Foto cedidaRick Lacaille, Senior Investment Advisor para liderar el programa ESG de State Street.. Rick Lacaille, nombrado nuevo Senior Investment Advisor para liderar el programa ESG de State Street
State Street Corporation announced in a press release that it has appointed Richard F. Lacaille –Rick Lacaille– to the newly-created role of senior investment advisor. He will lead the company’s Environmental, Social and Governance (ESG) solutions, services and thought leadership across all its businesses.
Lacaille will report to Ronald O’Hanley, chairman and chief executive officer of State Street Corporation, and, as a consequence of his appointment, Lori Heinel has been promoted to global chief investment officer for State Street Global Advisors.
The firm pointed out that, for many years, they have been at the forefront of innovation across its businesses, developing best-in class ESG capabilities including reporting and analytics tools, premier academic research, and investment solutions and products. They believe Lacaille will ensure their strategies are well-coordinated and optimized to serve clients’ increasing demand for ESG servicing, guidance and investment solutions.
“With more than two decades of leadership at State Street Global Advisors and his role as chair of State Street’s executive corporate responsibility committee, Lacaille is absolutely the right leader to take our firm’s ESG efforts to the next level. We believe ESG considerations drive long-term value for investors, and will only become increasingly more important as drivers of return and risk”, said O’Hanley.
The company also explained that Heinel, who joined State Street Global Advisors in 2014 as chief portfolio strategist and has served as deputy global chief investment officer since 2016, will assume Lacaille’s role as global chief investment officer. In the press release, they highlighted that she has been “a driving force” for a number of key initiatives across the business including implementing consideration of financially material ESG issues throughout the investment process.
In her role, Heinel will oversee the full spectrum of industry-leading investment capabilities from index funds and ETFs to active, multi-asset class solutions and alternative investments. She will lead an investment team of more than 600 professionals globally and will report to Cyrus Taraporevala, president and chief executive officer of State Street Global Advisors.
Taraporevala commented that Lori taking the reins as global chief investment officer will bring to fruition years of succession planning. “She is a change leader who I believe is strongly positioned to lead State Street Global Advisors’ Investments team, as we continue the investment innovation which has been a hallmark of our strategy for decades.”
The company noted that Lacaille and Heinel will assume their respective new roles by March 31, 2021 after a “careful and deliberate transition”.
A recovery in the job market and record levels of household savings should lift consumer spending worldwide. Investment will also get a boost from rising profits and maintenance cycles. Trade is also recovering fast and even though spending on services will remain well below pre-COVID levels, the sector should gain strength, too.
Investors should also expect the environment to become a greater priority in 2021 – fuelling growth in sectors like clean energy. Joe Biden’s victory in the US presidential election will provide further momentum to this shift. Across the globe, green investment will form a key part of fiscal stimulus packages, feeding into a strong and synchronised economic recovery.
Pictet Asset Management’s business cycle indicators point to to mid-single digit growth in world gross domestic product (GDP) in 2021, but positive base effects cannot hide the long-lasting damage caused by the pandemic. Pictet Asset Management estimates that the fallout from COVID-19 will permanently reduce global GDP by 4 percentage points. It will take years before the global economy can go back to pre-COVID-19 levels.
The growth gap between emerging and developed markets will widen further to the benefit of both developing world equities and debt, thanks in a large part to China – the only major economy to avoid a contraction this year. From industrial production to car sales and exports, most of China’s primary economic activity indicators are already back at or above December 2019 levels, and set to expand further. Retail sales have lagged slightly but Pictet Asset Management expects private consumption to recover gradually in the coming months.
The near term outlook for the US economy is dependent on the fiscal relief programme currently under negotiation. A package north of USD1 trillion – Pictet Asset Management’s base case scenario – could push US growth above 5 per cent next year.
Globally, though, Pictet Asset Management would expect fiscal stimulus to be reduced compared to 2020 – not through a return to austerity policies, but because Pictet Asset Management expects fewer new measures. Central banks will act as “shock absorbers” by keeping rates low and maintaining stimulus. However, liquidity conditions are still likely to deteriorate. Pictet Asset Management estimates that the total assets of major central banks will expand only USD3 trillion next year. This is double the yearly average seen the 2008 financial crisis but significantly below this year’s record USD8 trillion.
