolio, filling an asset class gap in an attractive market while also supporting sustainability goals.

Jaime Cuadra Joins Better Way LLC as Partner, Managing Director and Founding Member

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Foto cedidaJaime Cuadra Jr.. ,,

Jaime Cuadra Jr. has joined as partner, managing director and founding member at Better Way LLC, a private investment firm where he will lead the global growth efforts focusing on capital raising, institutional partnerships, joint ventures, and investor relations.

Cuadra told Funds Society that he will now join forces with Alex Gregory, who founded the firm, built its infrastructure and brought in its initial investors.

Better Way LLC is an investment manager that offers a unique access program to invest in top overlooked Private Equity and Debt funds with a focus on mitigating risk and avoiding conflicts of interest for investors. Leveraging the team’s top performing decade long track record and deep relationships, target investors are investment advisors, family offices and institutional investors.

Jaime Cuadra has more than 15 years of experience in global asset management, private banking, and corporate strategy. Recently he was Global Director of Institutional clients at Compass Group in New York, an investment firm with over 41 billion dollars in assets where he led the unit that raised capital and advised global investors with Latin-American investments.

Throughout his career, Better Way’s new partner has held multiple leadership positions and enabled businesses in America, Europe and Asia through partnerships. He is an Industrial and Systems Engineer and also holds a Bachelors in Finance. 

In his view, the rise and relevance of private investments in client portfolios (either institutional or retail) is “greater than ever” and he expects that this trend will continue in the future: “Allocation to Private Equity or Private Debt is still low relative to institutional portfolios, and there is a lot of room for this to evolve”.

“That being said, there are a lot of firms, distributors and banks, offering PE funds from top brands; yet in the competitive landscape our clients have told us they don’t hear a focus on risk or thorough due diligence when deals are presented. In our view, investing periodically in a carefully curated, small number of quality deals makes a big difference in performance”, Cuadra added.

He also pointed out that, given the reputation and the philosophy of Alex Gregory as a professional investor is “quite outstanding, unique and special”, it was “a no brainer” to work alongside him and bring this investment approach to investors around the world. “Alex’s track record is quite impressive over the decades and I hope we can continue evangelizing that paying attention to risk, and asking the tough questions is very important when allocating to Private Equity“, he concluded.

Aiming for Zero: Europe Raises its Clean Energy Game

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Steve Freedman Pictet AM

Shifting into a higher gear. This is precisely what the European Union has just done as it steers towards a more sustainable economy. Its new climate blueprint – which EU lawmakers and national governments have agreed in principle to make legally binding – proposes cutting greenhouse gas emissions by 55 per cent compared with 1990 levels by the end of the decade.

That is significantly more ambitious than the EU’s previous target of 40 per cent, and means the region could become climate neutral by 2050.

It’s not difficult to see why the EU should want to pursue a green recovery with such determination.

Executed well, the plan, to be adopted in May 2021 and apply from 2022, offers the tantalising prospect of restoring both the environment and the economy back to full health.

The funds being set aside certainly point in that direction. The package will translate into approximately EUR7 trillion of new green investments by 2050. Crucial for the region’s economic prospects, a large proportion of that money will be channelled to the environmental industry (see Fig. 1) – a fast-growing sector that is making an ever larger contribution to GDP.

The industry’s gross value add (GVA) – a measure of its contribution to national output – rose to EUR286 billion in 2015, up 63 per cent from 2003. Within the sector are some especially vibrant industries such as resource management, which includes renewable energy and energy efficiency and has grown 150 per cent over that time (1).

Pictet AM

 

More broadly, Europe’s environmental goods and services industry can now claim to rival that of the US.

It already employs 4 million full-time equivalent workers, up 38 per cent from 2003, and has contributed more than 2 per cent to the region’s GDP in 2015 (1).

EVs: the green light

Under the European Commission’s new set of criteria for green investments, producers of rechargeable batteries, energy efficiency equipment, non-polluting cars, wind and solar power plants will be able to win a formal green label. That could prove transformative for Europe’s transport, energy and real estate sectors.

