Aberdeen AM: “It is Becoming Important to Reconsider the Fact of Not Having any Exposure to Japanese Equities”

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Aberdeen AM: “Empieza a ser importante replantearse el no tener nada de exposición a Japón”
Over 30 professional investors attended Aberdeen Asset Management’s presentation on Asian Equities in Miami. Aberdeen AM: "It is Becoming Important to Reconsider the Fact of Not Having any Exposure to Japanese Equities"

Over 30 professional investors attended Aberdeen Asset Management’s presentation on Asian Equities in Miami last month. Adrian Lim, CFA and senior investment manager for the management company, shared his views on the effect of US rates and the evolution of the US dollar over Asian equity assets, as well as the impact of falling oil prices and the effectiveness of reforms. During the event, the management company submitted its equity strategies for the Asia Pacific region and Japan. Following the presentation, attendees enjoyed a cocktail on the terrace of one of the most emblematic buildings in Downtown Miami, the heart of its financial center.

China vs Hong Kong

Aberdeen AM is known as a stock picking management company. Therefore, Lim maintains that “quality is the first thing we look for when selecting an asset.” One example that epitomizes this philosophy is that Aberdeen’s Asia Pacific strategy portfolio has a debt to equity ratio that is half of that recorded by its benchmark. As well as focusing on asset quality, Aberdeen looks for companies with attractive valuations to create concentrated portfolios (the Asia Pacific strategy portfolio currently has about 55 assets), in which stability is the main priority. “Of the Top 10 holdings on our portfolio, six have been in the portfolio for over 10 years,” Lim points out.

In this strategy, which does not include Japan, Aberdeen now has an overall weight in China and Hong Kong similar to its benchmark. Separately, however, exposure to Hong Kong is higher than the index, while exposure to continental China is lower. Lim again stressed the importance of quality when selecting stocks: “Chinese companies are generally of lower quality, Chinese rule of law is less strict, and there has been cheap access to capital in China for many years, and therefore companies have not had to focus too much on getting a good return on their business; they have become very large, but really not too profitable.”

Citing a Korean cellular phone manufacturer as an example, with very strong exposure in the cell phone market in China, Lim also adds that “it is not necessary to invest in shares listed in China to access Chinese domestic consumption.”

A Look at the Japanese Market

When talking about Japan, Lim says that “talking to an investor who has spent 20 years investing in Japan, and who, fed up with not profiting from their investment, most likely left the market at the beginning of this last rally, is not the same as talking to someone who has been investing in Japan only during the last three years, and who, therefore, has had a much better experience.”

Can we believe that it will be different this time? According to Lim, Shinzo Abe has been in power longer than most recent governments. “His commitment to introduce inflation in the economy is tremendous, and even if its not very popular with the Japanese population, he has managed to get reelected and to push a number of reforms, although he still has a long way to go.” In any case, as pointed out by the Senior Investment Manager, “it is becoming important to reconsider the fact of not having any exposure to Japanese equities.”

Even though the environment in Japan is currently more positive, we mustn’t forget that we are talking about an economy whose growth remains weak, and so “we choose exporter stocks such large tobacco or automotive manufacturers, whose behavior does not depend on domestic consumption, or companies selling components and materials to Japanese companies whose final market is an exporter, so that ultimately the demand comes from outside,” says Lim.

In terms of valuation, Lim points out that we have to take into consideration that we are talking about a developed market with high multiples, although not as high as those in Europe or the US.

India, an Emerging Market in its Purest Form

When talking about India, Lim explains that it is the purest example of an emerging market in the region. “It’s a challenging market, but at the same time, very subjective, with much ‘noise’ for the investor,” he says. According to Lim, the Modi government has been the best for the country in recent years, but you cannot ignore the fact that the Indian economy is slowing down, “and Modi cannot do much to prevent it; we cannot expect Modi to work an economic miracle for the whole of India such as the one he orchestrated in the state of Gujarat, of which he was governor before being elected as Prime Minister.” In such a market, it is particularly important to be a good stock picker: “If in Japan we are more inclined towards exporting assets, stock selection in India is purely directed towards the domestic consumer market,” says Lim.

