Ameris Converts One of Its Real Estate Debt Funds Into a Semi-Liquid Fund

  |   For  |  0 Comentarios

(cedida) Martín Figueroa, socio de Ameris

With six years of track record in the rearview mirror, the sixth real estate debt fund of the specialized manager Ameris Capital is entering a new stage. Taking advantage of market trends and aiming to expand its investor base, the Chilean investment boutique decided to convert the vehicle into a semi-liquid fund.

The vehicle in question, called Ameris Deuda Inmobiliaria VI – or ADI 6, as it is known at the firm – invests in financing real estate developers that require capital to carry out their projects under various structures. This includes preferred equity, mezzanine capital, cash flow advances, or any other structure with solid guarantees, as described to Funds Society by the firm’s partner, Martín Figueroa.

The fund, explains the executive, “had its contributions limited because the market conditions necessary to increase its assets were not present.” This led the manager to start reinvesting resources in new projects as previous ones matured. “Being a fund with a portfolio of 15 projects, in which it invests with different maturity dates and periodic cash flows, we were able to structure it to provide liquidity to investors,” he explains.

The key moment for the vehicle’s conversion came at the end of May this year, when the manager convened the fund’s investors – through an extraordinary shareholders’ meeting – to vote on extending the strategy’s term by four years and changing the regulations to provide liquidity. With the approval of the shareholders, these changes took effect on July 1st.

What prompted this decision? “The products demanded by investors have been changing, and we as an AGF must adapt to what investors demand. Today, interest rates are high, so the opportunity cost for investors is higher. If we don’t adapt, they will prefer other alternatives that, although yielding slightly less, offer liquidity,” he notes.

After over a decade of offering private debt investment alternatives, initially only to institutional and select private investors, Ameris is looking to expand the investor base for these strategies.

The Strategy

The ADI 6 vehicle aims to generate returns by supporting an industry that has been particularly impacted in recent years: real estate.

Its investment thesis, Figueroa explains, is based on the real estate market and its companies being in a state of stress, making it difficult for them to secure the necessary capital to develop their projects. “We want to help them continue developing their business in exchange for solid guarantees,” adds the Ameris partner.

Currently, the portfolio comprises 15 projects diversified across different geographical areas of Chile. “These are apartments that we believe will be sold without any issues because they are simple projects in good locations,” he explains.

The backdrop to this operation is a growing appetite for private debt funds, now that interest rates – and consequently, the returns on time deposits – have been declining. “Private debt was in high demand a few years ago, then it fell out of favor when deposits were paying 1% per month, and now that it has normalized, it is becoming attractive again,” Figueroa explains.

In this context, private debt is an area that Ameris Capital is keen to continue developing, not only for its role in the market and country’s development but also because “it is an asset that should be in every investment portfolio, just as it is in more developed countries,” according to the executive.

Blue Owl Capital Acquires Atalaya Capital Management’s Business

  |   For  |  0 Comentarios

EBW Capital and AIS Financial form strategic alliance

Blue Owl Capital announced on Tuesday the signing of a definitive agreement to acquire the business of alternative credit manager Atalaya Capital Management LP (“Atalaya”) for $450 million, according to a statement accessed by Funds Society.

The acquisition is expected to close in the second half of 2024, subject to regulatory conditions, and is anticipated to be accretive to Blue Owl in 2025.

The firm acquired by Blue Owl primarily focuses on asset-based credit investments in consumer and commercial financing, corporate and real estate assets, and manages over $10 billion in AUM as of June 30, 2024, the firm’s information adds.

Atalaya, founded in 2006 by Ivan Zinn, has deployed over $17 billion of capital, with nearly 70% of transaction flow coming directly from asset owners, originators, or joint venture partners.

Zinn, current founding partner and Chief Investment Officer of Atalaya, will join Blue Owl as Head of Alternative Credit and will report to Craig Packer, Head of Credit and Co-President of Blue Owl.

Atalaya is headquartered in New York and has approximately 115 employees, including over 50 investment professionals. After the acquisition closes, most of Atalaya’s employees are expected to join Blue Owl and continue managing Atalaya’s existing funds.

The purchase price at the closing of the transaction, $450 million, consists of $350 million in Blue Owl shares and $100 million in cash. Additionally, there is the potential to earn up to $350 million in benefits in the form of shares, subject to certain adjustments and the achievement of future revenue targets, the statement explains.

