Pixabay CC0 Public Domain. Should I Stay or Should I Go?
After three consecutive years of extraordinary equity markets returns – the last two while the economy was being savaged by the pandemic – investors, as in the famous song of The Clash, are singing to themselves: “Should I stay or should I go?”
Many see similarities between the historical period that preceded said song, and our time. When punk-rock emerged in the mid-1970s, the world economy was mired down by persistent inflation; caused in large part by growing union power coupled with misguided monetary and fiscal policies. The concern is that the comparisons do not end there, and that as happened back then we will suffer another lost decade for equity markets.
But comparative history requires us to be very careful with the context. Lessons were learned from that period, and in 1982, when the band released their most celebrated song, the economic policies that had led to high inflation were beginning to reverse in full force; ushering in the period of greatest macroeconomic stability ever experienced.
In the decades that followed the charge against inflation led by Chairman Volcker, corporate profits boomed. The liberalization of trade and finance (accelerated after the fall of communism), as well as the productivity increases brought about by the introduction of personal computers and the Internet, also contributed greatly.
We are still benefiting vastly from these events, which have not only contributed to global economic growth, but have also proven to be key to keeping inflation in check. Offshoring (or the threat of it) significantly reduced collective bargaining power in developed countries; and technology, combined with globalization, contributed to the drastic cheapening of many goods and services.
To infer that because we have had a bout of inflation we are going to go straight back to the 70s is a very naïve interpretation of economic history. The pandemic has altered the prevailing economic regime in the short term, but it hardly has the potential to fundamentally change it. It is supply-side constraints that have been responsible for the recent surge in inflation, not fiscal and monetary largesse. In fact, without the support from governments and central banks we would have experienced a deep (and deflationary), recession.
Proof that past mistakes are unlikely to be repeated is that the Fed has announced (earlier than expected) that it will begin to dial down its support. Therefore, the main risk for the economy is not falling into a 70s-style stagflation trap, but rather that the dose of stimulus has had to be so disproportionate that reducing it can easily cause “withdrawal symptoms”.
This helps explain the apparent paradox of long-term interest rates remaining stubbornly low while inflation reaches levels not seen in decades, all while the Fed is about to begin tightening. The reading is clear, the bond market is discounting that either inflation eases, or the Fed will have no choice but to cool demand to prevent a price spiral.
For investors, the key takeaway of all that has happened in 2020 is that the thesis of “lower for longer” interest rates has successfully passed an extreme stress test. If rates have barely increased, despite inflation nearing 7%, when will they?
With this in mind, investors should not be overly concerned about a valuation shock. However, they do have to worry about the sustainability of the recovery, as any sign that the economy is slowing down could cause a major correction in equity markets. With this in mind and contrary to the prevailing narrative, Growth stocks should be less vulnerable than Value and Cyclicals.
In a way, the year that begins marks the return of “business as usual” for investors; with corporate profits back to center stage. And here the risk goes both ways. On the one hand, we can see a reversal to the historical trend, given that the pandemic appears to have provided a counterintuitive boost to earnings. But on the other hand, the trend may continue as long as the corporate world continues to profit (with winners and losers) from the digitization push; something that the pandemic has accelerated even further.
This is the implicit wager of being long equities these days. The only certainty we have is that it will be next to impossible to repeat a year like 2021, in which all S&P 500 sectors had positive returns, and the index reached 70 new highs. But since bonds hardly offer an alternative, the opportunity cost of not staying invested is simply too high if a correction does not finally occur. Or giving a twist to the song, “If I stay there will be trouble (…) And if I go it will be double (…)”.
Foto cedidaValérie Baudson, consejera delegada de Amundi.. Ser líderes europeos en ETFs y una línea de negocio de soluciones alternativas líquidas: así es la apuesta de Amundi tras la compra de Lyxor
After six months of preparatory work andthe completion of the acquisition of Lyxor, Amundi explained this week the strategic benefits for its business and growth plans. Three key ideas were the focus of the press conference: to be the leader in the European ETF market, to have a platform of liquid alternative investment solutions and to add new skills and talent to its team.
“The acquisition of Lyxor is another important step in the deployment of Amundi’s strategy. It elevates Amundi to the top position among European ETF providers and enriches our active management offering with a leading position in liquid alternative assets. Amundi is fully prepared to be the partner of choice in these areas of expertise for both retail and institutional clients in Europe and Asia, and to continue its growth in two promising markets,” said Valérie Baudson, CEO of Amundi, during her presentation.