History tells us that this matters for risk premia. Pictet Asset Management´s models suggest that global equities’ earnings multiples could contract by as much as 15 per cent next year, but this is likely to be more than offset by an approximate 25 per cent surge in corporate profits.
Government bond yields in the developed world are likely to move gently higher tempered by central bank action which could include balance sheet expansion by the European Central Bank and yield curve control by the US Federal Reserve.
Fixed income and currencies: conditions improve for emerging bonds, TIPS
Even if Pictet Asset Management expects the global economy to recover strongly from the ravages of the pandemic in 2021, the surge in GDP growth is unlikely to lead to a sharp sell off in developed market government bonds. That’s primarily because central banks won’t take any unnecessary risks.
Both the ECB and the Fed will do whatever is required to keep policy accommodative and ensure a self-sustaining recovery. For the ECB that means more bond purchases and the continuation of cheap loans to banks; for the Fed, that could involve adding yield curve control (YCC) – anchoring policy to specific bond yield targets – to its anti-crisis measures.
All the while, inflation will remain below central banks’ targets. Nevertheless, the combination of strong growth and rising commodity prices will feed through to a moderate pickup in inflation expectations. That’s a dynamic investors should pay attention to: while it translates into only a very gentle rise in nominal government bond yields in 2021 (Pictet Asset Management sees 10-year Treasury yields edging up to 1 per cent) it points to a further fall in real yields.
This would provide a boost to US Treasury Inflation-Protected Securities (TIPS). Pictet Asset Management expects them to outperform all developed market nominal bonds; real yields should remain close to -1 per cent as inflation expectations gather momentum.
In a year that will see healthy global growth and increased international trade, emerging market local currency bonds should also fare well. They are among the very few fixed income assets offering a yield of above 4 per cent. Adding to their investment appeal is the prospect of a strong rally in emerging market currencies – which should unfold as the global economy recovers and as trade tensions ease under a Biden administration. Currently, emerging market currencies are close to 25 per cent undervalued versus the US dollar according to Pictet Asset Management’s model. Chinese renminbi debt should have a particularly strong year – not only benefiting from its attractive yield compared to developed world bonds but also from the asset class’s increased presence in mainstream bond benchmarks.
Prospects for developed market corporate bonds are mixed. High yield bonds are not especially attractive at this juncture. To seasoned fixed income investors that would seem unusual as history shows sub-investment grade bonds outpace equities during the final throes of a recession and in the early phase of a recovery. Yet the problem this time round is that high yield debt is already expensive.
In the past, high yield bonds’ outperformance has taken hold whenever the gap between their real yields and stocks’ dividend yields was above 10 percentage points. The strong run would then fade as the yield gap approached 3-5 percentage points. With the yield gap currently standing at 1.5 percentage points, however, the scope for high yield bonds to register significant gains appears very limited.
Investment-grade corporate bonds are more appealing – their returns compared to those of US Treasuries are low compared to the levels normally seen at this point of the economic cycle.
When it comes to currencies, 2021 doesn’t promise to be a good year for the dollar. There are several reasons why. For one thing, the greenback’s allure should fade in the face of a synchronised global economic recovery. Then there’s the prospect of a surge in the US budget deficit and continued intervention from the Fed – a fiscal and monetary expansion which will likely place further downward pressure on the currency. The dollar continues to trade well above what fundamentals – such as interest rate and growth differentials to the rest of the developed world – suggest is fair value.
Gold should continue to rally – Pictet Asset Management forecasts the gold price will hit USD2,000 by end-2021. Continued quantitative easing by global central banks, a weaker trajectory for the dollar and real rates dipping further into negative territory should all underpin demand for gold.
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.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
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.
The COVID-19 pandemic has ravaged economies worldwide. Weak infrastructure and healthcare systems, dependence on commodities and tourism for income, and high debt loads have left emerging markets suffering disproportionately.
But looking beyond the short-term, prospects for these countries are hopeful. Vast fiscal and monetary stimulus have poured into the global financial system as governments everywhere look to mitigate the pandemic’s impact on their economies. A considerable proportion has been earmarked for infrastructure. Crucially, governments will be in a position to restructure their economies in ways that not only boost their productivity but are also environmentally friendly – to build back better. Indeed, in many cases the greener course of action is also the most economically sensible for emerging markets, according to a report by Oxford University’s Smith School sponsored by Pictet Asset Management.
