Next week, Investec Asset Management shall have the pleasure of organizing the eighth edition of its global investment conference, Investec Global Insights 2015. The asset management company will gather 250 delegates from 23 countries worldwide in London, with the aim of providing its clients with the most complete and updated analysis for making their investment decisions.
After the last twelve months, during which the market has undergone some significant changes, the content of the conference is more relevant than ever. Attendees from the United States, Latin America, Europe, UK, Middle East, Africa, and Asia will have the opportunity to attend several ‘Meet the Portfolio Manager’ sessions and interact with peers from major fund buyers from all around the world.
This year, some of the featured presentations will focus on the following topics:
Is it still worth investing in emerging markets?
Are developed markets looking stretched?
When will rates rise and what will be the impact?
How do you find sustainable sources of income?
Outside the purely financial field, the conference will feature the starring presentation of Francois Pienaar, captain of the South Africa National Rugby Union team from 1993 to 1996. He will share his experiences, which led the team to win the Rugby World Cup in 1995. In Invictus, the film based on this feat directed by Clint Eastwood, Pienaar is played by Matt Damon.
Richard Garland, Investec’s Managing Director, will act as conductor of the event for the duration of the conference.
For further information on the event’s agenda please consult the attached document.
CC-BY-SA-2.0, FlickrPhoto: OTA fotos. Japan: Goodbye Deflation?
Shinzō Abe had ambitious plans following his re-election as Prime Minister of Japan in 2012. He was prepared to pull all the levers available to him, in the form of radical economic and reformist polices, to end Japan’s ‘lost decades’ of crippling deflation. While the success of his reformist policies might be up for debate, his monetary and fiscal stimulus plans have finally seen both inflation and the stock market moving in the right direction – upwards (see chart below). “Abe ‘gets it’: everything that can be done to end deflation and return to growth must be done. And the only way to dig yourself out of deflation is to aggressively inflate your way out of it”, writes the Japanese Equity Team at Henderson.
These policies have helped Japanese equities to become one of the best performing asset classes so far this year, albeit at the expense of a significantly weakened yen. One particular beneficiary has been financials, point out Henderson. In recent years the sector has been buoyed by banks finally writing-off legacy bad loans, leaving their balance sheets stronger than most of their developed world counterparts. In addition, the banks’ Tier 1 capital ratios have been buoyed by the surge in the equity market.
For most western banks, this capital tends to be held in low-risk fixed income assets, with a low percentage held in equities. However, in Japan a significant proportion is held in non-financial domestic equities. In a reflationary environment, this surge in equity shareholdings has bolstered the capital of banks, leaving them far more sufficiently capitalised to withstand any unforeseen shocks, while also being well positioned to benefit from any recovery in the domestic economy.
The road ahead
Longer term, financials are set to benefit from any rise in interest rates, which have remained ultra-low in Japan for decades. A rise – albeit likely a very small and gradual one – would allow banks to earn a higher net interest margin. That is, the margin on what can be earned from the lending activities of banks, versus what is paid to depositors, increases. However, this currently feels like a distant prospect, with markets not forecasting a rise in rates until the second half of 2016.
“In the meantime, we see opportunities in those domestically-orientated companies that are likely to benefit from a recovery in the economy. Most notably the service and retail sectors should benefit, following the lull induced by the 2014 consumption tax hike, which saw the tax on goods and services rise from 5% to 8%. Stocks we hold in these sectors include Rakuten, Japan’s leading ecommerce company, and Fujitsu. The latter has new management, which we hope will focus more on its highly cash-generative core IT service business”, explains the Japanese Equity Team.
“It is too early for Abe to claim economic victory. However, should he continue with his economic and reformist policies, we could finally see a return to something approaching ‘normality’, much to the relief of the country’s ever-patient investor base”, concludes.
Photo: Deurim Poyu. Economic Uncertainties in The U.S. Keeping CFOs Up at Night
The nation’s finance chiefs are relatively optimistic about the future, but remain cautious in the face of domestic uncertainties like Congressional inaction on tax reform. This is according to the latest edition of Grant Thornton LLP’s CFO Survey, which reflects the insights of more than 900 chief financial officers and other senior financial executives across the United States.