The head of the asset manager explained that the integration of both companies will generate synergies in terms of annual costs of 60 million euros before tax (68 million dollars), the full impact of which is expected to be visible in 2024. By the same date, Amundi’s CEO estimates synergies in terms of annual current income to be €30 million (34 million dollars). “The integration process will be carried out progressively over the next two years with several stages: IT migration, legal mergers, creation of a new organization,” she clarified.
Founded in 1998, Lyxor has more than €140 billion in assets under management and advice. In addition, the asset manager is a major player in the ETF market with €95 billion under management, making it the third largest player in Europe with a market share of 7.7%.
Regarding the active management business, “Lxyor has developed a recognized expertise in active management, with €45 billion under management, in particular through its leading alternative platform. Thanks to this acquisition, Amundi benefits from strong levers to accelerate its development in the ETF segment, which is currently experiencing rapid growth, as well as complementing its active management offering, particularly in liquid alternative assets, as well as advisory and OCIO capabilities, and fiduciary management,” Baudson emphasized.
Commenting on the roadmap, Lionel Paquin, CEO of Lyxor, added: “Lyxor joins Amundi with remarkable business momentum across all franchises and fully committed to ambitious new development goals. Driven by a pioneering spirit they have always shared, the Amundi and Lyxor teams will now work as one to build for their clients an even stronger and more innovative leader.”
ETFs, smart beta and indexed solutions
As highlighted by Fannie Wurtz, global head of ETFs, Indexing and Smart Beta business, “the acquisition of Lyxor will propel Amundi’s passive platform to the position of Europe’s leading ETF provider.” Overall, the combined ETF business represents more than €170 billion in assets under management, representing a 14% share of the UCITS ETF market for Amundi.
She also argues that the new expanded ETF range will provide investors with “efficient access to one of the largest and most comprehensive ranges of UCITS ETFs available on the market”. This range of more than 300 products includes some of the most attractive strategies, especially in ESG, weather, thematic investing, emerging markets and fixed income.
“In a market where size and scale are key, Amundi’s passive platform, bolstered by more than €282 billion, is an important step in cementing Amundi’s unique positioning as the European partner of choice in passive management for retail and institutional clients around the world. The Amundi Passive platform has set itself the target of increasing its assets under management by 50% by 2025,” she added.
Wurtz explained that their new position will allow them to continue to grow in an industry segment that has been driven in recent years by clearer, more concise and transparent regulation, as well as the transformation towards ESG and the digitization of distribution channels. Supported by this growth experienced by the ETF universe, Amundi expects strong growth in adoption by retail investors, both through ETF portfolio models and the acceleration of the European self-directed ETF segment, especially through online platforms. “In this broad retail segment, Amundi will leverage its global firepower and deep understanding of local market specificities to partner with distributors to co-design comprehensive and fully tailored solutions, including services such as digital and training support,” the asset manager says.
In this regard, Amundi anticipates growing interest from European institutional investors who are keen to increase their use of ETFs, especially for fixed income and ESG allocation. As Wurtz clarified, the fund manager has identified a strong appetite from non-European institutions, as the UCITS ETF franchise has proven attractive. “Thanks to the group’s long footprint in Asia and its presence in Latin America, and the breadth and depth of its offering, Amundi is well positioned to establish itself as the preferred European passive provider in these regions,” she commented on what its main regions of interest will be.
Finally, the firm wants to take advantage of the high demand for ESG solutions to grow the ETF business. Its conviction is that ESG ETFs will contribute to democratizing access to meaningful investment in a cost-effective way. In this regard, Wurtz announced that Amundi’s existing product range is being strengthened with the addition of innovative products from Lyxor ETFs. “In particular, with the Green Bond and Net Zero Climate ETFs, the newly expanded range of Amundi ESG & Climate UCITS ETFs, with a market share of around 20%. Going forward, responsible investing will be the primary focus of any product launches within the platform,” she said.
In addition, in line with Amundi’s 2025 ESG Ambition plan and Net Zero commitment, Amundi ETF will aim to double the proportion of responsible ETFs – i.e. classified as SFDR 8 or SFDR 9 – available to investors, reaching 40% of the total ETF range by 2025. As announced by the fund manager, all these growth targets and projects will be led by Arnaud Llinas, who will head the Amundi ETFs business division.
New business line: liquid alternative solutions
The second key to the deal, Baudson and Wutz insisted, is to enable Amundi to create a new business area focused on liquid alternative solutions, where Lyxor has extensive expertise and a strong business. “The integration of Lyxor allows Amundi to enrich its active management capabilities with the addition of alternative investment expertise, giving investors access to innovative sources of diversification and performance for their portfolios,” the asset manager noted.