Even before Covid-19, the green investment potential of emerging economies was huge. It’s estimated that the Paris Agreement has paved the way for some USD 23 trillion in climate smart opportunities in emerging markets by 2030, according to the World Bank.
So far, their performance has been mixed. Yet, there is political momentum, driven by a groundswell of popular support, for green recovery from COVID-19, in a way there wasn’t following past pushes like the 1997 Kyoto agreement. Government efforts are reinforced by and reflect a groundswell of environmental activism by both individuals, companies and communities.
Not that it necessarily needs new money. For instance, public subsidies for coal, oil and gas production and consumption amounted to roughly USD 500 billion worldwide in 2019, compared to USD100 billion for renewables.
In many cases, this support is provided by governments of less developed economies in an effort to develop oil and gas fields or to keep their populaces happy with cheap energy. But just reversing those subsidies would make huge strides towards climate change mitigation. And would save tens of billions of dollars from becoming stranded assets.
Between USD 5 trillion and USD 17 trillion of assets are already at risk if governments decide to pursue a high ambition strategy of limiting warming to 1.6˚C. That’s the value of infrastructure and other assets that would have to be mothballed to achieve the lowest rate of warming in Oxford’s scenarios. Further investment into fossil assets only pushes the value of stranded assets higher.
The green economy already makes up some 6 per cent of the global stock market, according to FTSE Russell. For it to expand further, investments will need to flow beyond the power sector, which currently receives most low-carbon funding, to agriculture, transport and forestry among others.
The significant structural changes economies need to undergo to mitigate climate change will absorb large amounts of funding over a long period, but financing is also needed for the many smaller, cost-effective measures that can be taken to adapt to the rise in global temperatures. For instance, early warning systems for storms and heat waves are estimated to save in assets and lives ten times what they cost. In all, adaptation currently represents just 0.1 per cent of private climate finance flows.
There’s an inevitability about the shift towards greener investment. The economics are moving in that direction. The finance will follow. Governments and private investors are likely to heed the early signals and allocate capital accordingly.
Read more about the Oxford-Smith paper at this link.
Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.
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.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
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.
The world stands to lose nearly half of its potential economic output by the end of the century. That’s the shortfall we face if we fail to make further progress on climate change.
But this is only an average. According to Laurent Ramsey, Co-CEO of Pictet Asset Management and Managing Partner at Pictet Group, emerging markets are at risk of faring even worse given their particular vulnerabilities to rising sea levels, drought and slumps in agricultural output. It’s a bleak picture. But there are also reasons for hope.
The scientific consensus on climate change is becoming widely accepted, and governments, individuals and businesses have started to act. With the benefit of some clear thinking and careful planning, much more can be done. Particularly across the emerging world.
Everywhere, human ingenuity, technological advances and the understanding that comes from experience and education are all positive forces that will drive efforts to mitigate climate change and to help us adapt to its effects.
This paper by Professor Cameron Hepburn and his team at the University of Oxford Smith School of Enterprise and the Environment offers a deep and broad analysis of the risks and opportunities emerging economies – and the world more generally – face from climate change. Their insights are based on the latest economic and climate modelling techniques.
It is research that Pictet Asset Management is proud to have sponsored. The dynamics this report describes will play a critical role for investors over the coming decades. The pace at which governments act will determine how capital should best be allocated, be it regionally or across asset classes.
Pictet Asset Management responsibility as managers of their clients’ assets is to understand the forces that shape the world, not just during the coming quarter or two, but sometimes over lifetimes – indeed, this frames their pioneering thematic approach. It also underpins their commitment to investing in emerging markets, which, notwithstanding short-term fluctuations, represent the greatest potential for long-term economic growth. Just think of the enormous strides these countries have made over recent decades.
Such are the foundations on which Pictet has grown during the past two centuries. But as talented as their own analysts, economists and investment managers are, Pictet Asset Management recognizes there is always more to learn. For nearly a millennium, Oxford’s academic community has created a well of knowledge that has profoundly influenced the course of humanity. Pictet Asset Management´s own history suggests that they have also had some success in taking the long-term view.
Which is why Pictet Asset Management has forged this partnership with Oxford’s Smith School. Thanks to their vast expertise in both environmental economics and emerging economies,
And, extraordinarily, they’ve done so through the lens of one of the most traumatic global developments in modern memory.