More than half (55 percent) of CFOs say uncertainty in the U.S. economy is a major concern that could impact their businesses’ growth in the next 12 months. This is despite the fact that most CFOs expect the U.S. economy overall to remain the same (49 percent) or improve (43 percent) in the next 12 months, suggesting that factors other than the overall health of the economy are presenting a barrier to growth.
“While the U.S. economy has stabilized, our data suggest that uncertainty related to other economic factors is making strategic planning difficult for financial executives,” said Randy Robason, Grant Thornton’s national managing partner of Tax Services. “CFOs are looking to Washington, regulators and the Federal Reserve for answers and getting nothing but indecision.”
Business leaders’ concern over these economic uncertainties appears to have increased significantly since earlier this year. In May 2015, only net 22 percent of U.S. business leaders saw economic uncertainty as a major constraint on their ability to grow in the coming year, according to the Grant Thornton International Business Report.
Particularly frustrating for CFOs is the dysfunction in Congress over a bill to extend more than 50 popular tax provisions that expired at the end of 2014.
Meanwhile, good news for finance professionals: CFOs are aggressively looking to develop and hire new talent. The vast majority (70 percent) of CFOs say finding and retaining the right talent is a critical need for supporting growth. Forty percent expect their business’s new hiring to increase in the next six months; 52 percent expect hiring to remain the same. A majority of CFOs (67 percent) plan to increase salaries in the coming year, holding steady since 2014.
CC-BY-SA-2.0, Flickr. Put Your Bond Manager to the Liquidity Test
Bond market liquidity is drying up—something every investor and financial advisor should take seriously. But liquidity risk can also provide an additional source of returns. The trick is knowing how to manage it, point out AB.
This is why picking the right manager is critical. Before entrusting money to anyone, investors or their advisors should make sure prospective managers understand why liquidity is evaporating and have an investment process that can effectively manage this growing risk.
In AB’s view, settling for anything less will make it harder to protect your portfolio from the damage less liquid markets can cause—and to seize the opportunities they offer.
Here are some questions that Douglas J. Peebles, Chief Investment Officer and Head at AllianceBernstein Fixed Income, and Ashish Shah, Head of Global Credit, feel investors should be asking.
1) To what do you attribute the decline in liquidity?
For most people, an asset is liquid if it can be bought or sold quickly without significantly affecting its price—something that’s become more difficult lately.
Many market participants blame post–financial crisis banking regulations. Designed to make banks safer, the new rules have also made them less willing to take risks. Consequently, most banks are no longer big buyers and sellers of corporate bonds. In the past, banks’ involvement—particularly in high yield—helped keep price fluctuations in check and meant investors could usually count on them as buyers when others wanted to sell.
But because they affect the supply of liquidity, regulations are only part of the story. Several other trends have drastically increased the potential demand for liquidity. These include investor crowding and the growing use of risk-management strategies that use leverage and make it hard for investors to ride out short-term volatility.
In one way or another, these trends have driven investors around the world to behave in the same way at the same time. That distorts asset prices and suggests investors may find that their asset isn’t liquid when they need it to be. If a shock hits the market and a fire starts, each of these trends may act as an accelerant.
Managers who think regulation is the only cause of the liquidity drought probably aren’t seeing the big picture. That could make your portfolio more vulnerable in a crisis.
2) Has your investment process changed as liquidity has dried up?
Since it’s risky to assume that liquidity will be there when it’s needed, a manager should be comfortable with the notion of holding the bonds in his or her portfolio for a long time—possibly to maturity (Display). Since that requires deep analysis and a selective eye, ask about a manager’s credit research process and how it has changed.
Managers should also be reducing the risk of getting trapped in crowded trades by taking a multi-sector approach. This way, if selling spikes in one overcrowded corner of the credit market—let’s say emerging markets or high yield—investment managers can quickly and easily move into investment-grade bonds or another sector where liquidity is more plentiful.
Staying out of crowded trades also puts investors in a position to make decisions based on value, not popularity. Managers who do this—and who keep some cash on hand—will be in a better position to swoop in and buy attractive assets when others are desperate to sell.
This ability to be agile and take the other side of popular trades can be a crucial advantage when other investors have to sell. Think of those who used the 2013 “taper tantrum” to buy attractive bonds when everyone else was hitting the sell button. For providing liquidity when others needed it, they were compensated with higher yields.
3) How are you dealing with volatility?
Volatility is a fact of life in markets, and investors should expect more of it as liquidity dries up. The best thing a manager can do is to be prepared.