Amundi has therefore made the strategic decision to create a dedicated Liquid Alternatives business line called Amundi Alternatives, thus complementing its range of investment solutions to better serve the needs of all its clients worldwide, including institutions, private and wealth investors and asset managers.
The Liquid Alternatives business is currently valued at more than €23 billion, including the Liquid Alternatives UCITS Platform and the Dedicated Managed Account Platform (DMAP) business, which represents €16.7 billion of assets. As announced, this division will be headed by Nathanaël Benzaken.
With this decision, the asset manager reaffirms its position as a leader in alternative investment, aiming to increase assets under management on the UCITS Alternative platform by 50% by 2025 and accelerate the development of DMAP towards institutional clients internationally. “This new platform is well placed to generate resilient, long-term growth thanks to Lyxor’s historical position as a trusted partner to the best names in the global alternative investment industry, as well as to the world’s largest and most sophisticated investors,” the fund manager concludes.
Internal organization
During the presentation of this ambitious plan, Amundi’s CEO emphasized that the Lyxor team will be integrated with the current Amundi team. Thus, as of January 1, 2022, Lyxor is a subsidiary of Amundi and will be integrated into the group’s operations with significant changes to its structure.
In particular, Lionel Paquin, CEO of Lyxor, joins Amundi’s Executive Committee; and Arnaud Llinas, head of ETF and index solutions at Lyxor, assumes responsibility for the ETFs, indexing and Smart Beta business line for the consolidated perimeter within Amundi. In addition, Nathanaël Benzaken, Chief Client Officer at Lyxor, also assumes responsibility for the new Alternatives business line at Amundi. According to the fund manager, in their new roles, Arnaud Llinas and Nathanaël Benzaken will report to Fannie Wurtz, a member of Amundi’s General Management Committee.
In addition, Florence Barjou, currently Chief Investment Officer of Lyxor, will become Chief Investment Officer of Crédit Agricole Insurance, effective March 1, 2022. And Edouard Auché, Lyxor’s Secretary-General, will be in charge of the migration of Lyxor’s IT and operations to Amundi’s platform, in addition to his current duties. Finally, Coralie Poncet, Head of Human Resources at Lyxor, is in charge of leading the integration of Lyxor employees into Amundi, in addition to her current duties.
The fund manager notes that all other Lyxor businesses and country managers report to the corresponding business and country managers within Amundi. In a second phase following the legal transactions, scheduled for mid-2022, Lyxor will merge with Amundi.
Pixabay CC0 Public Domain. Los activos privados y alternativos toman el camino de la resiliencia y la sostenibilidad
As the new year begins, asset managers take stock of what has happened in their main business units. In this context, M&G has highlighted that its £65 billion (87.7 billion dollars) Private & Alternative Assets division deployed more than £11.5 billion (15.5 billion dollars) in the 12 months to 30 November 2021.
The firm has revealed that this division, with a history of investing in private markets in excess of two decades and over 150 years investing in bricks and mortar real estate, deployed the capital across a plethora of markets, including leveraged finance, unlisted real estate equity, unlisted infrastructure equity, real estate finance, private asset-backed securities and books of consumer loans and mortgages.
Their high level of activity over the past year demonstrates the importance that investors are giving to alternative investments. “The pandemic has clearly done little to deter the prevailing trend of increasingly diversified lending markets post the Great Financial Crisis. In Europe, the banking system continues to hold around 75% of lending assets as a share of GDP – still significantly above the level in the US – and we would expect this to decrease against a backdrop of tightening bank regulations”, said William Nicoll, Chief Investment Officer of Private & Alternative Assets at M&G.
In his opinion, this situation is creating “significant opportunities” for pension funds and insurance companies looking for diversification and potentially high risk-adjusted returns in areas such as residential mortgages and consumer loan pools, while the banks retain the relationships and service the end-consumers.
At the same time, he believes sustainability is becoming a key driver in markets: “Some investors are allocating capital to address the biggest challenges facing our society, particularly in relation to the health of the planet and climate change, as well as social issues such as financial inclusion. This is particularly prevalent in our real assets investments such as real estate and infrastructure, where we can support the changing needs of society whilst delivering sustainable returns for investors”.
Nicoll pointed out that despite the Covid-19 pandemic prompting the most extraordinary consumer bailout ever seen, no business was left untouched by the impact that various lockdowns had on operations. “Last year, we dedicated our resources to understanding how companies were impacted and to ensure they were capitalized appropriately to navigate operational turbulence that continues to persist”, he added.