Compounding the challenge of how to negotiate the long-term peril presented by climate change is a more immediate crisis – the Covid-19 pandemic that has ravaged communities around the world. As this paper makes clear, the vast fiscal and monetary packages governments continue to put in place to support their economies over the near term can also considerably help efforts to limit global warming over decades to come if invested wisely.
Thankfully, the worst-case outcome, that of failing to do anything more to prevent global warming than we already have, is unlikely. Governments, businesses and individuals have recognized the need for action and have put steps in place.
Rather, the issue is: how much do we do? We can’t take for granted that all the effort will come from the developed world. Emerging countries are at risk of suffering disproportionately from the effects of global warming. And I think they are rising to the challenge – not least because taking measures is an investment that will often reap considerable rewards, and not just over the very long term.
In some areas, emerging economies are even well placed to take a lead. China already accounts for the lion’s share of photovoltaic cell manufacturing, is at the forefront of research and development and is one of the biggest adopters of the technology. Renewables combined with decentralised energy systems could help other emerging economies escape the need for massive investment in large networks. And as renewables become ever more cost effective, many of these countries could end up with cheaper energy than their developed rivals.
Some of the measures governments introduce, such as redirecting fossil fuel subsidies towards renewable energy sources, will be temporarily unpopular because they run counter to embedded interests. But the economic justification is clear. As the cost of power generated by renewables falls, fossil fuels will become ever less attractive. Great swathes of infrastructure devoted to fossil fuel production and use will be mothballed.
Ultimately, the work done by Professor Hepburn and his team leaves us hopeful. The challenges posed by climate change are huge. But they’re not insurmountable. And the emerging world has both its role to play and rewards to reap.
Read more about the Oxford-Smith paper at this link.
Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.
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.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
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.
Pixabay CC0 Public Domain. “Lo pequeño es hermoso”: Las tendencias de la energía sostenible generan oportunidades para los inversores en infraestructuras
In 1973, a year marked by the oil crisis, the global economy was mainly powered by centralised, large-scale, fossil fuel-based technology. In a recent article, DWS recalls that, in the same year, “Small Is Beautiful”, a book published by the economist E.F. Schumacher, appeared somewhat atypical to many, as it presented the idea of an economic model based on sustainable, small-scale, decentralised energy technologies.
“Today, sustainability is increasingly at the center of the political and investors’ agenda, and Schumacher’s vision appears to be coming true, as investments in small-scale renewables and energy efficiency technologies are growing, supporting the transition to a low carbon economy”, says the asset manager. A recent survey of central bankers and finance officials sees energy efficiency as a key area of investment to stimulate the economy.1
In its view, sustainability standards are rapidly becoming more ambitious. For instance, nearly 1,000 private and listed companies are committed to science-based emissions reduction targets.2 This trend is supporting demand for the installation of small-scale renewables and for more energy efficient buildings and services.
DWS points out that the last decade was marked by an initial shift from thermal generation to renewables. “We anticipate the pipeline for large-scale renewables to expand, but we expect distributed generation and small-scale renewables to be essential for infrastructure investors, with industrial, commercial and residential projects ranging from smaller solar rooftop installations to larger combined heat and power (CHP) and cogeneration plants”, they add.
The International Energy Agency (IEA) estimates that over the next decade investment in energy efficient technologies and insulation may have to triple from current levels of USD 360 billion to nearly USD 1 trillion to help meet the goals of the Paris Agreement.
The asset manager believes that regulation continues to drive demand through a range of measures, such as feed-in-tariffs, tax reliefs and grants that vary by country and technology: “This supports the installation of rooftop solar and energy efficiency technologies, including smart meters, the replacement of inefficient boilers, or the electrification of heating and cooling systems”.3
In their opinion, Europe seems to have taken the regulatory lead in recent years, and they expect CO2 reduction targets to continue to be addressed through “green certificate” style incentives, supporting decarbonisation. Data indicate that EU renewables could surpass the 2030 target of 32%, while a gap may still remain under the EU’s 2030 energy efficiency targets.4
Regulators are also establishing minimum energy efficiency standards, requiring buildings to achieve a certain efficiency level before they are sold or leased. In Europe, they expect that requirements on buildings may expand, as governments seek to improve energy efficiency, and as more investors advocate for stronger policies that support net zero portfolio targets.