Global ETP Flows of $36.1bn in March Ensured that 2015 Began With the Best Opening Quarter on Record

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Los flujos globales de ETP sumaron 36.100 millones de dólares en marzo, consolidando el mejor trimestre de la historia
Photo: Bert Kaufmann. Global ETP Flows of $36.1bn in March Ensured that 2015 Began With the Best Opening Quarter on Record

Global ETFs gathered $36.1bn in March to lift Q1 flows to $97.2bn, nearly triple the total from Q1 2014. The figures came largely from investor demand for non- U.S. equities, whereas the all-time high of $138.0bn from Q4 2014 was concentrated in U.S. equities. This demonstrates the ability of the ETP industry to respond quickly to changing market conditions while maintaining strong growth. Only one other quarter outside of the past two has ever topped asset gathering of $100bn, showed BlackRock ETP Research.

March was driven by accelerating non-U.S. developed markets equity flows of $32.6bn, nearly as much as the prior two months combined. Year-to-date flows of $71.0bn have almost reached the full-year total from 2014, spurred on by attractive valuations in Europe and Japan relative to the U.S. The divergence of increasingly accommodative ECB and Bank of Japan monetary policy with that of the Fed has also been a key factor.

Flows for Europe and Japan, as well as broad developed markets (EAFE), have benefitted significantly from currency-hedged equity funds, which had a record month gathering $13.4bn. This trend is expected to persist. The consensus is the U.S. dollar is in the midst of a strengthening cycle and these cycles have historically lasted for six to seven years.
 

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Europe equity established a new monthly high of $14.8bn. While pan-European equities led with $13.4bn, German equities added $1.4bn and have already captured $4.8bn year-to-date.

“Investors recognized attractive valuations in European equities following the announcement of the European Central Bank’s ambitious quantitative easing program, adding $36.5bn into pan-European ETFs in Q1. European-listed ETFs are close to reaching $500bn in assets, as investors from Europe, Asia and Latin America added $34.2bn of new flows in Q1, the best quarter ever for the European ETF industry”, said Amy Belew, global head of ETP research at BlackRock.

Japan equity brought in $8.3bn, the second highest monthly total ever. Flows were diversified across Japan-, U.S.- and Europe-listed funds. Japanese stocks retain upside even as the Nikkei 225 index approaches its highest level in 15 years. Corporate governance reforms have shown progress and pensions have announced further reallocation of assets to equities.
 

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U.S. equity flows improved by $6.2bn in March, helped by the Fed indicating after its March meeting that though rates may soon rise, the pace could be slower than previously expected. It was the second consecutive month of inflows, but year-to-date redemptions are still ($8.4bn) due to the impact of large cap weakness during January.

Emerging markets equity outflows resumed, hitting ($7.3bn) after stabilizing briefly in February. Broad EM equity and China equity redemptions overwhelmed a thirteenth consecutive month of India equity inflows.

Fixed income flows stayed ahead of record pace for the year, but slowed to $4.3bn in March. Appetite for European fixed income remained healthy as the ECB began the bond buying program announced in January. Flows totaled $3.6bn across sovereign as well as high yield and investment grade corporate bonds.

U.S. fixed income, however, had modest outflows of ($0.2bn). Investment grade corporate and broad U.S. funds each gathered $1.1bn, but high yield corporate momentum from recent months stalled and U.S. Treasuries experienced outflows of ($3.2bn).

Worldwide Investment Fund Assets Reach All-Time High at EUR 28 Trillion in Q4

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Los activos de los fondos de inversión a nivel mundial se situaron en un nuevo máximo histórico a finales de 2014
Photo: Jeff Belmonte. Worldwide Investment Fund Assets Reach All-Time High at EUR 28 Trillion in Q4

The European Fund and Asset Management Association (EFAMA), has released its latest international statistical release containing the worldwide investment fund industry results for the fourth quarter of 2014 and the whole year 2014. 

Investment fund assets worldwide stood at a new all-time high of EUR 28.29 trillion at end 2014, reflecting growth of 3.9 percent during the fourth quarter and 18.9 percent since end 2013. In U.S. dollar terms, worldwide investment fund assets totalled US$ 34.35 trillion at end 2014

Worldwide net cash inflows increased in the fourth quarter to EUR 335 billion, up from EUR 290 billion in the third quarter, thanks to strong net inflows to worldwide money market funds.