Take autos, if European governments are to achieve their growth and pollution targets, electric vehicles (EV) will have to evolve into a strategic industry.

Here, the approach is one of carrot and stick.

France has a EUR8 billion programme to boost its EV industry with a goal of producing more than 1 million electric and hybrid cars every year over the next five years. The plan also includes a financial incentive that would reduce the cost of buying an EV by up to 40 per cent.

Germany also stepped up its support for zero-emission transport, doubling subsidies to as high as EUR9 billion, following a prior increase in November 2019 (2).

These incentives have already had a clear impact on EV take-up. German EV sales, for example, rose to account for 13 per cent of total car sales in August 2020, compared with just 2.5 per cent in the same month in 2019.

Regulators are also playing their part. Europe, the second biggest EV market after China, now has tough new emissions standards. Every car manufacturer must cap emissions for its entire fleet to 95g of CO2/km on average by end-2020 – some 20 per cent below the average emission level in 2018. This cap will drop to 81g by 2025 and to 59g by 2030.

Those who fail to meet the standards will pay a heavy price: the fine is EUR95 for every g/km of excess emissions per vehicle. Car manufacturers that fail to improve their CO2 emissions compared with 2019 levels face possible fines of several billions of euros every year.

All of this will help further boost e-mobility’s growth (see Fig. 2).

Pictet AM

Build back better

Construction will also be at heart of the European recovery plan – not least because 70 per cent of all buildings in the region are over 20 years old.

The European Green Deal reserves some EUR370 billion – or EUR53 billion a year – for renovation to boost energy efficiency and decarbonise existing buildings. That would represent a big boost to the European renovation industry, which was worth EUR819 billion in 2019 (3).

Europe is also proposing to commit EUR100 billion in research and development (R&D) spending in digital and environmental sectors. The seven-year programme, launching in 2021, aims to boost productivity and growth and maintain competitiveness in sectors consistent with the Green Deal’s objectives. The Commission estimates each euro invested in R&D would have a leverage effect of EUR11.

When it comes to sustainability, Europe has just raised the bar. Its ambitious green spending commitments and stricter regulations not only give an environmental template for other countries to follow, they also offer the prospect of stronger economic growth and open up new investment opportunities.

Pictet AM’s Clean Energy strategy: investing in the energy transition

Europe’s 2050 climate target is set to disrupt and transform a number of industries, each representing rich and diverse investment opportunities which are underappreciated by the wider market.

  • E-mobility: Some 80 per cent of today’s transport energy needs to be converted to electricity to meet the emissions target. BNEF expects 57 per cent of all passenger vehicle sales will be electric globally by 2040, compared with only 3 per cent in 2019. This will likely boost investments into not only EV manufacturers but, more significantly, supporting technologies such as batteries and power semiconductors, as well as smarter grid networks and charging infrastructure.
  • Renewables: Under the European plan, the share of renewables in power generation must rise to 85 per cent by 2050 from today’s 20 per cent, with the bulk of that covered by wind and solar. The way we generate power is transforming as an increasing number of European power utilities ramp up their production of renewable energy with aggressive expansion plans. Underlining this trend, while total EU energy generation declined almost 10 per cent in July from the year before, renewable energy generation rose over 8 per cent.
  • Green buildings: All new European buildings must be “nearly net zero energy” starting 2021. We also expect a significant increase in demand for “retrofitting” existing buildings. This should support companies producing high-performance building materials and insulation, heat pumps and LED lighting as well as smart Heating, Ventilation and Air Conditioning (HVAC) and building energy management systems and other energy efficiency technologies and equipment.

 

Written by Steve Freedman, Sustainability and Research Manager in the Thematic Equities team at Pictet Asset Management.

 

Discover more about Pictet Asset Management’s  long expertise in thematic investing.