In the U.S., some states have established programs to link repayment of building renovations through property taxes, to support energy efficiency, helping reduce split incentives between landlords and tenants. “Moreover, thirty-three major U.S. cities require the public benchmarking of existing buildings’ energy efficiency, and some also set performance targets, requiring building improvements”, comments DWS.
An opportunity for infrastructure investors
As demand for small-scale renewables and energy efficiency solutions appears to be driven by a solid underlying market trend, the asset manager observes growing interest from larger utilities and infrastructure investors. “The constant flow of smaller renewables projects provides infrastructure investors with an opportunity to partner with larger independent energy services providers, supporting capital deployment, as the development and installation of small-scale renewable projects can be more profitable than largescale renewables”, they point out.
The market of installers and service providers has historically been very fragmented, and the complexity of regulation can be a challenging aspect for SMEs and large customers alike, limiting adoption rates. In their view, these factors create a market opportunity for larger, efficient independent energy services providers, supported by economies of scale.
DWS notes that, although demand is growing, financing for small-scale renewables and energy efficiency projects can be a major challenge and represents a limit for the adoption of these technologies and the reduction of CO2 emissions. Moreover, the sector may gradually transition away from government subsidies. “Infrastructure investors, alongside utilities may play a key role in the provision of integrated financing and payment solutions to end customers, helping to bridge the widening funding gap and CO2 curb emissions”, they conclude.
1 University of Oxford, Oxford Smith School of Enterprise and the Environment, “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?”, May 4, 2020
2 Science Based Targets September 2020
3 LSE, Climate Change Laws of the World, accessed as at September 2020
4 European Commission “National Energy and Climate Plans: Member State contributions to the EU’s 2030 climate ambition”, September 2020
Source: DWS, European Commission “National Energy and Climate Plans: Member State contributions to the EU’s 2030 climate ambition” September 2020, IEA, November 2019, Regulatory Assistance Project, June 2020, C2ES September 2019, Hepburn et al May 2020, LSE/Grantham Research Institute 2019, SENSEI 2020, Science Based Targets September 2020. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.
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Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients. This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.Investments are subject to various risks, including market fluctuations, regulatory change, possible delays in repayment and loss of income and principal invested. The value of investments can fall as well as rise and you may not recover the amount originally invested at any point in time. Furthermore, substantial fluctuations of the value of the investment are possible even over short periods of time.
This publication contains forward looking statements. Forward looking statements include, but are not limited to assumptions, estimates, projections, opinions, models and hypothetical performance analysis. The forward looking statements expressed constitute the author’s judgment as of the date of this material. Forward looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. No representation or warranty is made by DWS as to the reasonableness or completeness of such forward looking statements or to any other financial information contained herein.
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For investors in Brazil: The shares in the Fund may not be offered or sold to the public in Brazil. Accordingly, the shares in the Fund have not been nor will be registered with the Brazilian Securities Commission – CVM nor have they been submitted to the foregoing agency for approval. Documents relating to the shares in the Fund, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering of shares in the Fund is not a public offering of securities in Brazil, nor used in connection with any offer or subscription or sale of securities to the public in Brazil.
Foto cedidaSede de BBVA en Houston.. BBVA vende su filial en Estados Unidos a PNC por 11.600 millones de dólares
There’s still room for new developments in the Spanish banking sector. BBVA has agreed to sell to PNC its subsidiary in the U.S. for 11.6 billion dollars (9.7 billion euros) in cash. The transaction immediately increased the rumors of a potential merger with the smaller entity Sabadell and BBVA confirmed they have started in conversations.
The bank pointed out in a press release that this amount represents almost 50% of its current market capitalization, “creating significant value for shareholders”. The transaction will have a positive impact on BBVA’s fully loaded CET1 ratio of 300 basis points, or 8.5 billion euros of CET1 generation.
“This is a very positive transaction for all sides. PNC has recognized the great value of our unique client franchise and of our great team in the US, who will be part of a leading financial services group in the country. The deal enhances our already strong financial position. We will have ample flexibility to profitably deploy capital in our markets strengthening our long-term growth profile and supporting economies in the recovery phase, and to increase distributions to shareholders”, said BBVA Group executive chairman, Carlos Torres Vila.
In the U.S., BBVA is a Sunbelt-based bank with more than 100 billion dollars in assets and 637 branches, with leading market shares in Texas, Alabama and Arizona. After the closing of the transaction, PNC, based in Pittsburgh (Pennsylvania) will become the country’s fifth-largest bank by assets.