Long-term funds (all funds excluding money market funds) recorded net inflows of EUR 220 billion during the fourth quarter, slightly down from the EUR 223 billion registered in the previous quarter.

  • Equity funds attracted net inflows of EUR 44 billion, up from EUR 24 billion in the third quarter.
  • Bond funds posted reduced net inflows of EUR 63 billion, down from EUR 79 billion in the previous quarter.
  • Balanced funds also registered reduced net sales of EUR 52 billion, down from EUR 72 billion in the third quarter.
  • Coincidently, long-term funds registered net inflows of EUR 68 billion in both the United States and Europe during the fourth quarter.
     
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Money market funds registered net inflows of EUR 115 billion during the fourth quarter, compared to EUR 67 billion in the third quarter of 2014. This result is largely attributable to positive net sales recorded in the United States of EUR 98 billion, whereas Europe registered net outflows during the quarter of EUR 10 billion.

Overall in 2014, worldwide investment funds attracted net sales of EUR 1,169 billion, up from EUR 848 billion in 2013. Worldwide long-term funds registered net inflows of EUR 1,015 billion in 2014, as all categories of funds registered net inflows during the year. The United States recorded net inflows into long-term funds of EUR 302 billion, with Europe registering net inflows of EUR 471 billion.

At the end of 2014, assets of equity funds represented 40 percent and bond funds represented 22 percent of all investment fund assets worldwide. Of the remaining assets money market funds represented 13 percent and the asset share of balanced/mixed funds was 12 percent.

The market share of the ten largest countries/regions in the world market were the United States (51.2%), Europe (28.2%), Australia (4.7%), Brazil (4.4%), Canada (3.7%), Japan (3.1%), China (2.1%), Rep. of Korea (1.0%), South Africa (0.5%) and India (0.4%).

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RobecoSAM Launches Impact Investing Platform

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RobecoSAM pone en marcha su plataforma de inversiones sostenibles
Photo: Woodley Wonder Works. RobecoSAM Launches Impact Investing Platform

RobecoSAM, the investment specialist focused exclusively on Sustainability Investing (SI), announced the launch of its impact investing offering. RobecoSAM’s Environmental Impact Monitoring tool is the first of a broad suite of impact investing solutions to be released by the Company. The platform will leverage RobecoSAM’s expertise in SI including its proprietary corporate sustainability database, and will cater to institutional investors seeking both societal and financial returns on their investments.

Environmental Impact Monitoring: Quantifying Portfolio Impacts

RobecoSAM’s Environmental Impact Monitoring tool enables investors to quantify, communicate and optimize the environmental impacts of their listed equity and corporate bond portfolios. It measures the impact of investors’ portfolios on a series of tangible environmental indicators and indicates the magnitude of their portfolios’ environmental impact per invested dollar. The key quantitative indicators screened for are: greenhouse gas (GHG) emissions, energy consumption, water use and waste generation. The data can subsequently be used to enable investors to make better informed decisions on how to optimize their portfolios in order to maximize the positive or limit the negative environmental impacts of their investments.

Michael Baldinger, CEO, RobecoSAM: “The launch of our impact investing platform reflects RobecoSAM’s commitment to SI and is a response to investors’ increasing interest in investing with social and environmental improvement in mind. With 20 years’ experience in sustainability investing, no one is better positioned to bring a comprehensive impact investing platform to the market than RobecoSAM.”

Daniel Wild, Head of SI Research & Development, RobecoSAM: “Our Environmental Impact Monitoring tool draws on RobecoSAM’s deep sustainability investing expertise and unique corporate sustainability database to measure the environmental impact per invested dollar of investors’ portfolios. We use this information to optimize investors’ listed equity and corporate bond portfolios and achieve positive environmental impact without compromising financial returns.”

