U.S. equities rebounded in October, with the S&P recording its second-best monthly performance for the year. This month saw the kickoff of Q3 earnings with over half of the S&P 500 companies having reported through 10/28. Takeaways from the first few weeks of earnings included FX headwinds, continued supply chain disruptions, still-elevated raw materials costs and fears of a weakening macro backdrop. However, credit card companies and banks reiterated that consumer spending continued to show signs of resilience despite surging inflation.
Several catalysts will be in focus as potential drivers to push markets higher before year-end, such as an inflection point in the Russia-Ukraine war, U.S. midterm elections or inflation data indicating that prices are no longer rising.
Performance in the Merger Arbitrage space in October was driven by the closing of several deals, most notably Elon Musk’s $44 billion acquisition of Twitter, Berkshire Hathaway’s $12 billion acquisition of Alleghany, and Vista Equity’s $8bn acquisition of Avalara. The strategy also benefitted from a bump in consideration in two transactions. Philip Morris raised its offer for Swedish Match from SEK 106 to SEK 116 per share in order to secure enough shareholder support to complete the transaction. Additionally, Flagstar Bancorp shareholders received an increase in terms of $2.50 per share, which was paid as a special dividend, as they awaited the final regulatory approvals needed to complete the merger with New York Community Bancorp.
For the convertibles market, the fourth quarter on a positive note after a very negative year. Sentiment was quite low coming into earnings season and the result has been generally positive. We had numerous holdings outperform significantly after beating what were admittedly low expectations. We also had a few surprises to the downside as some companies guided cautiously. Premium expansion as stocks moved lower helped limit some of the downside we saw relative to the underlying equities. This is a key attribute of convertibles as it helps to provide asymmetrical returns.
This year, incMTY, the entrepreneurship festival promoted by the Tecnológico de Monterrey, successfully concluded its tenth anniversary. In this edition, the ecosystem of Mexico and Latin America interacted and developed opportunities through the in-person attendance of more than five thousand people and another 5,000 more who attended the event virtually, reaching 10 thousand people.
incMTY has become the most important economic vehicle in Latin America for the generation of business opportunities. Proof of this was that this year the festival broke its own record by presenting and announcing more than 300 million dollars in venture capital investment. Likewise, new projects were presented by the Government of Nuevo León, the private sector and renowned international companies, with more than 2.6 billion dollars in direct foreign investment.
More than 300 national and international speakers; 50 venture capital and corporate venture capital firms participated in the ‘Founders & Investors Summit and Corporate Innovation and Venturing Forum’; key players from more than 20 countries representing the ‘quintuple helix’ (entrepreneurs, investors, academia, governments and IP) with 406 activities; and on demand content hosted on the Whova App (available until December 9).
Rogelio de los Santos, president of Tec’s Eugenio Garza Lagüera Entrepreneurship Institute, commented that “there is much to build and contribute to the world, but incMTY today is already a powerful platform where opportunities and innovation multiply”.
Presentation and investment announcements at incMTY 2022:
Government of the State of Nuevo León and Invest Monterrey: US$2.6 billion. Samuel García Sepúlveda announced this figure as part of the impact of foreign investment. Likewise, through the Ministry of Labor and the Directorate of the State Employment Service, he earmarked 1 million pesos for companies located in Nuevo León, with the aim of promoting responsible entrepreneurship with a focus on generating new jobs.
Daikin Industries: 300 million dollars. The number 1 Japanese air conditioning company in the world recently announced this amount of investment in Mexico. In addition, starting in 2022 Daikin, along with INCmty, work for innovation in the HVAC industry (Heating, Ventilation and Air Conditioning, for its acronym in English). Through the entrepreneurship challenge ‘incMTY Disruptair Challenge’, 70 disruptive projects participated and these are the three winning teams: SolarX (first place), Flair (second place) and Bono (third place).
Proeza Ventures: US$50 million. The Proeza group’s capital fund announced that it will invest in 15 startups related to mobility issues. Its mission is to discover visionary entrepreneurs and build startups that transform the mobility industry to create a more sustainable world.
German Society for International Cooperation (GIZ): US$15 million for the Catalyst – Climate Fund.
Nekko Capital: US$10 million, a venture capital fund based in Barcelona, Spain aimed at early-stage companies, announced its ‘Seed Capital Fund’.