The transaction excludes the broker dealer (BBVA Securities) and the branch in New York, through which BBVA will continue to provide corporate and investment banking services to its large corporate and institutional clients. It also excludes the representative office in San Francisco and the fintech investment fund Propel Venture Partners.
William S. Demchak, PNC’s chairman, president and chief executive officer, commented that the acquisition will accelerate their growth trajectory and drive long-term shareholder value. “This transaction is an opportunity to navigate our future from a position of strength, accelerating PNC’s expansion while drawing on our experience as a disciplined acquirer. We are excited to bring our industry-leading technology and innovative products and services to new markets and clients, leveraging our mutual commitment to building diverse and high performing teams and supporting the communities we serve”, he added.
PNC: the fifth largest retail bank
The purchase makes PNC the fifth largest retail bank in the United States, behind JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. It will give the firm a greater leadership in markets with significant growth potential beyond its current presence in the Midwest and Mid-Atlantic, especially in Texas. In addition, it will strengthen its commercial and consumer banking business.
The transaction takes place six months after PNC left BlackRock’s shareholding selling its 22.4% stake. The two operations would have some relationship to help the bank build a nationwide franchis, as Demchak told the Financial Times: “We’ve managed to effectively trade the BlackRock ownership stake we had for a franchise that takes us coast to coast. BBVA is in the best markets in the country with substantial presence down in Texas, Arizona, California and in Denver, in Alabama, and down through Florida.”
The details
BBVA pointed out that the all-cash deal by PNC values the business sold at 19.7 times its 2019 earnings and 1.34 times its tangible book value as of September, 2020. The deal “unlocks hidden value” as the price is more than 2.5 times the average valuation assigned by analysts to the business (3.8 billion euros), for a business that represented less than 10% of 2019 Group’s net attributable profit. Also, the price represents almost 50% of BBVA’s current market capitalization.
“With the transaction, BBVA will have additional flexibility to invest in its markets and increase distributions to shareholders, with a sizeable buyback as an attractive option at current share prices”, the Spanish bank said. The sale will generate a capital gain net of taxes of approximately 580 million euros and BBVA Group’s tangible book value will increase by 1.4 billion euros. The deal is expected to close in mid 2021 once the required regulatory approvals have been obtained.
A potential merger with Sabadell
The announcement of the transaction immediately sparked the rumors of a potential merger with Banco Sabadell. On Monday, BBVA confirmed to the National Securities Market Commission (CNMV) that both entities had started conversations.
After that, Banco Sabadell also confirmed the negotiations.
Pixabay CC0 Public Domain. AllianceBernstein lanza una plataforma de deuda inmobiliaria europea con Lacarne Capital como socio
AllianceBernstein has launched a European Commercial Real Estate Debt (ECRED) business by partnering with Lacarne Capital, a pan European real estate debt platform led by Clark Coffee, a veteran of the region’s private credit markets.
The asset manager has announced in a press release that ECRED will launch with 1.2 billion dollars of initial capital, making it one of the largest real estate direct lending platform launches in Europe. The business will focus on direct origination and secondary participations in whole loans, subordinate loans, preferred equity and other real estate backed investments across the UK and European markets.
AllianceBernstein believes that this is an opportune time for ECRED’s launch, “as the disruption created by COVID-19 has made traditional sources of capital harder to secure, resulting in an increased opportunity set and relevance for alternative lenders”. The launch follows the “success” of the firm’s US Commercial Real Estate Debt platform (CRED), currently overseeing nearly 6 billion dollars in investor commitments since its launch in 2013. The firm pointed out that this is a natural extension of its broader strategy of continuing to diversify and grow its Private Alternatives franchise.
Coffee will serve as Chief Investment Officer of the ECRED business. He will be joined by Shivam Rastogi, former Head of Deutsche Bank’s Debt Origination and High Yield Lending business in Europe; and Daniel Stengel, previously General Counsel of Tyndaris Real Estate. The team will be based in London and Frankfurt.
“Following the success of our US CRED business, Europe is the logical next step for expanding AB’s growing Private Alternatives franchise. We are delighted to be in business with Clark, who not only brings an impressive investment track record but also benefits from first-hand experience building a successful European private debt business”, said Matthew Bass, Head of Private Alternatives for AllianceBernstein commented.