 

Notes: 

(1) Based on 2010 prices. Source: European Environment Agency (EEA)
(2) https://insideevs.com/news/443518/germany-plugin-car-sales-august-2020/ and https://cleantechnica.com/2020/09/04/germany-in-august-electric-vehicles-crushing-it-at-record-13-2-market-share
(3) Euroconstruct

 

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning.  Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.  Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested. 

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In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.

 

Global Wealth Creation Was Largely Immune to the Pandemic Shock in 2020

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Pixabay CC0 Public Domain. Más ricos y más acaudalados: el crecimiento de la riqueza se mostró inmune al golpe de la pandemia mundial

Wealth creation in 2020 was largely immune to the challenges facing the world due to the actions taken by governments and central banks to mitigate the economic impact of COVID-19. This is the main conclusion of the twelfth “Global Wealth Report” recently published by Credit Suisse Research Institute.

The analysis shows that total global wealth grew by 7.4% and wealth per adult rose by 6% to reach another record high of 79,952 dollars. Meanwhile, aggregate global wealth rose by 28.7 trillion dollars to reach 418.3 trillion at the end of the year. However, widespread depreciation of the US dollar accounted for 3.3 percentage points of the growth. If exchange rates had remained the same as in 2019, total wealth would have grown by 4.1% and wealth per adult by 2.7%.

The research institute points out that overall, the countries most affected by the pandemic “have not fared worse in terms of wealth creation”. In this sense, the pandemic had a profound short-term impact on global markets in the first quarter of 2020: the report estimates that 17.5 trillion dollars was lost from total global household wealth between January and March 2020, equivalent to a fall of 4.4%.

However, this was largely reversed by the end of June. “Surprisingly, in the second half of 2020 share prices continued on an upward path, reaching record levels by the end of the year. Housing markets also benefitted from the prevailing optimism as house prices rose at rates not seen for many years. The net result was that 28.7 trillion was added to global household wealth during the year”, highlights the analysis.

“The pandemic had an acute short term impact on global markets but this was largely reversed by the end of June 2020. As we noted last year, global wealth not only held steady in the face of such turmoil but in fact rapidly increased in the second half of the year. Indeed wealth creation in 2020 appears to have been completely detached from the economic woes resulting from COVID-19“, said Anthony Shorrocks, economist and report author.

Mapa mundial de la riqueza

The regional breakdown shows that total wealth rose by 12.4 trillion dollars in North America and by 9.2 trillion in Europe. These two regions accounted for the bulk of the wealth gains in 2020, with China adding another 4.2 trillion and the Asia-Pacific region (excluding China and India) another 4.7 trillion.

Another key finding of the report is that India and Latin America both recorded losses in 2020. In this sense, total wealth fell in India by 594 billion dollars, or 4.4% in percentage terms. This loss was amplified by exchange rate depreciation: at fixed exchange rates, the loss would have been 2.1%. Latin America appears to have been the worst performing region, with total wealth dropping by 11.4% or 1.2 trillion.

Ricos por países

Meanwhile, total debt also increased by 7.5% and the report points out that it would likely have increased much more if households had not been obliged to save more by the constraints on spending. Specifically, it rose markedly in China and Europe, but declined in Africa and in Latin America, even after allowance is made for exchange rate depreciation.

“Windfalls from unplanned savings and prevailing low interest rates saw a revival in housing markets during the second half of 2020. The net result was a better-than-average year for homeowners in most countries”, it adds.

Global wealth levels in 2020

Wealth impacts of the pandemic have differed among population subgroups due to two main factors: portfolio composition and income shocks. The wealth of those with a higher share of equities among their assets, e.g. late middle age individuals, men, and wealthier groups in general, tended to fare better. Homeowners in most markets have seen capital gains due to rising house prices.

“If asset price increases are set aside, then global household wealth may well have fallen. In the lower wealth bands where financial assets are less prevalent, wealth has tended to stand still, or, in many cases, regressed. Some of the underlying factors may self-correct over time. For example, interest rates will begin to rise again at some point, and this will dampen asset prices”, Shorrocks commented.