99 Startups: $1.1 million. This venture capital fund that seeks to finance pre-seed and seed stage startups, announced its participation in an investment round in Cuéntame, a platform with artificial intelligence that provides the appropriate wellness resource for each person and three family members, according to their stress level and time of life; with this they will seek to consolidate their presence in Mexico, Colombia and Chile.
Alaya Capital: US$1 million. The venture capital fund of entrepreneurs for entrepreneurs located in Chile, is about to raise its third fund and expects to reach US$80 million to invest approximately US$1 million in at least 25 startups that are in the regional scaling stage. It has funded companies such as Betterfly, Lemon and SixClovers.
Municipality of Monterrey: 5 million pesos. Luis Donaldo Colosio Riojas, Municipal President of Monterrey, launched the first Municipal Fund for Technology-Based Entrepreneurship.
During the festival, a collaboration signing and launch of the Kuikmatch-Alianza del Pacífico platform took place, for 100 thousand dollars equity-free, destined to promote the science and technology-based ventures winners of its call for proposals.
incMTY’s most impressive capital raises:
Betterfly, considered the first Latin American “social” unicorn, exhibited at incMTY how it raised $125 million in a Series C investment round.
During the Founder & Investor Summit, emphasis was placed on the $100 million investment in SparkCognition, where Dalus Capital participated as a partner of March Capital for the growth of this company, a world leader in artificial intelligence for industrial applications.
Yaydoo, the ‘B2B paytech’, announced its $20.4 million capital raise and merger with PayStand to serve all SMBs in the Americas. As of today, its valuation exceeds $2 million.
Mercado Libre Fund, which invests in technology companies, typically in Series A and B rounds, announced during incMTY $20 million in the Elenas platform.
Autolab, an auto parts and repair platform, announced raising $6.5 million in a Seed+ round of equity and debt led by Bullpen Capital, with participation from Proeza Ventures.
Orchata, a Mexican startup led by its founder, Luis Mario García, offers the promise of “we deliver your groceries to your door in 15 minutes” and to begin its expansion it raised US$4 million in an initial round in which Y Combinator, JAM Fund, FJ Labs, Venture Friends, Ivesto and Foundation Capital stood out as investors.
Nowports, a Regia-based company and the first LogiTech unicorn in Latin America, detailed during incMTY about its valuation with its Series C milestone led by SoftBank Latin America Fund.
Calii, the Mexican startup that connects fruit and vegetable producers directly with homes, restaurants and retailers, mentioned raising $22.5 million in capital.
Assets under management of the AFOREs in 2022 have had a drop of $13.9B to September, closing the month at $241.0B. Back in December 2021 they were at $254.9B according to CONSAR information. This represents a 5.4% drop. Some AFOREs experienced a 10% reduction of their assets, while in the extreme case there is one that managed to achieve a slight increase of at least 1%. In the previous year, assets grew 7% on average.
All AFOREs increased their percentage of investment in alternatives in percentages ranging from 0.4% to 2.9%, with an average growth of 1.4%.
Between December 2021 and September 2022 there is an increase of $2.5B in alternative investments, bringing these investments to $19.6B which means an increase from 6.7% to 8.1% as a percentage of investment between December 2021 and September 2022. According to our own estimates, 2.6% are international investments and 5.5% are local at market value.
The decline in local and international equity investments accumulated during the year largely explains this drop in assets under management. Between December 2021 and September 2022, local equities dropped 0.2% of their weight in the portfolio from 6.5% to 6.3% and investments in international equities dropped from 14.4% to 11.2%, which is a drop in the portfolio of 3.2%.
This increase in the percentage invested in alternatives and decrease in the percentages of local and international equities is called the denominator effect. The denominator effect refers to the value of an investor’s private equity portfolio exceeding his or her allocation due to a decrease in the value of other elements of the investment portfolio.
In 2022 the issuance of vehicles seeking global investments in the fund of funds sector continues to dominate. Between January and September 5 CKDs and 57 CERPIs emerged signifying new commitments for $7B of which only 6% have been called which have a market value of $426M according to proprietary information.
With these new issues in only four years the CERPIs are about to reach the number of CKDs (128 CKDs vs. 136 CERPIs) and the same happens with the committed resources ($23.6B in CKDs vs. $21.1B in CERPIs) with the difference that 77% of the commitments have been called in CKDs and only 27% in CERPIs. It should be considered that the first CKD was issued 13 years ago.