Environmental Impact Monitoring Leverages RobecoSAM’s SI Expertise

The Environmental Impact Monitoring tool uses the data collected from RobecoSAM’s Corporate Sustainability Assessment (CSA) and long-standing experience in analyzing financially relevant environmental data. Based on its CSA, an annual ESG analysis of more than 2,900 listed companies, RobecoSAM has compiled one of the world’s most comprehensive sustainability databases. RobecoSAM’s proprietary research and sustainability insight, gained through its direct contact with companies, serve as the foundation for measuring and monitoring the impacts of listed equity and corporate bond portfolios.

Emerging Market Currencies Face Renewed Pressure

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Las divisas emergentes se enfrentan a nuevas presiones
Photo: Ged Carroll. Emerging Market Currencies Face Renewed Pressure

The outlook for emerging market debt (EMD) is two-sided, said INM IM in its las market analysis. On the one hand, the global liquidity environment remains benign, thanks to low developed-market bond yields and a limited risk of rising yields, particularly in Europe and Japan. On the other hand, EM endogenous factors remain weak, as growth continues to struggle and reforms are still unconvincing.

Global liquidity still very supportive

The liquidity environment for EMD has remained supportive in the past few months. Even in the past weeks, when US bond yields rose by around 40 basis points, the search for yield remained strong. Hard-currency debt (EMD HC) benefited, as did high yield credits in developed markets. “As US bond yields rose and market expectations for the first Fed rate hike moved from autumn to summer, hard-currency debt clearly outperformed local-currency debt. A lot of this outperformance can be explained by the rebound of the oil price since the last week of January, as EMD HC had suffered relatively strongly from the sharp drop in oil prices. But the deteriorating prospects for EM currencies have also played a role”, explained Jacco de Winter, senior financial editor at the Dutch firm.

EM growth momentum has deteriorated

Two things have changed in the past few weeks, said de Winter. Firstly, EM growth momentum has deteriorated sharply. “Our own EM growth momentum indicator has declined sharply in the past weeks, after being stable at the neutral mark for several months. Of the 18 markets in the index, only Thailand, Chile and Mexico have a positive growth momentum now. The other 15 are negative or neutral. The worst momentum can be found in China, Indonesia and Russia”.

Secondly, monetary easing in the emerging world has become more pronounced, with recent interest rate cuts by Indonesia and Turkey. Twelve of the main 16 emerging economies are now on an easing path. This is the result of weak growth and falling inflation, and because policy makers want weaker exchange rates to compensate for lower raw material prices and/or lost competitiveness. Lower raw material prices continue to put pressure on many emerging economies, particularly the fundamentally weak ones. “This explains why in the past weeks Nigeria stopped defending its currency and Azerbaijan decided to devalue its currency (by 33%!) for the first time since 1999”, stated ING IM expert.

Volatility in EM currencies has increased

“The combination of weaker growth and overconfident central banks is a bad one for EM currencies, which have become more and more volatile recently. The fear that we have had for years now – that EM exchange rates eventually will have to depreciate much more to fully reflect deteriorated EM fundamentals – is becoming more relevant”, argued de Winter.

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Central banks should be more cautious

“In our view, EM central banks are counting too much on carry- trade-related hot money inflows. With the first Fed rate hike now only half a year away – this is what the Fed fund futures have priced in – countries like Turkey and Indonesia, with their high current account deficits and fragile domestic banking systems, should be more cautious. Especially since recent capital flows to the emerging world have already been weak”, afirmed ING in its analysis.

“Policy makers see no end to the growth slowdown. At the same time, inflation is declining. This probably makes them think that more currency depreciation is desirable, instead of a risk”, concluded.

Variations on the Scarcity Theme

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Crecimiento, reformas, rentabilidad: 2015 será un año de escasez
CC-BY-SA-2.0, FlickrPhoto: Chris Potter. Variations on the Scarcity Theme

The first part of 2015 has confirmed the maxim we described in our January: global economic growth remains weak and vulnerable to deflationary pressures, but investors are suddenly regaining their appetite with stronger monetary intervention imminent, this time on the part of the European Central Bank.

It would be wrong for an asset manager to deprive his customers of a particularly enterprising central bank’s generosity. Our portfolios are taking full advantage of the Draghi effect, especially through our positioning in European bonds and the dollar, as well as increased exposure to European equities.