The report also shows that there have been large differences in income shocks during the pandemic. In many high income countries the loss of labor or business income was softened by emergency benefits and employment policies. In countries with an absence of income support, vulnerable groups like women, minorities and young people were particularly affected

Also, female workers initially suffered disproportionately from the pandemic, partly because of their high representation in businesses and industries badly affected by the pandemic, such as restaurants, hotels, personal service and retail. “Labor force participation declined over the course of 2020 for both men and women, but the size of the decline was similar, at least in most advanced economies”, it adds.

Wealth distribution and the outlook

Wealth differences between adults widened in 2020. The global number of millionaires expanded by 5.2 million to reach 56.1 million. As a result, an adult now needs more than 1 million dollars to belong to the global top 1%. A year ago, the requirement for a top 1% membership was 988,103 dollars. So, as Credit Suisse Research Institute highlights, 2020 marks the year when for the first time, more than one percent of all global adults are in nominal terms dollar millionaires.

Besides, the ultra high net worth (UHNW) group grew even faster, adding 24% more members, the highest rate of increase since 2003. Since 2000, people with wealth in the range of 10,000–100,000 dollars have seen the biggest rise in numbers, more than trebling in size from 507 million in 2000 to 1.7 billion in mid-2020. “This reflects the growing prosperity of emerging economies, especially China, and the expansion of the middle class in the developing world”, says the report.

Ultra ricos por países

Global wealth is projected to rise by 39% over the next five years, reaching 583 trillion dollars by 2025. Low and middle-income countries are responsible for 42% of the growth, although they account for just 33% of current wealth. Wealth per adult is projected to increase by 31%, passing the mark of 100,000 dollars. Unadjusted for inflation, the number of millionaires will also grow markedly over the next five years reaching 84 million, while the number of UHNWIs should reach 344,000.

Ricos a 2025

Nannette Hechler-Fayd’herbe, Chief Investment Officer International Wealth Management and Global Head of Economics & Research at Credit Suisse, claimed that “there is no denying” actions taken by governments and central banks to organize massive income transfer programs to support the individuals and businesses most adversely affected by the pandemic, and by lowering interest rates, have successfully averted a full scale global crisis.

“Although successful, these interventions have come at a great cost. Public debt relative to GDP has risen throughout the world by 20 percentage points or more in many countries. Generous payments from the public sector to households have meant that disposable household income has been relatively stable and has even risen in some countries. Coupled with restricted consumption, household saving has surged inflating household financial assets and lowering debts. The lowering of interest rates by central banks has probably had the greatest impact. It is a major reason why share prices and house prices have flourished, and these translate directly into our valuations of household wealth”, she concluded.

Tony Esses and his Team Join Snowden Lane Partners with 800 Million Dollars in AUM

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. Pexels

Snowden Lane Partners has announced the launch of The Esses Group, a new wealth management team helmed by Tony Esses, who was Managing Director at Wells Fargo Advisors from 2014-2021. Overseeing more than 800 million dollars in client assets, they will be based in Snowden Lane’s Coral Gables office.

Esses, a top-ranked financial advisor with over 35 years of experience in the international wealth management business, specializes in working with individuals, business owners and families based in Argentina. He is joining Snowden Lane as a Senior Partner and Managing Director. 

“Over the last three decades, Tony has established himself as a top-rated financial advisor and a true champion for his clients. He exemplifies everything we look for in a partner and colleague, and we have no doubt he and his new team will do great things for years to come”, said Greg Franks, President and COO of Snowden Lane Partner.

Meanwhile, Esses claimed to be “delighted” to be joining a firm “with such a client-first mindset and independent spirit”. In order to best serve clients, it “became clear” to him that he needed to operate within a firm that gave their advisors space and freedom without conflicts or pressure. “Snowden Lane’s built an environment that’s removed all obstacles to growth, and their fast rise within the RIA space is a reflection of the strong and unique culture they’ve established”, he commented.