Citigroup, MUFG Bank, Ltd., SMBC, and Wells Fargo are acting as co-financial advisors to Blue Owl in connection with the acquisition. Kirkland & Ellis LLP is serving as legal advisor to Blue Owl.

Mizuho, RBC, and Truist are acting as co-advisors to Atalaya. Cravath, Swaine & Moore LLP is serving as legal advisor to Atalaya.

Larger Funds, Private Markets, Active ETFs, and Long-Term Themes: What Thematics AM Has on Its Radar

  |   For  |  0 Comentarios

Thematics AM, an affiliate of Natixis IM, is celebrating its fifth anniversary. The asset manager, specialized in thematic investing, has focused on developing a range of global, actively managed, high-conviction thematic equity strategies. Currently, they manage €4 billion in assets and have grown from a founding team of six people to 24. We discussed the firm’s future plans and their perspectives on thematic investing in this interview with Karen Kharmandarian, the firm’s CIO and co-manager of the AI & Robotics strategy.

What is your assessment of the firm’s first five years?

Overall, very positive. Firstly, the company has grown in terms of products. We started with the Water, Safety, Artificial Intelligence & Robotics strategies, and our Meta fund, a multi-thematic product. Over time, we have added new products: Subscription Economy, Europe Selection, which is a multi-thematic strategy focused on European companies, and Climate Selection, also a multi-thematic fund, but focused on companies that comply with the Paris Agreement in terms of temperature trajectory. So, five years later, we have eight products. The first four we launched have reached between €400 million and €700 million, while the most recent ones are smaller, such as the Subscription Economy strategy, which is around €85 million. Looking ahead, our intention is for these funds to continue growing until they reach a critical size. This means we need to build trust in all of them.

What is your outlook for the next five years?

Assuming we continue generating good returns and trust, we want to keep identifying attractive investment themes while maintaining our DNA. That is, not just ‘trendy’ themes, but products that truly make sense from an investment perspective for clients, and that, in terms of investment, we have an investable universe that makes sense, allowing us to be exposed to different drivers, with diverse growth engines, offering regional and sector diversification, and where we can move with agility and flexibility to manage with a long-term vision. Our vision is to build thematic strategies where we can offer what we call ‘thematic alpha,’ where our active management adds value compared to the general market performance.

Are you considering taking this same vision and thematic strategies to the private market?

Not at the moment, although it is something we consider in the medium to long term. It would give us the opportunity to leverage our experience and identify companies that are growing rapidly in the unlisted space early on. It would require a different skill set and fully dedicated teams because you can’t cover the same number of companies as in the listed space. For now, we still see some opportunities in the listed space, especially in the middle ground between these two worlds, between the unlisted space and what we do on the listed side. Maybe in these earlier-stage companies, recently IPO or post-IPO, where we have some emerging trends appearing, but we don’t have an investable universe with too many companies. We could perhaps combine different emerging trends into a single strategy with highly promising, high-growth companies, dynamically managing these different themes within the same vehicle.

As active managers, do you find the active ETFs business attractive? Many asset managers indicate that it is a way to implement an active strategy in a more efficient vehicle. Is this something you consider for your business?

The ETF business is something we didn’t consider in the past because they were mainly passive and index strategies. But today, with these active ETF vehicles, you can do practically the same as we do in our UCITS funds, just using a different wrapper for the product. Having said that, we are quite indifferent to the vehicle itself; we can use a UCITS as we could an ETF. What matters to us is that the vehicle allows us to do exactly what we do in terms of how we manage the strategies: active management, conviction-based, fundamental stock selection, and truly having this long-term vision. As long as we can do that, if the client wants an ETF instead of a UCITS fund, we’ll do it. What matters to us is not altering our philosophy, our investment process, and the investment approach we apply to a specific theme. This offers us another potential growth opportunity and opens up a new set of clients who might not have been considering UCITS products. Perhaps this is also a sign of the times.

We have seen some investor disenchantment with thematic investing; why has it lost popularity?

We have seen tremendous growth in thematic strategies over the last, say, 10 years. The level of commercial traction and interest from all types of investors, from retail to institutional, has grown dramatically over the last 10 years. This is also a recognition of the current market reality, where sector classification or regional allocation makes less and less sense. With the success of thematic investing, new fund managers and asset managers also considered thematic strategies as a commercial hook for their products. A context was created where global equity products had become thematic strategies, but without really adopting the DNA of what a thematic strategy is and without generating very attractive returns. This disappointed the market.