However, our analysis of long-term global economic trends leaves us convinced that market performance will remain linked to the rarity of growth, yields, reforms, political leadership and inflation, a scarcity counterbalanced by the abundance of debt and central banks’ liquidity injections. In addition to the tactical management of equity, fixed income and currency exposure levels, this diagnosis encourages us to hold a majority our investments in the few assets that offer predictable growth and a safe medium-term return.

Scarcity of growth

It is worth remembering the circular origin of the persistent growth deficit affecting most of the world’s leading economies: over- indebtedness is thwarting the recovery of private investment as well as any strong public stimulus measures, and the weak growth that results is preventing over- indebtedness from falling. The addition of often unfavourable demographic trends means that the long-term outlook for global growth remains mediocre.

The overall trend, which to varying degrees applies to Europe, Japan, the United States and emerging markets, does not rule out mini-cycles in the meantime. For example, the eurozone will go through a growth spurt in 2015 thanks to its weaker currency, lower energy costs, cheaper bank loans and slower fiscal tightening.

Economic growth forecasts for the eurozone this year could be corrected slightly upwards, while revisions had consistently been in downward direction in the last year. However, it is still very hard to imagine growth of much more than 1.5% this year, which would be insufficient to reduce the overall level of debt or improve the potential growth rate.

It is worth mentioning also that the euro’s weakness will first and foremost benefit the area’s biggest exporter, Germany, widening economic divergence within the eurozone. In the United States, the Fed’s discomfort is palpable as it prepares to tighten its monetary policy while the rest of the world is easing theirs. Should a Fed funds rate hike need to be quickly reversed because the US economy shows new signs of weakness, this would cast doubt on the credibility of Janet Yellen’s monetary guidance.

Meanwhile, China’s growth is at best stabilising at levels half as high as those seen five years ago, while Japan’s will be no more than 1% at most, compared with 0 last year. It is important to bear in mind that in a globalised economy, eurozone growth depends on worldwide growth, and attempts at stimulus through currency depreciation are ultimately a zero sum game. A sharp drop in the value of the euro due to the ECB’s quantitative easing would export deflationary pressures from the eurozone at the expense of nominal global growth.

Scarcity of reforms

For many countries, increasing potential economic growth means undertaking serious reforms. Progress is slow, especially in Europe. A few examples:

  • In France, although opinion polls showed that the public supported the Macron bill, neither the left nor the right wing of parliament had the political courage to vote for it.
  • Italy’s Jobs Act was passed, but the institutional reforms needed to stabilise the government are moving very slowly and will still have to make it through the Senate in March.
  • The requirement that Greece’s creditors have made of the new government to commit to reforms whose abandonment had been at the heart of the party’s winning manifesto raises the suspicion of blatant populism and pseudo reformism in equal measure.
  • China’s emphasis on fighting corruption in 2014 delayed the reform programme. But at least we can reasonably hope that reforms concerning public enterprises, real estate, the environment and Hukou status will gather pace in 2015.
  • The same applies in India where land purchase, mining and insurance deregulation reforms are due to be debated in parliament this year.

Scarcity of yield

Apart from the temporary drop in oil prices, global deflationary pressures result from persistently high debt, which increases the propensity to save. Added to this are more structural factors such as demographics, technological progress, globalisation, the distribution of wealth between labour and capital (Thomas Piketty would surely agree). Even in the United States, where job creation has picked up, the famous Phillips curve, which postulates that inflation automatically rises when unemployment falls, is no longer borne out by the facts. Bringing down interest rates, central banks’ massive bond buying adds to this general backdrop of disinflation.

With the ECB coming on board and the Bank of Japan continuing its intervention, these purchases will be even greater in 2015 than in 2014, despite the end of the Fed’s quantitative easing. This windfall for bond investors was unexpected and yields – already very low – will probably drop even further in 2015 with the ECB committed to buying EUR 60 billion of assets each month for at least two years, whatever the cost (an expression that comes into its own here). In this context, Nestlé and the German government have already managed to issue bonds with negative yields, guaranteeing investors a capital loss if the issues are held to maturity!