Meanwhile, Coffee commented that they have secured a “great partner” in AllianceBernstein:“Their ability to raise significant capital in the midst of a global pandemic speaks for itself. The breadth of their operational expertise and investor relationships provides a strong foundation upon which we intend to build a leading European real estate debt business”.
For the second consecutive month, U.S. equities slipped in October as the economic recovery slowed and a lack of additional fiscal stimulus deal dented investor sentiment. A resurgence in coronavirus cases in Europe and America weighs heavily on an economic recovery, as investors fear another shutdown. Tech stocks trailed the broader market with underwhelming guidance and missed revenue expectations.
The end of the month saw a record high in COVID-19 cases for a week, which led to increasing restrictions in Europe. Despite the surge domestically in the US, resilient optimism around treatments and vaccine progress helped avoid another large market selloff.
October had plenty of political headlines including the nomination and confirmation of Justice Amy Coney Barrett, President Trump’s recovery from COVID-19 and the highly anticipated Presidential debates. As the election has been so close, it may lead to weeks of confusion, unrest, and litigation that could likely drag electoral uncertainty into next year.
Regardless of the final outcome of the US Presidential election, with Joe Biden’s victory, we are confident that our investment portfolio can benefit under the new administration. We will continue to use the upcoming market volatility as an opportunity to buy attractive companies, which have positive free cash flows, healthy balance sheets and are trading at discounted prices.
M&A activity remained robust in October as worldwide dealmaking totaled $420 billion, an increase of 68% from October 2019. Technology and energy were particularly active sectors for consolidation.
Column by Gabelli Funds, written by Michael Gabelli
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The global economy is recovering from the effects of the pandemic and corporate earnings are picking up, thanks in part to generous monetary and fiscal stimulus. Interest rates remain at low levels, and are expected to remain so for the long haul. History shows this is the kind of environment in which speculative grade credit does well.
The combination of improving economic and corporate earnings prospects and low debt servicing costs reduces the risk of default. Which means that high yield should continue to be one of the very few areas of the fixed income market where investors can still pick up a positive real return.
The economic picture is more encouraging than it has been for months. This follows a weak second quarter, when leverage among European high yield companies hit a multi-year high of 4.8 times, EBITDA dropped 47 per cent year-on-year and debt rose by 23 per cent (see Fig. 1). Recent data indicate that activity in Europe is now back to around 80 per cent of pre-Covid levels. Demand for cars, a leading indicator of economic growth, has bounced back to just 20 per cent below its six-year trends vs 80 per cent in the spring. We are therefore confident of seeing further positive surprises – both in macro-economic data and corporate earnings in the coming months. This has yet to be reflected by financial markets.
Prospects for speculative-grade companies look better still once fiscal and monetary policy are taken into account. The European credit market has benefited from unprecedent interventions from central banks and governments, which have stepped in speedily to protect viable businesses and limit the number of corporate defaults. The scale and speed of such interventions – which has included programmes such as furlough schemes and government guaranteed loans – have been impressive.
For their part, companies have strengthened their liquidity positions and balance sheets, by drawing on their credit lines, issuing new debt, cutting costs and reducing capital expenditure. The cash to debt ratio among speculative-grade companies in Europe has as a result risen from 10 per cent a year ago to 19 per cent in June 2020 (1).
Obviously not every company will come through this crisis unscathed – but the impact is likely to be less than originally expected. In March 2020, Moody’s central scenario assumed default rates of 7-8 per cent default rates for high-yield issuers. Since then, however, conditions have improved, prompting Moody’s to cut its default rate forecast to 4.9 per cent in August. There is a strong chance that defaults have peaked. Corporate Europe is in stronger health.
The opportunity set
Some investment opportunities are more attractive than others.
Bonds issued by French and German companies, for example. Among major developed nations, France and Germany led the way in terms of support for businesses with packages worth EUR 16.2 and EUR 14.3 billion respectively – more than double that of third-placed Italy (2).
The pandemic has also deepened the pool of attractive high-yield bonds. The economic fallout from Covid-19 has caused a spike in the number of fallen angels, companies that have just lost their investment grade status. In the first eight months of 2020, Europe saw some EUR 45 billion of fallen angels and that amount can be expected to nearly double by year-end (3). This creates a long term opportunity as many of these firms are strong, resilient businesses. The addition of fallen angels increases the size and improves the quality of the high yield market – augmenting an already large cohort of BB-rated companies.