In this regard, what is your approach?

For us, thematic investment strategies need to be based on long-term trends. We need to ensure that we have powerful trends that support superior growth for many years and that have enough depth and breadth of investable universe. Some of the requirements we have for our thematic strategies are: it must be enduring, it must have a significant impact, it must have a broad scope, and it must be responsible. These four criteria are really key to considering whether we see the theme as viable or not.

From the perspective of clients and investors, how do they use these strategies in their portfolios?

It depends a lot. There are common characteristics among all investors, and then there are specific objectives or requirements of some clients. Initially, we saw that thematic strategies started with retail clients, as a response to a matter of convictions and also because they are easy-to-understand products. Now we have detected that it has spread to private bankers, family offices, and institutional investors. This profile considers thematic strategies as a ‘satellite’ within their core investment portfolio and also as a bet on a specific theme to drive and diversify their performance. Progressively, we have also seen that clients are becoming more sophisticated and have moved towards thematic strategies as part of their overall allocation.

Which themes are investors most interested in now?

I would say, without a doubt, that AI and robotics are very much on the clients’ radar today because they see how their daily lives are being radically changed by AI, generative AI, OpenAI, etc., and how this can bring significant changes in the way they interact with technology. Water is also becoming a relevant theme again. Although it seems like a mature theme that has been around for many years, we see that people realize that with climate change, it is gaining new momentum. And I would also mention safety, which is regaining relevance in a context of geopolitical tensions and wars.

Cocoa: The Price Volatility Does Not Diminish the Appeal of This Agricultural Commodity

  |   For  |  0 Comentarios

In the course of 2024, the price of cocoa has doubled, making one of the greatest pleasures we know, chocolate, more expensive. Specifically, in April, the price of cocoa on the New York Stock Exchange reached its historical maximum at $11,500 per ton, then moderated and slightly decreased in the following months. After reaching these historical peaks, prices reversed the trend and fell by 15%, but it seems they will surge again and continue to grow over time after this correction.

Investors recognize that this agricultural commodity has great long-term appeal, despite the price volatility driven by drought and climate change affecting production. According to Bank of America, it is likely that cocoa price volatility will continue in the short term. The uncertainty around supply and its implications for spot and future cocoa contracts is the main topic of discussion with their clients. According to their latest report, cocoa harvests for 2023/2024 are expected to decrease by 25% to 30% in West Africa, a region that represents half of the global supply.

In fact, the situation has even led the government of Côte d’Ivoire to limit the delivery of cocoa supplies during the mid-crop (May-July, approximately 20% of annual production) to companies with local grinding capacity. In this regard, Bank of America analysts consider that price and futures volatility for cocoa will continue until the end of August, when projections for the main 2024/2025 crop become clearer.

Better harvest production could translate into a price increase for final products such as chocolate. Bank of America believes that major cocoa and chocolate brands will increase their prices by double digits to compensate for cocoa inflation during this period, considering a future cocoa price of approximately $6,000 per ton by 2025. “Reflecting cocoa price inflation, the impact of chocolate price increases on volume (elasticity) and mix (shift to more affordable products) will be key. However, the current price waves occur after two years of double-digit price increases, questioning historical elasticity patterns, especially in the U.S. market, which has been weak so far,” Bank of America points out in its report.

According to NielsenIQ data in the U.S., chocolate market sales have been weak so far this year, with volume down approximately 5% (and value up about 1%), clearly showing some cracks on the elasticity side. In BARN’s opinion, the main culprit remains the structure of the U.S. chocolate market, which is overrepresented in the mass market. The low representation of private labels and value brands (4% and 10% of volume, respectively) means there is a limited supply of low-priced products to prevent consumers from “abandoning” the category. In Western Europe, chocolate market sales have been resilient, with volume down about -2% (and value up about +8%). The main strength of the European market, according to BARN, is its more balanced nature compared to the U.S.

In Bank of America’s view, one of the risks for BARN is the possibility that some of its clients might reformulate their recipes to reduce cocoa content, especially in the U.S. market, to limit their own cost inflation. Although BARN has reformulation capabilities, this would be a volume obstacle as it would cannibalize sales or lead to a net revenue loss if not recovered.