These market distortions make Mario Draghi the best friend of short-term investors in the eurozone, as he reduces the perception of risk while increasing the value of financial assets. As for us, we are being very careful to keep positions in all asset classes that balance portfolio risks, while reaping the short term benefits of this situation for our funds’ performance. Valuation levels made possible by extremely low discount rates and squeezed risk premiums are a big source of support for financial markets.

But they must not lure us into a false sense of security, as they can only last as long as confidence in central banks’ market impact remains intact. They therefore leave open the question of the exit from quantitative easing. A negative scenario, namely the admission of manifest failure of attempts at lasting improvement in nominal growth, would obviously have negative effects on credit and equity markets. Whereas a positive outcome, marked by widespread economic recovery, would see fixed income markets undergo a correction (this scenario has prompted several Fed members to call for an early hike in US Fed funds rates before the markets step in).

Although the ideal path between these two pitfalls is a narrow one, it might seem too early to worry about it while central banks remain on the move. But it seem wise to us to keep our eyes wide-open on the risks that accompany the markets’ enthusiasm at the beginning of this year. Lucidity is always too scarce.

Technical Support for European High Yield Bonds

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Contexto favorable para los bonos europeos high yield
Photo: Woodley Wonder Works. Technical Support for European High Yield Bonds

European high yield has started the year strongly, with the Bank of America Merrill Lynch European Currency High Yield Index up 3.1% in euro terms in the first two months of the year. The rise came almost exclusively from credit spread tightening, largely a result of the trickle down in demand from the announcement of quantitative easing (QE) as credit investors move further down the ratings spectrum in search of higher yields.

An improved macroeconomic backdrop has boosted sentiment towards the asset class given the stabilisation in crude oil prices, strong equity markets, and the stop-gap bailout extension for Greece.

Unlike US high yield bond markets, there is minimal leveraged energy exposure within the European universe. Earnings for the European high yield universe should be a net beneficiary of both lower oil prices and the falling euro.
 

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Supply has started the year strongly but has been more than offset by a significant shift upwards in demand, as evidenced by industry data showing positive net fund flows. The high yield bonds that have come to market are dominated by relatively higher rated BB issuers and easily taken up by investors, with many investment grade investors hunting in BB for extra yield.

The rise in demand has implications lower down the credit spectrum. Traditional high yield investors are moving into single-B and CCC rated bonds where the yields are more attractive but there is simply not enough supply of these bonds to meet the inflows. We believe there could be a significant squeeze in these higher yielding assets over the coming months as demand outweighs supply.

Henderson GI: “Our Plans Over the Next Five to Six Years, are a Fivefold Increase in Latin America, to Reach 10 billion in Assets”

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Henderson GI: “En cinco o seis años, nuestros planes pasan por quintuplicar los activos en Latinoamérica, hasta 10.000 millones”
Greg Jones, head of retail distribution for EMEA and Latin America at Henderson Global Investors. Courtesy photo.. Henderson GI: “Our Plans Over the Next Five to Six Years, are a Fivefold Increase in Latin America, to Reach 10 billion in Assets”

If we compare today’s Henderson Global Investors with the one of a few years ago, the image is almost unrecognizable. Since its origins as a UK based management company dedicated almost exclusively to the management of European assets, and focused on a more local (or, at most, continental) investor, the company has been immersed for the past few years in a process of strong changes which have transformed it into a global manager with a base of international investors and a distribution footprint that spans the globe, from Chicago to Singapore or Hong Kong (with a few exceptions, such as the African market). In fact, it has more than 900 employees in 19 locations around the world, spread across Europe, USA and the Asia-Pacific region.

Its acquisitions led it down this path of growth, internationalization, and business diversification: it bought Gartmore in 2011, providing it with a powerful basis for managing alternative assets; in 2013 it acquired a holding in 90 West AM, the Australian management company which specializes in natural resources; That same year it bought H3 Global Advisors, specialist in alternative raw materials and also Australian; and a year later it acquired the American company Geneva Capital Management, (specializing in growth stocks of small and mid cap). All of the above acquisitions aimed at not only diversifying their assets, but also at becoming a truly global player.