For instance, does the manager buy “call” or “put” options—the right to buy or sell an asset in the future at a predetermined price to protect against a big liquidity-induced market move? In our view, doing so is a lot like spending $3 on an umbrella when the sun is shining. After all, it’s going to rain eventually.
The alternative—waiting until volatility rises and prices fall before selling—is akin to buying the umbrella after the storm has started. Chances are you’ll pay $5 for it—and you’ll get soaked as you run through the rain to get it.
4) What role do traders play?
Historically, traders at asset management firms mostly executed orders. But as banks have retreated from the bond-trading business, the responsibilities of buy-side traders have grown. Managers who embrace a hands-on role for traders are more likely to turn illiquidity to their advantage.
A few questions to consider: Do traders play an active role in the entire investment process? Are they skilled enough to find sources of liquidity when it’s scarce and make the most of opportunities caused by its ebb and flow? Do traders understand the manager’s strategies?
If a manager can’t answer these questions, advisors should find someone else to oversee their clients’ assets.
Photo: Rusan Estudio / Courtesy Photo. Stelac Advisory Services Hires Gabriel Garcia, Carlos Machado and Nacho Contreras, and Opens an Office in Miami
Stelac Advisory Services, a multi family office based in New York co-founded and headed by Carlos Padula, has closed three high level contracts over the past two months.
Gabriel Garcia Daumen joinsfrom UBS WM Americas International, where he was responsible for the selection of offshore mutual funds and hedge funds for the UBS platform. He joined the team as Head of Research and Direct Investments last July. Before joining UBS WM in 2007, Gabriel Garcia worked at PWC and prior to that, from 1999 to 2003, at Deutsche Bank, where the founders of Stelac Advisory Services worked before founding the company. Gabriel Garcia shall carry out his duties from New York headquarters.
Carlos Machado joined the Stelac team this month as Director, Relationship Manager, and Head of the Stelac office in Miami, which opened this August. Machado has worked for just under four years in BigSur Partners, a multi family office based in Miami, where he carried out advisory work. He previously worked at Standard Chartered during the years 2010 and 2011, although the bulk of his career, from 2003-2010, was carried out in various areas of Deutsche Bank in the Americas region and in Switzerland.
Nacho Contreras, holder of an MBA from IESE and a PHD in Economics and Human Resources, and an expert in corporate finance and consulting, has joined the Stelac team as Head of the Human Resources division and to lead relationships with endowments and foundations.
Carlos Padula, Managing Partner of Stelac, was Managing Director and CEO of PWM Latin America at Deutsche Bank until 2007, the year in which he founded Stelac Advisory Services together with Maria Zita La Rosa and Karla Cervoni, who also worked at Deutsche Bank with UHNW Latin American clients.
According to information filed with the SEC, Stelac Advisory Services has US$1.5 billion in assets under management and advisory, belonging primarily to UHNW clients from international families.
Photo: Santi Villamarín. European Equities: A Return To Normality? What Is The New Normal?
Any attempt to gauge where European markets are in terms of ‘normality’ is fraught with dangers. Inevitably, and rightly, everyone has a different understanding of what is ‘normal’.
My working premise for some years has been that Europe is a low growth area. When the Henderson Horizon Pan European Equity Fund was launched in November 2001, we said investment opportunities would come from how governments, companies, individuals, and investment styles change rather than because of ‘growth’ per se. One of the reasons for that stance was years of frustrating meetings with asset allocators who would quickly write off Europe in preference for higher growth in emerging markets or Asia, while ignoring what consumers in those markets aspired to or were already buying.
Low for longer
Growth in Europe is now finally picking up. Yet because growth in the UK and US started recovering quite a lot earlier, those markets are looking for an opportunity to return interest rates to a more ‘normal’ level. This may well happen within the next 6 to 12 months, and that fact should not be spooking the market as much as it currently is. It is a ‘good’ thing; but to expect the European Central Bank (ECB) to follow suit straight afterwards is utterly wrong. European economic growth is better, but still weak. There is very little pricing power and inflation is still way below the ECB target of 2%. While core inflation* has now accelerated to 1.0% (see chart), it is likely to remain below target for some time given oil and raw material price developments.