As seen in the first half of 2024 results, Barry’s balance sheet is very sensitive to cocoa price movements, predominantly affecting working capital through the margin call on their short cocoa futures (reflecting the forward purchase agreement). Although the pressure on free cash flow will be intense in FY24 (BofAe: CHF -1.4bn), BARN has the necessary liquidity to face it with: 1) CHF 700 million bonds issued on June 10; 2) CHF 730 million bonds issued on May 5, 2024; 3) a CHF 500 million RCF available; and 4) approximately CHF 430 million in cash available in the first half of 2024 results.

Although it may take time to rebalance the supply and demand of cocoa, this will happen eventually, according to the report. Beyond the positive volume elasticity in the chocolate category resulting from a deflationary environment, in our opinion, the key positive for Lindt will be its ability to retain price increases, which will imply a tailwind for gross margin, likely translating into increased spending on advertising and promotion to continue nurturing brand value. Conversely, Bank of America estimates the impact will be less beneficial for BARN beyond the positive elasticity of the category, as prices will mathematically decrease for them considering the cost-plus model structure.

*Harvests begin in October.

LarrainVial AM Expands Perspectives on the Chilean Economy at Its Seminar

  |   For  |  0 Comentarios

(cedida) XX Seminario LarrainVial Asset Management

How to get back on the growth path? This is a frequent question in Chile, and LarrainVial Asset Management, one of the leading investment houses in the Andean country, made it the central focus of the latest edition of its annual seminar. To address this, the event—celebrating the 90th anniversary of the investment house’s founding—offered a variety of perspectives, including reflections on the economy, society, and culture in the country.

After a welcome speech from Ladislao Larraín, the general manager of the firm, and an introduction by José Manuel Silva, partner and investment director of the firm, the audience at the W Hotel in Santiago received Sergio Urzúa, economist and professor at the University of Maryland and Clapes UC; María Olivia Recart, economist, former undersecretary of state at the Ministry of Finance and President of Comunidad Mujer; and Cristián Warnken, professor of literature, writer, and communicator.

The three guests at the event analyzed the factors explaining the weak performance of the Chilean economy in recent years and the measures that can be taken in response.

Lost Time

“We must hurry in the search for lost time,” warned Sergio Urzúa in his presentation, calling for “awareness” about the local economy’s situation and the “squandering” the country has done with it, in his view.

The deterioration of the economic momentum in the Andean country, the economist noted in his presentation, began in 2014 and is “a local phenomenon,” not a global one. Additionally, he pointed out, there has been a significant “institutional deterioration.” A reflection of this, he indicated, is the gradual reduction in the country’s credit rating.

What happened? “Anxiety is what played against Chile,” he said, referring to a change in the population’s mindset that led the economy “from jaguar to polar bear,” according to the economist’s analogy.

Some particular variables, he asserted, constitute “silent tax reforms”: the burden on human capital, with various factors impacting potential growth; organized crime, which is becoming a sort of tax equivalent to around 5% of GDP; and the “tax agreement in the living room,” where the fall in real income and the rise in the price per square meter have led 35% of people aged 25 to 35 to live with their parents or in-laws.

Looking ahead, the economist called for “accepting the loss,” acknowledging the lost economic dynamism to bring about change. Additionally, Urzúa urged focusing on three key factors: investment, employment, and education.

We must act now, in the economist’s view, noting that only 5% of countries that have had similar “economic slowdowns” to Chile have managed to reverse them. “Let’s start acting. Let’s set goals,” he indicated.

The Distribution Problem

“To grow again, we need to improve income distribution,” said María Olivia Recart as she took the stage. The issue of equity, she assured, is fundamental to achieving sustainable economic growth.

In this sense, the economist indicated that while it is necessary to address the issue of slow permits in the country, the business sector also has a role to play. “It’s not just about unlocking public policies,” she commented, but companies also need to have a long-term vision to prepare for future threats.

Regarding work, the professional emphasized that there is a “huge gap” in women’s labor participation, with career paths diverging from men’s after having children due to the burden of childcare. “We need universal daycare,” urged the professional.

Additionally, she noted, there is an education problem that goes beyond the public sector. “Our training systems are in crisis,” the economist indicated, adding that “it’s the system. Not just public education.”

Regarding the productivity problem in the country, Recart said that “we must start from the micro and go to the macro.” It’s not just about modernizing the state, she commented, but there are also shortcomings in business management. Especially considering the contextual factors on the table, such as climate change, artificial intelligence, labor market informality, and the deterioration of democracy worldwide.