And in that vein, its medium-term objective is to build an investment infrastructure and also a global front office, as was explained by Greg Jones, head of the management company’s retail distribution for EMEA and Latin America, during an interview with Funds Society. “About five years ago we hardly had any business at all outside the UK,” he says; but now things have changed a lot.

One of the clearest pillars in that desire for globalization is in the US: “The United States is the market with the greatest savings; we started 12 years ago through a purely organic growth built around three equity strategies. It is a market where it is difficult to compete, so you have to offer something different, and therefore, we focus on the international stock market.” Currently, their plans are not just to maintain strong organic growth, but also to build a true “management factory” in the country, in line with the strategy set in recent years to build distribution capabilities on a global basis and aligned with the management company. “We want to build front offices and have local distribution capabilities,” he explains. In this regard, Jones anticipates that they will shortly hire a person in Miami to develop their plans and cover the US offshore market.

The fact is that Henderson GI is strongly committed to the US offshore market, one of its major areas of interest. “For a Latin American entrepreneur, these markets are more stable from a political point of view, and therefore, it’s natural to mobilize towards offshore centers in the US, and not just in Miami” the expert points out.

Overall, their plans are to hire over twenty people during the next few years, most of whom could join between 2015 and 2016, in order to meet the objectives of its strategic plan, which aims to double the company’s assets under management in 2018 (assets under management in 2013 amounted to 76.6 billion Euros). The company aims to have a balanced base and grow both institutionally and in distribution.

Latin America: another key element of this journey

Besides the US, Latin America is another key point in this global journey, where GI Henderson’s business, which they seek to increase fivefold in approximately the next five years, has evolved considerably since attracting its first client, whose fortune was generated in the region’s railroad business. “Two and a half years ago we had no assets in South America and we now have 2 billion. In five to six years, our plans are to have 10 billion,” he explains, very confident in the growth potential offered by the region.

What are the reasons behind such confidence? “It is an attractive market because it is very open, to me it is more attractive than Asia,” says Jones. “It is more modest in terms of assets under management, but the investor base is more Europeanized, due to its history. Furthermore, the time horizon of investment in Asia is shortsighted, and turnover is higher than in Europe or South America,” he explains. Other factors supporting Latin American history reside in demographics and compulsory private pension savings in some countries; and also in their lack of capabilities. “The capabilities in equity management, especially in European and global equities, are still very low in the region and there we see an opportunity to present our range of international equities at a very early stage,” says Jones.

Within the pension market, Chile is the management company’s greatest client and its priority, due to its attractive policy and regulatory framework, market size, and openness. Jones also highlights the exciting opportunities in Peru and Colombia: in Peru, Henderson GI is the active management company with the greatest presence in their pension funds. Yet, the interest in passive management, which is taken strategically when in their opinion it should be tactical, is increasing in these markets. Their plans also include the Mexican Afores. However, taking into account that the institutional and pensions market in LatAm is a more volatile market than retail, the success of the management company is to also reach that distribution client and achieve sustained growth within this segment, which is something they are accomplishing.

To continue growing in LatAm, the company has partners in different markets such as Santander, which through its Select range distributes Henderson funds in countries like Mexico or Brazil. And, according to Jones, Brazil has now been completely sidelined in its list of priority markets: “There are many management companies which are closing down; in order to succeed in that market you have to compete with high domestic interest rates and if you can’t, there is no point. Moreover, it is a very closed and complicated market; we are in no rush to get there”.

An array of unique products and a diverse range

In order to achieve his objectives, the expert does not lose sight of the idiosyncrasies of their investors and their various demands. “In Latin America the investor primarily seeks growth, used to investing in their local markets and with the emerging bias: growth will be the theme that dominates during the next five to ten years.” Meanwhile, in Europe, the issue of income is stronger, like in the US, where there is high demand for vehicles that offer high dividends, as the population ages. “But in Latin America the investor is younger, has to save for a mandatory pension fund, and there is a large structural support for investments that seek long-term growth,” explains Jones.