Prior to Snowden Lane, he served as a Managing Director at Wells Fargo Advisors for seven years, and before that held senior roles at Barclays (2010-2014) and Republic National Bank of New York (later HSBC, 1985-2010). He’s been selected to the Financial Times Top 400 Advisors list several times and has been distinguished as a premier advisor at each of the institutions he’s worked for.

The firm has also revealed that several additional team recruits are expected to join soon.

Rob Mooney, Snowden Lane’s CEO, added that it’s been an exciting recruiting start so far this year and that they are “so pleased” with the pace and quality of individuals who’ve have joined them over the last few months. “We finished 2020 with great momentum and we’re heading into the second half of 2021 with wind in our sails. The strong response from the advisor community, particularly those who cater to international clients, has been nothing short of breathtaking and we’re looking forward to the future”, he concluded.

The firm has 116 total employees, 64 of whom are financial advisors, across 12 offices around the United States.

BlackRock Acquires Baringa Partners’ Climate Change Scenario Model

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Pixabay CC0 Public Domain. BlackRock adquiere el modelo de escenarios de cambio climático de Baringa Partners

BlackRock and Baringa Partners have announced their entry into a definitive agreement for BlackRock to acquire and integrate Baringa’s industry-leading Climate Change Scenario Model into its Aladdin Climate technology. In a press release, both firms pointed out that this new long-term partnership is “a significant milestone” for them, as they collaborate to set the standard for modelling the impacts of climate change and the transition to a low carbon economy on financial assets for investors, banks and other clients. 

They will bring together their expertise to develop climate risk models underpinning Aladdin Climate, as well as innovating other climate analytics solutions. Through the partnership, Baringa will use the core Aladdin Climate capabilities as part of its growing global consulting work in advising financial services, governments, regulatory bodies, and clients across all sectors on climate risk and developing net zero strategies.   

Both companies believe that, while the reallocation of capital to sustainable investment strategies continues -with over 2.3 trillion dollars of assets under management in sustainability funds globally as of the first quarter of 2021- understanding the potential impacts of climate change and the transition to a low carbon economy on their portfolios remains a complex challenge for investors. With the number of governments and companies making commitments to achieve net-zero continuing to grow alongside increased regulatory requirements for climate-related disclosures, companies and investors alike are seeking solutions to help assess climate risk.

“Investors and companies are increasingly recognising that climate risk presents investment risk. Through this partnership with Baringa, we are raising the industry bar for climate analytics and risk management tools, so clients can build and customise more sustainable portfolios. The integration of Baringa’s models and the ongoing collaboration between our firms will enhance Aladdin Climate’s capabilities, helping our clients understand transition risks in more sectors and regions than ever before”, commented Sudhir Nair, Global Head of the Aladdin Business at BlackRock.

Meanwhile, Colin Preston, Global Head of Climate Solutions at Baringa said that climate change is “the number one challenge and opportunity of our generation”. Having developed the leading Climate Change Scenario Model, they are “excited to partner with BlackRock” to accelerate the adoption of this solution by organisations across the globe. “The integration of Baringa’s Climate Change Scenario Model into BlackRock’s Aladdin platform will inform the reallocation of capital across the global economy, accelerating the transition to net zero”, he concluded.

Baringa developed its market-leading climate scenario modelling capabilities on 20 years of experience. Baringa’s solutions support net zero commitments, TCFD reporting, regulatory reporting, investment and capital allocation strategies, as well as developing climate risk management capabilities.  As the leading solution in the financial services sector, Baringa’s Climate Change Scenario Model is informing clients with assets totalling more than 15 trillion dollars; supporting the management of climate risk and the reallocation of capital to achieve net zero.

As for BlackRock, it began developing Aladdin Climate to fill a void in climate risk analytics by creating technology to help clients better understand and mitigate the financial impacts associated with climate change on their portfolios. Aladdin Climate is offered through the Aladdin platform and is used by BlackRock’s Financial Markets Advisory (FMA) group to deliver sustainability advisory services to clients. It measures both the impacts of physical risks, like extreme weather events, and transition risks – such as policy changes, new technology, and energy supply – at the financial instrument and portfolio levels.