What remains to be done in the short term, then? For Recart, five key points are: focusing on things that directly affect people, such as service quality in companies and ease of procedures; creating social value; more dynamic public policies; impacts on specific groups; and looking at resilience variables, such as water usage.

The Cultural Factor

The diversity of the panel was expanded by the participation of Chilean intellectual Cristián Warnken, who replaced PowerPoint presentations with a selective pile of books and opened his presentation with a quote from “The Divine Comedy” by Italian poet Dante Alighieri.

The writer and communicator used the protests that marked a long period of political turbulence in Chile, known locally as the “social outbreak,” as an illustrative case. “There is a relaxation of the elites,” he indicated at the LarrainVial event, emphasizing that the elites have “responsibility” in the upheavals.

For the thinker, in addition to a relaxation of “ethical barriers”—with notorious cases of collusion and corruption, for example—the disconnection of the ruling social classes meant that no one could foresee the advent of the protests. And the interpretations were also disparate in the political sphere: while the left saw the process as a demand for revolution, the right chose to deny the existence of popular discontent.

“We are left without a narrative, we are left without leaders,” Warnken said, adding that “crises are not just political and economic” but also spiritual and cultural. In this sense, the thinker assured that Chilean society is currently seeing the effects of phenomena such as the impoverishment of education and the deterioration of civic culture.

What comes next? For the literary figure, “we need order,” but one that is “framed within another order.” In this vein, he called for caution against authoritarianism: “We don’t need a Bukele. Get that out of your heads.”

Have The Elections In The U.S. Had Any Effect On The Performance Of Private Equity?

  |   For  |  0 Comentarios

In four months, American voters will go to the polls, and for now, the candidates are set with Republican Donald Trump seeking to return to the White House, and current President Joe Biden, who must decide whether to continue in the race after doubts about his candidacy emerged following the debate on June 27.

In this context, American and global investors are increasingly focused on the various aspects surrounding these elections and what has happened in other electoral periods, especially concerning the markets and their indicators. Along these lines, an analysis by Neuberger Berman Group explores what happened during past electoral processes with private equity, in a report prepared by Ralph Eissler, Managing Director and Head of Private Markets Research, and Yiran Wang, Private Markets Advisor.

Among the most important conclusions of the analysis is that while there was some seasonality in private equity performance, on average – the fourth quarter of the year has seen stronger performance and more private equity fund distributions – this effect does not appear to be related to the election cycle.

Moreover, while there is superficial evidence that private equity performs better under Democratic presidents, it does not hold up to deeper analysis, as both the seasonality of private equity returns and its long-term cyclical nature are more attributable to the broader economic and market context.

In the context of the U.S. election season – which will likely have consequences in many ways – it is concluded that investors should continue to follow their strategic private market allocation plans.

Finally, Neuberger Berman Group states that there may be valid inferences and headwinds for certain sectors and industries based on the results of the November elections, but there is little historical evidence that they will have a predictable effect on overall market performance or the relative attractiveness of private equity as an asset class.

A Bit of History

The analysis starts from 1984 and includes a total of 10 election years and 30 non-election years. The first data point indicates that, on average, the performance or volatility of private equity in election and non-election years is very similar, with a rate of 17.8% versus 17.3%, respectively. However, the volatility itself appears to differ, as the annualized standard deviation of quarterly returns during the 10 election years since 1984 is 8.36% versus 6.34% in the 30 non-election years.

However, analysts point out that this is a figure that should not be considered highly relevant, as there has been some exceptional volatility since 2000 that increases the numbers. For example, in 2004 the electoral process went smoothly in terms of private equity returns, as did in 2012 despite the Eurozone debt crisis, and the same for 2016 despite Donald Trump’s unexpected rise as the Republican Party’s presidential candidate.

In contrast, volatility was associated with the year 2000, with a historic boom and bust in sectors heavily represented in private equity; in 2008, when one of the worst financial crises of all time hit; and in 2020, with the onset of the global COVID-19 pandemic.

Fourth Quarter, Clear Effect, But…

Another question the analysts who prepared the document ask is whether U.S. elections have affected private equity performance in the fourth quarter, considering that this process takes place during that period.

In this case, at first glance, there appears to be something: in five of the 10 years (1988, 2000, 2004, 2008, and 2020), fourth-quarter returns deviated significantly from the rest of the year’s performance. However, in three cases, there is a solid explanation: in the fourth quarter of 2000, the dot-com bubble began to deflate; in the fourth quarter of 2008, the consequences of the Lehman Brothers collapse were felt; and the fourth quarter of 2020 benefited from the rebound from the impact of COVID-19.