The crux of the issue is that the ‘new normal’ might just be a world of low growth. Now that China is increasingly recognised as growing at a slower pace, and emerging markets are suffering due to weaker currencies and lower demand worldwide, there is no region where higher growth can compensate for lower growth in other regions of the world. This goes some way to explaining the sustained popularity of higher-rated growth stocks, although given the premium investors have placed on such stocks, it only takes a relatively small earnings shock to see these share prices fall considerably.
In a world of close to no growth, ‘only’ 10% revenue growth can be perceived as ‘high’ growth. There is nothing ‘normal’ about that! Against this reshaped backdrop, our approach remains focussed on investing in quality, reliable, cash-generative businesses that should perform well through a range of economic cycles.
Tim Stevenson is Director of European Equities as Henderson and has over 30 years’ investment experience.
Robeco Group announces the departure of Roderick Munsters, who will resign as Chief Executive Officer and member of the Management Board. Mr. Munsters will leave once a smooth handover to his successor has been completed.
Roderick Munsters, said: “Two years after the acquisition by our new shareholder, Robeco is in good shape with a solid financial performance and a strong long-term strategy. This is therefore a natural moment for me to hand over my responsibilities to new leadership. Although I will stay with the company for a few more months to ensure a seamless transition, I would like to take this opportunity to thank all my colleagues for six successful years of working together to achieve great results for our clients.”
Dick Verbeek, Chairman of the Supervisory Board, said: “We are grateful to Roderick for his commitment to Robeco as our CEO over the past six years and his contribution to the development of the company, including the successful transition process following the acquisition of a majority stake in Robeco by ORIX. We wish him every success in pursuing his professional ambitions.”
Makoto Inoue, President and Chief Executive Officer of ORIX Corporation and member of Robeco’s Supervisory Board, said: “I want to thank Roderick for his contribution and the commitment he has shown in leading Robeco. Under his leadership the company has shown strong results and he has built a solid foundation for Robeco’s future growth.”
The Supervisory Board, working in close cooperation with Robeco’s shareholders, will name a successor for Mr. Munsters in the near future. An official announcement will be made once this process, including obtaining all necessary regulatory approvals, is completed.
Photo: Dennis Jarvis. Man GLG Launches Unconstrained Emerging Equity Strategy for Simon Pickard and Edward Cole
Man GLG, the discretionary investment management business of Man Group, announced that it has launched an unconstrained emerging equity strategy.
Available from September 1st, the strategy – run by co-portfolio managers Simon Pickard and Edward Cole, who joined Man GLG from CarmignacGestion in May 2015 – focuses on seeking out attractive opportunities for investors over the longer-term, with a view to generating returns above the MSCI Emerging Markets Free Index.
The long-only strategy seeks to blend value, quality, momentum and macro styles to create an actively managed and diversified portfolio of emerging market securities which the managers believe are mispriced on a long-term cashflow-derived valuation basis.
The strategy will typically hold around 50 stocks from a universe of around 300 stocks which conform to the managers’ screening process, with a pipeline of potential candidates aimed at ensuring only the most attractive opportunities are included in the portfolio.
Pickard and Cole have extensive experience of investing in emerging market securities. Pickard was formerly head of emerging market equities at Carmignac Gestion, running its large and mid-cap global emerging markets strategies for the last six years.
Cole was formerly a portfolio manager at Carmignac Gestion, co-managing its emerging market multi-strategy portfolio. He has 14 years of experience in financial markets and has previously worked as a co-manager for emerging markets strategies at Ashmore Group and Finisterre Capital.
Teun Johnston, Co-CEO of Man GLG, said: “Launching an unconstrained emerging equity strategy forms a key pillar in the development of Man GLG’s Long Only business. Simon and Edward are highly experienced investors, with significant trading expertise in emerging markets and we believe that this, combined with Man GLG’s robust infrastructure, will create a compelling proposition.”
Simon Pickard, Co-Portfolio Manager, said: “Businesses situated in emerging markets have the opportunity to exploit considerable structural under-penetration for their goods and services. This opportunity is undiminished by the current economic climate, and we see attractive entry points in terms of valuation. Against this backdrop we believe our stock-specific, active approach has the potential to generate attractive risk-adjusted returns for investors.”