Looking ahead, he is convinced that for patient, long-term investors with the ability to embrace technology and complexity, innovate in evolving markets and be nimble when opportunities arise, “the private markets are an exciting place to be”.
M&G’s accomplishments
In response to these market trends, M&G has achieved important milestones this year. For example, the launch of Catalyst, which is investing up to £5 billion into privately-owned businesses where capital is required to drive innovation and impact to create a more sustainable world. “The 25-strong investment team based in the UK, USA, India and Singapore, is deploying the mandate on behalf of millions of customers invested through the £143 billion Prudential With Profits Fund”, the firm says.
Besides, almost £3 billion was deployed by the direct real estate investment team, with over £1 billion of this in the Asia-Pacific region where the business has been actively investing since 2002. This includes establishing a new partnership to develop an Australian real estate portfolio investing in the logistics sector, on behalf of a third-party client; and launching into the UK’s Shared Ownership sector to initially create more than 2,000 new, sustainably designed and affordable homes, through establishing a strategic partnership with Hyde Housing.
Meanwhile, Infracapital, the unlisted infrastructure equity division,raised €1.5 billion (1.7 billion dollars) from investors for its latest greenfield investment strategy. M&G has revealed that “over 50% of the capital is already allocated to companies at the forefront of delivering energy transition or digital connectivity”. This includes EnergyNest, a Norwegian thermal battery company deploying innovative technology to decarbonise energy intensive industries and improve their sustainability.
All in all, its commitment to the private and alternative assets business is clear. In fact, last year the Specialty Finance teampartnered with Finance Ireland to bring long dated fixed rate mortgages to the Irish market for the first time. The asset manager has also worked on the internationalization of origination capabilities through the first direct private investments in India, Chile and the Czechia Republic.
Foto cedidaMatt Christensen, director global de Inversión Sostenible y de Impacto de Allianz Global Investors. Matt Christensen, director global de Inversión Sostenible y de Impacto de Allianz Global Investors
We spoke to Matt Christensen, Global Head of Sustainable and Impact Investing at Allianz Global Investors, about the development of ESG investment policies across continents and countries, as well as the fund manager’s approach to sustainability, which has recently launched a range of equity funds aligned with the SDGs. The manager also tells us about his experience as a guest at COP26 and gives his views on the commitments made there.
In the drive towards the green transition, we find different speeds in different regions. Why is it taking so long for the US and Latin America to jump on the sustainability bandwagon?
Ibelieve that what I see in Europe will start to happen here, and it’s just a question of speed. Why hasn’t it happened faster here? I think from an American perspective, there has always been a lot of confusion about whether this is a ‘lose money to feel good’ thing. There were even sectors that thought: Is it something to solve the problems on the coast? In fact, ESG is about a focus on material risk factors that can help provide better insights for asset management. In the USA context, ESG has sometimes been used as a political debate and even at this moment, is caught up in discussions around Biden’s climate bill; however, longer term, ESG will move out of this current debate and become part of the toolkit for fund managers.Now, if you look at Lipper’s revenueinflow data, it is striking that the main inflowsover the last year and a half have been sustainable investment funds, so that is scientific evidence around the longer term trend.
In Latin America, similar to the US, there might still be this preconceived and established mentality, as in this region many companies are from more traditional sectors. Requiring mining and oil companies to rethink their business models is not always easy in any country, but that is precisely what they are now doing in Latin America. Moreover, I think this is a trend that, regardless of who is the next president of the US or any Latin American country, is already difficult to turn back.
I am particularly interested in what the asset management industry is doing from an innovation point of view. Every five years we have new trends, we could almost talk about fads, like thematic funds, green bonds… What are you doing from a product innovation point of view for the industry?
First of all we are pushing everything related to showing the client that the return risk profile is better with ESG assets, which is what much ofthe academic evidence now shows. We have done a lot of work to bring the reports to life, both in terms of the ESG score and in terms of the scores and narrative reports per company. In terms of product innovation, probably where it has taken off the most is in the themes that connect best with the Sustainable Development Goals.
We are also developing a range of blended finance and blended finance vehicles. What we do is we can take some of the risk out of going into emerging markets by having loss protection programmes with groups like the International Finance Corporation or the Inter-American Development Bank, which take a loss, if there ever is one, and then create a return profile, subject, of course, to any credit risk we are exposed to with those entities. Think of this more as a fixed income approach to start generating a four to five per cent fixed income rate of return, which tends to be better than most types of sovereign debt yield products in Europe. That’s really interesting.