In the case of the 1988 and 2004 elections, the evidence suggests that the elections may have had an additional effect. In other words, there is specifically a fourth-quarter effect (as opposed to, say, a first-and-fourth-quarter effect, or a second-and-fourth-quarter effect). And most importantly, that fourth-quarter effect is clearly visible and of almost exactly the same magnitude, both in election years and non-election years.

Therefore, there appears to be something notable in fourth-quarter private equity returns, but it is evidently not related to U.S. presidential elections. Analysts point out that the fourth quarter is important regardless of whether it is an election year.

Long-Term Performance Effects

Due to the illiquid and long-term nature of private equity investments, it is also necessary to analyze what has happened over a broader time horizon. The firm’s experts analyze the 40 years from their baseline and define four categories: divided government led by a Democratic president, unified government led by a Democratic president, divided government led by a Republican president, and unified government led by a Republican president.

At first glance, there is no uniform picture of whether the stock markets in general perform better under a divided or unified regime. However, U.S. stock markets tend to perform better under Democratic presidents than under Republican presidents, despite the widespread belief that Republican policies are more business-friendly.

For example, unified Democratic governments were elected in 2008 and 2020, during the global financial crisis and COVID-19, and the immediate post-recovery years, 2009 and 2021, recorded an average annual return of 30.0% for the private sector and an average annual return of 27.6% for the S&P 500 index.

Meanwhile, unified Republican government coincided with more positive gains in the stock markets than a divided government under a Republican president. Under Democratic presidents, the markets performed better on average when the government was divided. Overall, the markets seem to have slightly preferred unified governments.

Still, they highlighted that ultimately, while politicians of all stripes may deserve some credit for supporting or at least not derailing economic cycles, it is the broader economic and market context that determines investment performance, rather than who runs the government or whether they are unified or divided.

AI and Climate Change Top the Priorities of the Insurance Industry

  |   For  |  0 Comentarios

The International Insurance Society (IIS) has published the results of its 2024 Global Priorities Survey, revealing that, for the first time, artificial intelligence (AI) has emerged as the top priority in Technology and Innovation. More than half of the respondents highlighted its importance, marking a significant increase compared to previous years.

Despite AI’s potential to enhance operational efficiency, over a third of executives reported that their companies are not prepared for its rapid advancement. Concerns include the “slow adaptation of the sector to technological changes and the need for extensive retraining due to an aging workforce.”

The survey, distributed to nearly 20,000 senior executives in the insurance industry worldwide, provides a comprehensive view of the sector’s top priorities. These priorities span Economic, Political and Legal, Social and Environmental, Operational, Technology and Innovation, and Business and Financial categories.

On the other hand, climate change continues to dominate the Social and Environmental agenda, with 60% of industry executives prioritizing it for 2024.

The increasing frequency and severity of natural disasters pose significant challenges, including difficulties in predicting future losses and rising costs that could destabilize insurers, governments, and consumers. These risks are exacerbated by the fact that a quarter of respondents feel their companies are not prepared to address this issue in 2024, the study adds.

Regarding economic concerns, inflation remains the top priority for the third consecutive year, although fears of recession have decreased since their peak in 2022.

Cybersecurity remains a critical concern, with executives emphasizing the need for robust protection against emerging cyber threats related to AI.

The survey also explores growth opportunities, revealing that product innovation is the main focus for two-thirds of executives.

Most respondents plan to target new customer segments or underserved segments, while more than half aim to improve consumer trust and engagement. Encouragingly, nearly all respondents feel prepared to pursue these growth strategies.

The Global Priorities Survey will inform discussions at the 2024 Global Insurance Forum, which will take place from November 17 to 19 at the Hyatt Regency Miami.

The Compliance Risk for Alternative Fund Managers Is Increasing

  |   For  |  0 Comentarios

The level of compliance risk faced by alternative fund managers is increasing and will increase even further in the next two years, according to a new study by Ocorian and Bovill Newgate, a market leader in regulation and compliance services for funds, corporations, capital markets, and private companies. More investment is urgently needed to address the problem.

The international study among senior executives and senior compliance and risk management executives of alternative fund management firms, which collectively manage around $132.25 billion in assets under management, found that nearly nine out of ten (88%) believe the level of compliance risk their organization faces will increase over the next two years. Of these, more than one in ten (11%) believe the increase will be dramatic.