HSBC AM Brings Together All of its Alternatives Capabilities under a Single Business Unit

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Foto cedidaJoanna Munro, consejera delegada de HSBC Alternatives.. HSBC AM integra todas sus capacidades alternativas en una única unidad de negocio

HSBC Asset Management has announced in a press release that it is bringing together all of its existing alternatives capabilities under a single business unit, HSBC Alternatives, with a 150-strong team and combined assets under management and advice of 53 billion dollars. Joanna Munro has been appointed CEO HSBC Alternatives to lead the new combined unit.

The firm’s alternatives assets have doubled over the past four years and they believe that the creation of a single business unit is the next step in its strategy “to reposition the business as a core solutions provider and specialist Asia, emerging markets and alternatives asset manager”.

HSBC Alternatives will comprise of HSBC Alternatives Investments (HAIL), which includes the multi-manager Hedge Fund and Private Market teams, as well as the firm’s Private Debt, Venture Capital and direct Real Estate teams, with existing capabilities in the UK, France, Germany, Switzerland, Hong Kong and the US. 

Munro, currently Global CIO, will now report directly to Nicolas Moreau as a member of his Management Committee. She was appointed Global CIO in 2019 and has been with HSBC Asset Management since 2005, with responsibilities including CEO Multi-Manager and CEO Asia Pacific. She will continue to be based in London.

As CEO HSBC Alternatives, she will be responsible for enhancing and expanding the range of alternative investments available to the firm’s wealth and institutional clients, across indirect and direct alternatives including hedge funds, private markets and real estate. Under her leadership, the newly combined team will work closely with other parts of HSBC Asset Management to deliver on the firm’s strategic enablers of client centricity, investment excellence and sustainable investing.

“We have been very successful in delivering innovative capabilities to our institutional and wealth clients, with the recent success of our Infrastructure Debt teams, the rapid growth of our indirect private equity business, the launch of a direct lending investment capability with HSBC UK and the establishment of our Climatech venture capital team. With Joanna’s strong track record of building and transforming businesses, I am confident that we will take our alternatives business to the next level and accelerate this important growth opportunity“, commented Moreau.

Meanwhile, Munro claimed to be looking forward to leading the growth of HSBC Alternatives and bringing the benefits of alternatives asset classes to new and existing clients. “Alongside sustainable and impact strategies, such as Climatech, we will also look to grow our capabilities in Asia“, she added.

A new Global CIO

After this change, Xavier Baraton, currently Global CIO for Fixed Income, Private Debt & Alternatives, will succeed Munro as Global CIO. Reporting to Moreau, he will join the Management Committee and continue to be based in Paris. He moves into the role with close to 20 years’ experience in investment management. He joined HSBC Asset Management as Global Head of Credit Research in 2002 and has been CIO for Fixed Income since June 2010.

“I am delighted to be appointing Xavier Baraton as Global CIO. Xavier’s outstanding investment track record, commitment to embedding sustainability across our fixed income asset class with innovations such as our real economy EM green bond strategy, REGIO, and more recently his leadership on diversity and inclusion across our investment platform make him ideally placed to lead our investment teams globally”, said Moreau.

The asset manager has revealed that Baraton’s successor will be announced “in due course”.

In 2020, HSBC Asset Management set out its strategy to re-position the business as a core solutions and specialist emerging markets, Asia and alternatives focused asset manager, with client centricity, investment excellence and sustainable investing as key enablers.

There Is Still Value in Emerging Fixed Income: These Are the Reasons

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Pixabay CC0 Public DomainTodavía hay valor en renta fija emergente . Mapa de Asia

Local currency and hard currency emerging market government bonds have partly recovered since the lows of the COVID-19 crisis, but Colchester Global Investors believes there is still value to be found in these emerging market fixed income asset classes. 