The fact is that another of Henderson Global Investors’ major changes in recent years has been the diversification of its product range: from equities (which accounted for 99% of its assets in 2009) to a much wider range (in which the weight of equities representing around 60%, and wherein the fixed income products (with around 22% and strengthened capacities), multi-asset, and alternatives have gained weight, a trend that will continue in the coming years). Therefore, Henderson GI has gone from a phase in which they were more focused on investment at European level (and equity) to another in which they are seeking to add value by investing in all types of markets from global equities to bonds or emerging market debt.

“There are management companies which, with the good performance of a fund, they gain trust and are given the benefit of the doubt when launching new products, even though there may not be a history of returns. We are not at that point yet, although 83% of our funds beat their benchmarks with a horizon of three years and we are building the distribution infrastructure required” said Jones, who aims to be given the benefit of the doubt when innovating. Something they do often through a process which has changed in recent years (the generation of the idea can come from managers or the sales team, and before its release has to pass through the Product Strategy Group as well as through an implementation committee) .

That innovation was very strong in 2014, with the launch of a global equity fund focused on income (a segment where they could generate more products), another of global natural resources (under the belief that long-term inflation and growth of the population will increase the demand for natural resources); and several credit funds, including one focused on the emerging world, an area “that still offers value.” Looking ahead, according to Jones, product innovations could focus on segments of global emerging debt, equities (both in Europe and Latin America) and liquid alternative products (in the institutional space).

And, all through active management. “Active management does not try to beat a benchmark every single day … it’s about strategic long-term investments, while passive management is more tactical and short-sighted. We have to educate investors in this,” he adds.

Big Money Market Fund Players Beginning to Implement Plans to Comply with Reform

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La nueva regulación para CLOs cambia las perspectivas para los préstamos bancarios
. CLO Rule Change Clouds Outlook for Bank Loans

The March 2015 issue of The Cerulli Edge – U.S. Monthly Product Trends Edition explores regulations in the United States. The March Monthly Spotlight analyzes alternative avenues for alternative managers.

Some of the big money market fund players are beginning to implement their plans to comply with reform, which becomes effective October 2016. It is important for firms to determine their institutional versus retail client base and weigh respective options because eligibility requirements differ for each segment.

Mutual fund assets surged past the $12 trillion threshold in February, ending the month at $12.4 trillion. This growth is primarily a result of performance, especially among global equities. ETFs ended February with assets in excess of $2 trillion, an increase of 5.5% from January. Flows into both vehicles were healthy during February, with mutual funds taking in $34.6 billion and ETFs gleaning $29.8 billion.

Transparency is a major concern for some active portfolio managers since disclosing their holdings every day leaves them susceptible to having their trades front-runned. Data from a recent Cerulli survey found that ETF sponsors felt transparency matters more to institutional investors rather than retail investors.

Capital Strategies Partners Announces an Agreement to Cover the LatAm Institutional Market for Stepstone Group

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Capital Strategies Partners firma con Stepstone Group una alianza para cubrir el mercado institucional latinoamericano
Photo: Stepstone Group. Capital Strategies Partners Announces an Agreement to Cover the LatAm Institutional Market for Stepstone Group

Capital Strategies Partners has announced this week an strategic agreement to cover the LatAm institutional market for the international firm Stepstone Group.

StepStone Group is one of the most important platforms in the private markets global industry, with more than USD 60B in advisory and above USD12B in assets under management. The company operates on four continents with its 8 offices (San Diego, New York, San Francisco, London, Seoul, Beijing, Hong Kong and Sao Paulo) and has 150 employees of whom 23 are partners.

The platform is made up of four integrated pillars: Infrastructure, Real Estate, Credit and Private Equity, and includes Primary, Secondary and Co investments capabilities.  The group prioritizes the importance of research, with a proprietary database covering 19,500 companies, 18,000 funds and 6,500 GPs.

Shannon Bolton, country head of CSP for Chile and Peru adds that “StepStone is one of the most powerful houses in the industry of private markets and, in particular, the world of private equity. The significant amount of annual primary capital (USD 7-8B) is paramount to driving co-investments (individual investments alongside a GP) and secondary opportunities. We believe this unique approach can provide much value to Latin American institutions. “

Capital Strategies Partners is a Spanish broker dealer specialized in representing international managers with a niche profile with local presence in Spain, Italy, Switzerland, Portugal, Germany and Latin America.