This increase in risk comes against a backdrop of under-resourced compliance teams and an already high level of fines. Of those surveyed, two-thirds (64%) say their compliance management team is already under-resourced, and more than half of them (34%) feel they are significantly under-resourced. Additionally, the number of fines and sanctions is already high: 67% of respondents admit their organization has already been subject to fines or sanctions for risk and compliance in the past two years. Another 9% admit to having received a request for information or a visit from the regulator in the past two years.

Matthew Hazell, Co-Head of Funds, UK, Guernsey, and Mauritius at Bovill Newgate, said: “Our survey shows a worrying context of fines, sanctions, and under-resourced compliance teams within alternative fund managers, against which nine out of ten respondents believe the level of compliance risk their firms face will increase further in the next two years. It is encouraging that the leaders of these firms recognize these future challenges and know they must act now to stay one step ahead.”

The Ocorian study reveals that the top three areas where alternative fund managers believe they need investment over the next 24 months to address the problem are technology (58%), systems to manage processes and procedures (57%), and hiring relevant and knowledgeable staff (53%).

Matthew added: “Companies must have a deep understanding of their own compliance and risk needs and any possible changes to these through growth or organizational change, to invest wisely in the right systems, processes, and people to protect themselves against these future risks.”

“We recommend following a three-lines-of-defense approach to protect your business: firstly, implementing solid procedures, policies, and training; secondly, thoroughly monitoring these; and finally, reviewing and questioning through independent audit,” he added.

Ocorian’s three-lines-of-defense approach to addressing risk and compliance challenges includes, firstly, creating clear and solid frontline processes and procedures, complemented by both online and in-person training programs for staff. Additionally, they call for building and enhancing a comprehensive compliance oversight function that monitors and evaluates processes and procedures, as well as advises and supports staff and senior management to meet the firm’s obligations. Thirdly, they recommend seeking the review and questioning of the companies’ AML framework through annual independent audits.

World Heritage, Taxes, and a Trip Through Europe: Martín Litwak’s Column

  |   For  |  0 Comentarios

I visited Greece and Italy. In Italy, I explored Rome, Naples, the Amalfi Coast, the Isle of Capri, Bari, Matera, and Alberobello, known for its Trulli, a symbol of the Apulia region.

The Trulli are traditional houses found in the Itria Valley, in Alberobello, notable for their conical stone roofs. They are charming, beautiful, and picturesque. But they also have a story behind them. Is it real history? A legend? Are legends just real stories amplified by word of mouth? Is real history truly real?

Let’s set those doubts aside and move on. The little houses are divine. Everything is divine, but the story of the Trulli, somewhat unclear, tells us they were erected in the Middle Ages. Their name comes from “tholos,” a Greek word meaning “dome” or “cupola.” Initially, the houses were completely made of stone, from the floor to the tip of the cone that now serves as the roof. And the houses were built and demolished according to tax needs. How is that? Patience, I’ll explain.

The houses were built dry, that is, by placing one stone next to another and one on top of another, without any type of mortar, mud, or support other than the stone itself (a waterproof stone called “chiancarelle”). This gave the house some instability but also the possibility of being easily demolished thanks to a vault located in the center, which, when removed, caused the building to collapse. And that’s what their inhabitants, mostly farmers, did.

When taxes of the time went up, the farmers would demolish their stone houses upon hearing of the imminent arrival of the tax collector. This way, they avoided the new settlement tax imposed by the Kingdom of Naples: without a house, without property, there was nothing to pay. At least until the next inspection.

In a way, it’s the same logic behind irrevocable and discretionary trusts today, right? Without property, there’s nothing to pay…

Anyway, let’s get back on track.

When the tax collector’s visits ceased in the 14th century, the houses, which had already adopted the white walls we see today, were rebuilt with mortar to achieve greater stability.

In Alberobello, the most well-known Trulli are considered a UNESCO World Heritage Site. A beautiful recognition for houses built to meet a demand that persists to this day: tax reduction.

Now that I think about it, perhaps the properties in the United Kingdom with some of their windows bricked up since the window tax was introduced in 1696 should also be declared World Heritage Sites.


There’s also the case of French buildings with mansard roofs (attic style), which were also designed to protect their occupants from certain taxes.