In the new 2022 pipeline there are only 3 CKDs and 2 CERPIs where the amounts are expected to continue to dominate in CERPIs. BIVA brings 4 of the issues and BMV 1. As for the sectors two are located in funds of funds and one in infrastructure, real estate and debt respectively.
In the composition of the AFOREs’ portfolios, the drop in assets and the increase in the weight of alternative investments will cause investments in this asset class to take a break in general terms, where the doubt is the time for recovery in equities with a recession at the door to cause the opposite effect.
The continued rise in strength of the U.S. dollar is having profound impacts on the global market. Forecasting spot currencies is never easy, and Investors need to understand how to evaluate whether they should hedge their currency risk in the international markets. In an upcoming Virtual Investment Summit on November 29 at 10:30 am (ET), DWS will bring these issues to the table.
Topics to be discussed include:
Portfolio strategies for a strong dollar
Learn how to implement a simple FX hedging strategy that may lower volatility, deliver positive carry income, and differentiate your practice in the process
Myths and misperceptions uncovered about costs, correlations, and carry
The challenges involved in predicting spot currency returns and central bank activity
To register as an attendee to this event click on this link
Host: Aiviel Sanchez, Latin America Coverage, DWS
Aiviel Sanchez is a senior relationship manager at DWS working primarily with institutional and other similar investors in Latin America. He has nearly two decades of financial services experience, having joined DWS in 2018 after previously being head of institutional sales-Chile at BlackRock and before that UBS and JPMorgan. Aiviel earned a BA in Finance from the University of Puerto Rico.
Speaker 1: Dean Allen, Passive Investment Specialist-U.S. Offshore, DWSXtrackers
Dean Allen joined DWS in 2021 with more than 14 years of relevant Passive and ETF experience. Prior to joining the firm he was responsible for wirehouse, private bank, IBD, and RIA clients in U.S. Offshore (UCITS ETFs and mutual funds) at Vanguard. Prior to that Dean was head of product management and ETF capital markets for Vanguard Investments Canada, based in Toronto, as well as having other roles relating to ETFs and distribution in international markets and U.S. businesses. He earned a BS in Finance from the University of Maryland.
Speaker 2: Jason Chen, DWS Research House
Jason Chen is a senior research analyst in the DWS Research House, the firm’s intellectual capital and analytics group focused on market analysis and thought leadership. He has been with DWS since 2018 and prior to his current role was a U.S. product strategist. Before joining the firm Jason focused primarily on multi-asset portfolio management and investment research when he worked at JPMorgan. He earned his BBA in Economics and International Business from Temple University.
Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, announced the completion of its acquisition of BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”) from The Bank of New York Mellon Corporation (“BNY Mellon”).
Alcentra is an European credit and private debt managers with $35 billion in assets under management as of September 30, 2022 and has global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.
With this closing, Franklin Templeton’s U.S. alternative credit specialist investment manager, Benefit Street Partners (“BSP”), expands its capabilities and presence in Europe, nearly doubling its AUM to $75 billion globally, and increases the breadth and scale of Franklin Templeton’s alternative asset strategies to $260 billion in aggregate, as of September 30, 2022.
Alternative asset management is a priority for the firm, as investors are allocating more capital across the full spectrum of strategies.
In addition to alternative credit through BSP and Alcentra, Franklin Templeton’s alternative asset strategies include specialist investment managers focused on private real estate through Clarion Partners, global secondary private equity and co-investments via Lexington Partners, hedge fund strategies via K2 Advisors and venture capital through Franklin Venture Partners.
Founded in 2002, Alcentra employs a disciplined, value-oriented approach to evaluating individual investments and constructing portfolios across its investment strategies on behalf of more than 500 institutional investors. Alcentra’s dedicated and highly experienced team is based in its London headquarters, as well as in New York and Boston.
In connection with this transaction, there will be no change to Alcentra’s brand in Europe or Alcentra’s investment strategies.
Photo courtesyAndrea Rossi, CEO y director ejecutivo de M&G
M&G plc (“M&G”), the leading international savings and investment business, announces the appointment of Andrea Rossi as its next Chief Executive and Executive Director. Rossi will take up his new position on 10 October 2022, succeeding John Foley who, in April 2022, announced his intention to retire after seven years in the role.