This year’s pandemic shock has been different from the 2008 financial crisis as far as its impact on individual industries is concerned. In 2008-9, financials were the hardest hit; industrial companies also suffered as is common during recessions. This time, however, many factories were able to continue operating partly thanks to increased automation. Chemical and shipping companies fared much better in this crisis than in 2008-9. Instead, the economic impact was most felt by the services sector. Market pricing has yet to reflect this resilience in our view.
Elsewhere, in some of the hardest hit sectors like travel and retail, there is a tendency for all companies to get tarnished with the same brush despite possessing very different financial profiles. An online travel agency with limited fixed costs, for example, is in a far stronger position than a car rental operator. DIY shops have also held up relatively well as families spent more time at home and decided to improved their dwellings. Retailers with e-commerce operations have also proved resilient while those who rely on physical outlets have suffered.
Consequently, retail focussed real estate investment trusts (REITs) are among the worst hit, while residential REITs fared much better. The sports ban and closure of gaming avenues has benefited gaming companies with online presence.
With central bank and governments both focused on providing financial support that extends out by months rather than decades, shorter dated credit is particularly appealing. The high yield curve is nearly flat. For instance, Teva Pharmaceutical Industries’ 2027 bond is currently trading only 42bps wider that its 2023 bond (see Fig. 2). By investing in shorter maturities investors thus get similar return while taking on less duration risk (4).
We believe the flat curve reflects doubts about the sustainability of the economic recovery and corporate prospects. If such concerns turn out to be misplaced, the curve will likely revert to its usual upward-sloping shape, creating an additional source of return for short-term bonds.
Overall, then, the spread offered by short-term high yield bonds provides more than adequate compensation against the risk of default. We expect European short-term high yield credit will generate positive returns of 3-5 per cent in the next 12 months. As compared to other alternatives within fixed income, this is an opportunity not to shrink away from.
Opinion written by Prashant Agarwal,Senior Investment Manager specializing in High Yield in the Fixed Income team at Pictet Asset Management.
Notes:
(1) Morgan Stanley
(2) Deutsche Bank Research, “State-Aid Loans to High Yield Issuers”
(3) JP Morgan
(4) Duration measures how sensitive a bond’s price is to changes in interest rates.
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Foto cedidaNicolas Namias, CEO of Natixis.. Natixis Ends Its Partnership with H20 AM
Natixis Investment Managers has started negotiations with H20 AM to end their partnership. During the presentation of its quarterly results, the company revealed that the firm of Bruno Crastes is no longer a strategic asset for them.
In a joint communication, both asset managers explained they have entered into discussions to initiate “a progressive and orderly” unwind of their partnership. The process has to be considered by relevant regulatory authorities and will require regulatory approvals.
These discussions relate to a potential gradual sale of Natixis IM’s stake in its subsidiary and include plans for H2O AM to take over the distribution of its products over a transition period due to last until the end of 2021. The management company intends on giving a new direction to its development as the 10-year lock-up period provided for in its shareholder covenant with Natixis IM has come to an end, said the firms.
“In due course and in line with the regulatory process, H2O AM will make a further announcement regarding the impact of these proposals on its business, including its shareholding structure and changes to its governance approach”, they added in the press release.
This process will put an end to a situation that Natixis IM drags since 2019. In fact, last September, the French financial markets authority (AMF) asked H2O AM to suspend all subscriptions and redemptions in three of its funds: H2O Allegro, H2O MultiBonds and H2O MultiStrategies. The asset manager solved its liquidity problems with certain assets through a side pocket mechanism.
A new “European asset management leader”
Last week, Natixis also announced that it has completed with La Banque Postale the combination of their fixed-income and insurance-related asset management activities within Ostrum Asset Management. Both firms are reorganizing those businesses to give them a new dimension in an environment of persistent low interest rates.
“The closing of this combination on October 31 creates a European asset management leader with more than 430 billion euros in assets under management and over 590 billion euros under administration through its services platform as at end-September 2020”, they revealed in a press release.
The combined activities will be housed within Ostrum AM, owned 55% by Natixis through Natixis Investment Managers, and 45% by La Banque Postale as part of its asset management division. Ostrum AM will provide two distinct and independent offerings: asset management and investment services. In line with its client-centric organization, it is setting up two sales teams to manage all aspects of client relationships, one team for asset management and the other focused on its services platform.