Colchester has been holding a number of conferences on Emerging Market sovereign debt to give investors a better understanding of the key differences between the main asset classes within this space, namely hard currency and local currency denominated debt.  The response from investors has been heartening and we share with you some of the key questions investors have been deliberating over, and the thoughts of Colchester’s investment team below:

Yields are rising in the US, what does this mean for Emerging Markets?

Emerging market assets have weakened since the turn of the year with rising yields in the US weighing on local and hard currency bond prices and some depreciation of EM currencies against the US dollar. Rising yields do equate to a tightening of global financial conditions all else being equal, and a strengthening US dollar is often associated with a reversal of capital flows to EM as we observed with the “taper tantrum” in 2013. Nonetheless, we at Colchester believe the current period is not comparable to 2013, for a few reasons:

  • The rise in US yields can largely be attributed to the more positive outlook for the US and global economies, and an associated rise in inflation expectations;
  • Real yields in the US remain close to historical lows, and remain a “push factor” for capital to seek out the more attractive real yields of the Emerging Markets;
  • There is no indication of monetary policy being tightened in the US; and
  • The external balance sheets of emerging economies are generally stronger than in 2013, for example more robust current account positions in many cases and a lower reliance on portfolio inflows.

Real exchange rate valuations of many of the major Emerging Markets have improved relative to those prevailing in 2013, as exchange rates have weakened materially in nominal and real terms since then.   With external vulnerabilities having significantly reduced since 2013, this puts many of the Emerging Markets in a much stronger position today to withstand tighter global financial conditions.  We see opportunities to take advantage of undervalued currencies, combined with robust external balance sheets and credible policy frameworks.

EM currencies have weakened for many years, why don’t you think they will continue to depreciate?

The consistent undervaluation of EM currencies in recent years is indeed striking, but does not in itself shift our opinion that such undervaluation will eventually be corrected. In the short term, exchange rates can be volatile and deviate from fundamental “fair value” for significant periods of time. Emerging Markets have certainly been negatively impacted by a series of negative shocks in recent years also, which have contributed to their relative underperformance. We continue to believe however that the undervaluation of EM exchange rates, combined with a credible policy framework in most instances, will act as “pull factors” for global capital.  Furthermore, the US dollar has been relatively strong for some time, even considering the declines seen in the second half of 2020. This overvaluation may ultimately lead to the beginning of a significant depreciation. Such an eventuality has historically been a good backdrop for Emerging Market assets, both local and hard currency denominated.

What is the impact of Covid-19 on Emerging Market currencies and bond markets?

Vulnerability to crises was previously a feature of many Emerging Market economies, but today that vulnerability is lower, at least for the major issuers of local currency emerging market government bonds.  According to Colchester’s analysis, the market turmoil and economic contraction associated with the COVID-19 pandemic was met with a strong policy response from central banks in many major Emerging Markets.

Do you see a dollar weakening trend as being more beneficial to hard currency due to reduced interest payments or local through currency effect?

As shown in the chart below, historically there has been a relationship between movements in the US dollar and the relative performance of hard versus local currency EM government debt. Typically, although not always the case, we see local currency outperforming in an environment of US dollar weakness and vice versa.

Colchester

Source:  JP Morgan and Colchester Global Investors. Data is calendar year returns from Dec 2003 to Dec 2020. Hard Currency is the JP Morgan EMBI Global Diversified Index (EMBI GD index), and Local Currency is the JP Morgan GBI-EM Global Diversified Index in USD Unhedged terms.

The outperformance of the Local asset class from a weaker USD tends to be driven by an appreciation of EM currencies. When we look at USD hedged returns of EM Local bonds versus Hard Currency bonds, we see a general trend of Hard Currency outperforming EM Local bonds.

With regards to a weaker USD improving debt servicing for a sovereign’s Hard Currency debt, certainly an appreciating local currency will tend to make the conversion of domestic revenues into USD less costly, and thus somewhat ‘cheaper’. This is one reason why when assessing Hard Currency debt we incorporate the valuation of the country’s Real Exchange Rate. Colchester looks at several factors when assessing Hard Currency debt serviceability which focus on a country’s external liquidity, including the ratio of a country’s foreign currency uses relative to its foreign currency resources, and the Terms of Trade.