John will step down as CEO and Executive Director on 10 October 2022, but will remain at M&G in an advisory capacity until 31 December 2022 in order to ensure an orderly transition.
Rossi has a 22 year track record in the global insurance and asset management sectors, mainly through his time at AXA Group. He was CEO of AXA Investment Managers and a member of the Group Executive Committee of AXA Group for six years.
Edward Braham, Chair of M&G, said: “Throughout what was a thorough and exacting recruitment process, Andrea impressed us with his appreciation of the unique capabilities of M&G, his strong focus on growing M&G, delivering results for shareholders and his commitment to sustainability.”
Andrea also held senior roles at AXA’s insurance business across Europe and internationally. Under his leadership of AXA Investment Managers, assets under management increased by 55% to €800bn ($775bn) and AUM from external clients more than doubled. This growth was driven by a clear focus on systematically identifying and addressing client needs and through a transformation of underlying systems and processes. Most recently, Andrea has been a senior adviser to Boston Consulting Group.
He will step down from this role following his appointment at M&G. He is also the co-founder of Resustain, a firm focussed on reducing the carbon intensity of commercial property, where he will remain as a Non-Executive Director.
Andrea Rossi, CEO-elect said: “I have long admired M&G given its history, excellent investment strategies and savings solutions. I am honoured to have been selected as its next CEO and look forward to driving growth in the business while at the same time improving its efficiency to better serve client needs. There is an excellent team at M&G and I’m excited at the prospect of working with them to take the business forward.”
The appointment has been approved by the PRA and FCA.
The Securities and Exchange Commission announced charges against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.
The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters.
“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” said SEC Chair Gary Gensler.
The SEC staff’s investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms’ personnel. These personnel included senior and junior investment bankers and debt and equity traders.
From January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messaging applications on their personal devices. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws.
By failing to maintain and preserve required records relating to their businesses, the firms’ actions likely deprived the Commission of these off-channel communications in various Commission investigations. The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives.
The following eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
Barclays Capital Inc.;
BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
Citigroup Global Markets Inc.;
Credit Suisse Securities (USA) LLC;
Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
Goldman Sachs & Co. LLC;
Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
UBS Securities LLC together with UBS Financial Services Inc.
The following two firms have agreed to pay penalties of $50 million each:
Jefferies LLC; and
Nomura Securities International, Inc.
Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.
Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations. DWS Investment Management Americas, Inc., the investment adviser, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured.
The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
The Florida International Bankers Association (FIBA) is a non-profit professional association founded in 1979. The main focus of FIBA members is international finance, international correspondent banking and wealth management or private banking services for non-residents.
FIBA has long been recognised by regulators for its knowledge and expertise in Anti Money Laundering (AML) compliance and its excellent courses. FIBA has been providing anti-money laundering training for more than two decades, including its Annual Conference and FIBA AMLCA and CPAML certifications in partnership with Florida International University (FIU). FIBA will soon be organising two new courses for which you can register with a $200 discount code provided by Funds Society (FS200).
CPAML Certification (25/26th October)
The CPAML is an advanced level certification designed to expand the knowledge of professionals, officers, directors, or managers of any organization, with respect to the prevention of money laundering and financing of terrorism (AML / CFT).
The program is developed with a risk-based approach to identify potential risks, design an effective control system, investigate suspicious cases, and how to use these processes to best evaluate the effectiveness of internal controls.
The online course is an interactive option design for participants interested in completing the certification at their own pace. Through open discussions and activities, participants will have the opportunity to actively engage with the instructor and classmates to discuss the assigned materials.
October 25-26: Students will attend the CPAML course via Zoom videoconference
October 28: Students will work on their assignments and submit their workbooks before 5:00 PM EST
November 24: Final exam deadline – must be completed via Canvas before 11:59 PM EST
Participants who pass the final exam with an 81% or higher will earn the CPAML certificate. This certificate is valid for 2 years with 20 AML Continuing Education credits.
The registration fees are $1595 USD for non-members; $1395 USD for FIBA members; and $1195 USD for Government. Funds Society readers can access an exclusive discount with the code FS200.
AMLCA Certification (From 17th November)
The internationally recognized AMLCA Certification (Anti-Money Laundering Certified Associate) is designed for intermediate-level compliance officers in both financial and non-financial sectors. The in-depth curriculum is based on best practices and international standards regarding the origin, practices, and development of regulations in money laundering, terrorism financing, and the proliferation of weapons of mass destruction.