Edward Cole, Co-Portfolio Manager, added: “Global deflationary forces are creating considerable volatility in emerging markets, but the situation will not remain like this indefinitely. Indeed such a backdrop presents what we view as a significant opportunity for us to build up a portfolio of stocks whose potential return on capital is high and which we believe are valued at much more attractive free cashflow yields than the market”
Photo: Jeffrey Zeldman
. SL Green Acquires Eleven Madison Avenue in the Biggest Real Estate Deal in New York
SL Green Realty, New York City’s largest commercial property owner, announced that it has entered into a definitive agreement to acquire Eleven Madison Avenue in New York City for $2.285 billion plus approximately $300 million in costs associated with lease stipulated improvements to the property. The building is being sold by a joint venture of The Sapir Organization and CIM Group. The transaction is expected to close in the third quarter of 2015, subject to customary closing conditions.
Eleven Madison Avenue is a 29-story, 2.3 million square foot Class-A, Midtown South office property that was built in 1929 and originally served as the headquarters of Metropolitan Life Insurance Company. After a $700 million modernization in the 1990s, it became the North American headquarters of Credit Suisse, which continues to be the largest tenant in the building today. It also will serve as the new headquarters for Sony Corp. of America. The balance of the building is occupied by Yelp, Young & Rubicam, William Morris Endeavor Entertainment, and Fidelity Investments, along with the Eleven Madison Park restaurant, which earned Three Stars from the Michelin Guide
The property features an art-decodesign highlighted by an Alabama limestone exterior, elegantly appointed main lobby, state of the art building systems, and large floor plates. It is also on the National Register of Historic Places.
SL Green Co-Chief Investment Officer, Isaac Zion, commented, “Eleven Madison Avenue is one of the best assets in New York City’s vibrant Midtown South submarket, with floor-plate sizes, amenities, and a robust infrastructure that are truly unique to the area. Occupying a full block across from Madison Square Park, the building has direct connectivity to One Madison Avenue, a 1.2 million square foot building that is leased to Credit Suisse and also owned by SL Green.”
“After the past two years of repositioning the asset and value creation through leaseup and renovations, we are pleased to consummate this sale with SL Green”, said Alex Sapir, President of the Sapir Organization. “We trust that they will continue to own and operate this trophy asset in the same manner that we have over the past 12 years.”
The law firm of Greenberg Traurig, LLP represented SL Green. The seller was represented by Darcy Stacom and Bill Shanahan of CBRE, Inc. along with the law firm of DLA Piper (US).
Photo: Sonja. Cayman Islands is Confident of Being Granted AIFMD Passport
The Cayman Islands is confident that the pan-European marketing ‘passport’ will be extended to alternative investment funds (AIFs) set up in the jurisdiction, according to the Alternative Investment Management Association (AIMA), the global hedge fund industry association.
Cayman, where a high percentage of offshore hedge funds are registered, still awaits assessment by the European Securities and Markets Authority (ESMA). It was not included in the initial assessments which saw ESMA recommend the passport for Jersey, Guernsey and Switzerland under the Alternative Investment Fund Managers Directive (AIFMD).
But AIMA said that Cayman was well-placed to have a successful review in the near future.
Cayman has already entered into the requisite co-operation arrangements with the major EU investment securities regulators and the necessary tax information exchange agreements with EU governments as required by the AIFMD, AIMA said. In addition, the Cayman Islands Government has been developing an AIFMD compliant opt-in regime to ensure that the jurisdiction can continue to meet the needs of Cayman-based alternative investment fund managers who want to market funds into the EU under the passport.
AIMA said it was in the interests of institutional investors in Europe and hedge fund managers globally that Cayman be granted the passport.
Jack Inglis, CEO of AIMA, said: “The global industry as a whole needs Cayman AIFs to be approved under the AIFMD passport to ensure that pension funds and other European institutional investors can continue to benefit from investing in some of the world’s leading alternative investment funds. We are confident that Cayman will be granted the passport since the new Cayman regime looks similar to those in the jurisdictions that have already obtained favourable assessments.”
Alan Milgate, Chairman of AIMA Cayman, said: “ESMA’s decision should not be misinterpreted. Cayman has simply not yet been assessed, and has certainly not been adversely opined on, or excluded by ESMA. We look forward to the Cayman Islands being assessed positively in ESMA’s ongoing review of additional non-EU jurisdictions and that AIFMs based in the Cayman Islands will continue to benefit from evolving legislation which is both flexible and adaptable.”