 

This article should not be relied on as investment advice. Colchester Global Investors Limited is regulated by the UK Financial Conduct Authority, and only deals with professional clients. https://www.colchesterglobal.com for more information and disclaimers.

 

 

AXA IM Names Beatriz Barros de Lis Head of Distribution for Americas

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Foto cedidaBeatriz Barros, nueva responsable de distribución en el área de Américas de AXA IM.. AXA IM nombra a Beatriz Barros de Lis responsable de distribución en el área de Américas

AXA Investment Managers has announced in a press release the appointment of three senior executive leaders to support “the ongoing robust growth and performance” of the Americas Institutional, Wholesale, and Sub-Advisory businesses. Strengthening the sales and distribution team in the region, Beatriz Barros de Lis -previously Country Head for Spain and Portugal- has been named Head of Client Group Americas.

After 11 years at the helm of AXA IM Spain and Portugal, as part of her new role, Barros de Lis will lead the North America and Latin America Sales and Distribution team, both onshore and offshore, across Institutional, Wholesale, and Sub-Advisory. She will lead an experienced Sales and Client Service team, many of whom have significant tenure both at AXA IM and in the industry overall.

She was previously Country Head for Spain and Portugal, AXA IM, since 2010. Prior to that, she was managing director for the Spanish and Portuguese markets at Alliance Bernstein (AB). She is also currently a director at AXA Funds Management SA in Luxembourg. A graduate in Economics, she has worked in the asset management industry since 1994.

A single structure for Spain, Portugal and Italy

In addition, AXA IM has organized the sales areas to simplify and optimize its structure. As they have explained, the initiative stems from the decision taken last year to integrate the Client Group teams in Germany and Switzerland under what was called the DACH Group. The asset manager has pointed out that the success of this experience has driven this new regional approach for the sales teams.

Thus, the Western Europe area will combine France, Belgium and Luxembourg, while the Northern Europe hub will encompass the United Kingdom, the Nordic countries and the Netherlands. Within this new sales structure, the Southern Europe region will be created and will include Spain, Italy and Portugal, taking advantage of the synergies generated by the combination of skills and resources of the different team. It will be led by Pietro Martorella, until now Country Head of AXA IM Italy.

Other key appointments

Furthermore, Florian Bezault has been named Head of AXA IM Americas and Regional CFO Americas, after more than a decade of leadership roles within AXA Group. His primary responsibilities will focus on CFO leadership and strategy, and he will report to Godefroy de Colombe, Global Chief Operating Officer, and Jean-Christophe Menioux, General Secretary and CFO. Bezault assumes the responsibilities of his predecessor, Marcello Arona, who was recently appointed CEO AXA IM UK & AXA IM GS. Bezault has been with the AXA Group since 2008 and has held previous roles in Corporate Finance and Investor Relations at AXA’s Headquarters in Paris before joining AXA Mexico as Deputy Director of their Health Insurance Operations. 

Meanwhile, José Manuel Fernández, Senior Sales Manager, joined AXA IM Mexico recently from Grupo Financiero Monex to support the firm’s continued commitment to clients in Mexico. In this role, he will report to Salvador Moreno, Head of Sales, AXA IM Mexico. Fernández brings over 20 years of industry sales experience, joining AXA IM from Grupo Financiero Monex where he was a Director of Sales in their asset management division focused on defined contribution and defined benefit plans. 

AXA IM in the Americas is continuing to grow its third-party business across asset-classes and client segments throughout the region. “These new executive appointments support this business momentum throughout the U.S, Latin America and Mexico, with an emphasis on continued future growth and in support of new clients being on-boarded throughout the region”, has highlighted the asset manager. Its investment teams and strategy remain unchanged as a result of these announcements.