I write this while finishing this dream trip and think about the current leaders’ inability to satisfy a centuries-old, logical demand. It happens in Europe, it happens in America, it happens everywhere. In some places, at least, high tax pressure doesn’t demand so much fiscal effort. In most places, regardless of the existing pressure, the effort is discouraging. And that’s why we do, in some way, what the inhabitants of Alberobello did. They, given the possibilities provided by evolution, sought to prevent the taxman from taking the fruits of their labor. They succeeded by tearing down their own houses. Today, we do it by structuring our assets.

We Favor U.S. Equities and Do Not See a Tech Bubble, Says BlackRock

  |   For  |  0 Comentarios

BlackRock (WK)

BlackRock presented its investment scenarios for the coming months to the media in Mexico, in the context of what it described as “volatile markets that nevertheless offer great opportunities for financial asset managers.”

“We believe that risks can be taken in the markets at this time; although we have high interest rates, which could justify a common investor maintaining their investments in fixed income, with levels that, for example, in Mexico reach 11% annually and in the United States 5% when two years ago they were at 0%, we consider that if we do not see the broader context that dominates the markets today, we miss out on investments that can be very good, for example, the performance of the S&P500 has yielded an accumulated benefit of 18% this year, not to mention that in 2023 it delivered more than 20%,” said José Luis Ortega, Director of Active Investments at BlackRock Mexico and a member of the fund’s investment committees in the region.

“These interest rate levels that we see both in Mexico and in other parts of the world can sometimes lead us to see ‘mirages’ and miss out on equally or more profitable investments, passing up opportunities to maximize benefits for investors,” said Sergio Méndez, General Director of BlackRock Mexico, who was also present at the media meeting.

There Is No Tech Bubble, We Favor U.S. Equities

“Is there a bubble?” managers and investors ask themselves in light of the stock market’s performance on Wall Street, specifically in the technology sector, which reported a 22.56% gain for the year as of Friday’s close. The BlackRock specialist responds.

“One of the stocks that have led this growth is Nvidia’s. Two years ago, it was below $20; by 2023, it had already recorded a 100% gain, trading above $40, and many people thought we were in a bubble with that performance, but it is currently trading at $130. And if we look at Nvidia’s valuation today with projected future earnings, it is not more expensive than it was two years ago,” explained the head of investments at BlackRock Mexico.

“The amount of profits that this chip company linked to artificial intelligence is generating justifies those valuations, which is why we do not believe there is a tech bubble. We consider the valuations to be justified and believe that the good performance of the technology sector can continue, which is why when we apply it to portfolios, we particularly like having exposure to equities, especially in the United States, due to this technological theme that we believe will continue to be important going forward,” said José Luis Ortega.

The BlackRock executive compared the 2001 versus the current scenarios in Wall Street’s technology sector; he recalled that in 2001, the dot-com collapse was caused by a bubble inflated solely by expectations, with valuations of companies that had nothing concrete. Today is different; the technology industry now does valuations based on recorded profits, making prices more solid.

“We maintain a positive view on taking risks, favoring equities at this time, particularly those in the United States, although we also like other regions like Japan and the United Kingdom, as we believe their valuations are very attractive in both markets. In Japan’s case, we have a central bank with a monetary policy that, while likely to normalize, will not become restrictive, providing significant support to the Japanese stock market,” said the BlackRock executive.

In the debt segment, the investment manager warns that they will continue to seek to capitalize on the short-term income generated, as it is undeniable that 11% in Mexico and 5% in the United States versus 0% a few years ago is very attractive. It is impossible to pass up the opportunity to have investments generating such levels of return with virtually no risk.

However, the fund’s director of investments in Mexico reiterated their desire to capitalize on the equity opportunity they foresee, especially in the United States, as this will allow for more attractive returns for their portfolios in the time horizon.

Be Agile

Despite the current central scenario being linked to risk-taking due to the optimism they perceive in the equity markets, especially in the technology sector, BlackRock also warned that they must remain agile, constantly reviewing the structure of their investment portfolios to make the best investment decisions in changing scenarios.

For example, the great revolution of artificial intelligence will likely be a deflationary factor for the world in the long term, but while all those investments and technological developments are being realized, significant inflationary forces are very likely in the short and medium term.

Therefore, it is important for investment managers to remain agile to capitalize on opportunities that may arise while simultaneously protecting portfolios from inherent risks. Today, it is not possible to stick with a fixed portfolio or investment.