The next edition will start in 17th November. The online course is an interactive option design for participants interested in completing the certification at their own pace. Through open forums and discussions, participants will have the opportunity to actively engaged with the instructor and classmates to discuss the assigned materials. Participants will have 90 days to complete the reading materials, PowerPoint narratives, 23 practice quizzes and the final certification exam.
The final certification exam consist of 100 multiple choice questions that must be completed within 1 hour and 45 minutes. Participants must pass the exam with a 75% or higher mark to receive the prestigious FIBA AMLCA Certification.
The registration fees are $1395 USD for non-members; $1195 USD for FIBA members; and $995 USD for Government. Funds Society readers can access an exclusive discount with the code FS200.
Private bank and bank trust executives are actively implementing inorganic growth strategies, namely mergers and acquisitions (M&A) and advisor recruitment, to achieve scale in an increasingly competitive wealth management environment, according to The Cerulli Report—U.S. Private Banks & Trust Companies 2022.
Firms that can offer a wide range of services (i.e., planning, trust, banking) and a strong advisor platform will be able to compete more efficiently to serve their clients’ needs,
Cerulli’s research finds more than two-thirds (68%) of private bank and bank trust executives are considering M&A opportunities to grow and adapt their businesses. Among these firms, 62% are considering acquiring and integrating a smaller firm from their channel, while 38% are considering merging with a peer of equivalent size.
M&A activity is being driven by the desire to achieve greater economies of scale, according to 75% of bank executives.
“Adding more scale not only allows firms to reduce redundancies and improve margins, but also increases the capability of a firm to deepen existing relationships with clients,” says Chayce Horton, research analyst. “As technology and service demands grow among consumers, more scaled and integrated firms will be able to provide seamless, comprehensive, and cost-competitive financial services experiences for their clients.”
Bank trust executives are also working to expand advisor headcount—53% indicate they are actively recruiting advisors and teams from other firms. Historically, the bank channel has not been a significant beneficiary of advisor migration. More than two-thirds (68%) of advisors in the bank and trust company channel have only ever worked within that channel—only 17% previously worked at a wirehouse while just 7% have experience at a hybrid or independent registered investment advisor (RIA).
However, as banks look to create scaled and integrated organizations, one of the major goals is to be viewed as a competitive platform for advisors in motion. “Firms that have adequate operational scale with a wide breadth of services and a strong advisor platform can hope to be attractive landing spots for advisors who are dissatisfied with restrictions of very large institutions but do not want to bear the burdens of a fully independent operating model,” says Horton. “Reaching a ‘Goldilocks’ zone where effective integration is attainable, but scale is not cumbersome, is a balance that most firms in the bank and trust space can strike,” he concludes.
Julius Baer is pleased to announce it has become a strategic investor and business partner of GROW Investment Group. With this partnership, Julius Baer takes a first step into onshore China and at the same time, GROW’s clients will gain access to Julius Baer’s global investment expertise.
GROW is a China-based domestic asset management company, established and led by an award-winning team of senior investment professionals with a proven, top-performing track record and a strong history of building innovative and market-leading investment and distribution platforms. Its mission is to be a world-class, next generation asset management firm with a focus on China.
Backed with a low double digit million US dollar equity investment by Julius Baer into GROW, the partners will jointly establish a distribution network so that GROW’s domestic clients will gain access to selected Julius Baer offerings via Qualified Domestic Limited Partnership products and Julius Baer’s global clients will gain access to local investment expertise and assets via Qualified Foreign Institutional Investor products of a renowned and trusted Chinese partner.
Commenting on the partnership, David Shick, Head of Greater China at Julius Baer, said: “We are delighted to participate in the evolution of onshore wealth management in China through such an unprecedented partnership. We are convinced that the opportunities in the sector in China are bright, and we are looking forward to gaining visibility and bringing our best-in-class solutions and expertise to Chinese clients. The cooperation between GROW and Julius Baer will undoubtedly create value for these clients and support our growth plans for this important market.”
William Ma, Global CIO of GROW, added: “We are honoured to welcome one of the most prestigious global wealth management firms as a strategic investor. This agreement with Julius Baer reflects their confidence in us and is testament to our best-in-class asset management capabilities and access to our onshore China network. I believe there are significant untapped opportunities for us in onshore China and look forward to growing our business together with Julius Baer.”