So it’s a fixed income fund that you are developing?
We have it available, but it is not in an open-ended fund structure. That’s why I say it’s a blended finance vehicle. You would think of it as a fixed income approachfocused within the private debt asset class. But to your question on product innovation, actually, with both listed and unlisted, we are developing more and more products in this sense. We are very keen to link listed and unlisted products over time for our clients around impact investing.
Are most thematic funds focused on sustainability primarily equity or fixed income? What proportions for each type do you manage at Allianz?
First would be equities, then fixed income green bonds and then private equities. Roughly we have maybe 5% in impact investing, 10% in public funds and 5% in green bonds. But 100% of our assets have an ESG risk profile. That’s about $700 billion. As far as ESG integration is concerned, it will affect publicly traded assets which will represent $150 billion of the $700 billion. By the end of the year the whole of our private market, which is 110 billion, will have fully integrated ESG criteria.
The issue of embedding ESG for risk mitigation is what I think should be the first piece of the pedagogy we have to do in the market. It is no longer about sustainable and responsible investing where you exclude things or make them adherent to your specific values. 100% of our assets must incorporate at least an ESG risk assessment.
Looking at emerging markets, when you do this ESG assessment, sometimes there is a love-hate relationship, like with Chinese products (goods). We all hate them, but we all buy them. These are products that are probably not ESG-compliant in many respects. How do you treat the emerging part of your portfolios?
We are seeing a big push for ESG in small-cap emerging markets because there is such an interest in ESG that it is quickly getting coverage. Now in the emerging market we have probably around 70-80% of that ESG coverage. So that’s already very good. We have to be honest, the ESG level in emerging economies is not the same. And that’s why we are rating the ESG practices of emerging economies at a level that is commensurate with their own context. Our role is to say that we can look at the ESG risks of any company in the world and have a point of view because we are not saying they are perfect. They are not. We look at what are the social and environmental governance risks of companies in the countries themselves.
And for emerging companies is it the same, does investing in companies with a high ESG rating really reduce risk, is it more important or less important than in developed countries?
It certainly isimportant for us in the sense of getting good information to make a decision, because there is typically less ESGinformationavailable. Ijust hired two peoplein Hong Kong in order to help bring a bottom-up ESG view to our investments in the Asia Pacific region. They are based locally in order to help us gain access to ESG information that we cannot easily get from traditional data providers at this time.
Were you at COP26, what was it like, what were your impressions?
I made the closing speech on the first day of a dedicated investment event and the room was packed. At the same time, outside of the event were protesters, Greta Thunberg and all the others, saying that actions to reduce global warming were not going fast enough. They are right. But I live in France and in France, a few years ago, the government tried to go faster by adding a fuel tax, and that led to this famous yellow vest movement, which created social unrest for a number of months.
So, on a personal level, I can agree that society is not going fast enough.But on a political level, if we go too fast, we risk populations becoming angry and creating social unrest. The tension is a delicate balance for countries to manage.
Related to the COP26 topic, we at AllianzGI have threesustainable investmentthemes of our enterprise: climate change, planetary boundaries,(which is the connectivity between climate, ocean water, blue finance, biodiversity of the earth, etc.), and inclusive capitalismrelated to a post-COVID world.These are the three themes that we, as a company, are looking at in our product design, our innovation, our research data and how we start to think about it. In our view, these are the big drivers for the next decade.
What do you exactly mean by ‘inclusive capitalism’?
Inclusive health, education, gender gaps, digitalisation gaps, access to those who can work in offices, those who can’t work from home, those who don’t have any digitalisation. So they are stuck doing menial jobs while the rest of the world has digital access. So you also have to look not only within the country, but also between the developed world and the western world. And I think that’s going to be a big trend after COVID.
At COP26 there was a lot of signing of documents, we were constantly publishing, is this really important, do you think the industry has really united and committed to sustainability after COP26, what do you think?
The Glasgow initiative was a good initiative. Although, it is not a new initiative in the sense that it is something we have just invented, it serves to bring together financial services players to share their sustainability policies. For example, Net-Zero Asset Owner is an asset management initiative chaired by Allianz. There are others and they are all brought together in this group called the Glasgow ‘The Guns’ Initiative. There was also a lot of discussion around climate and all the areas we need to address to be successful.
Overall, I think it’s a positive outcome for the asset management industry as it creates more awareness and measurability and speaks to fixing. What we need from these policies is a top-down target-setting exercise. In the end it comes down to how much we, as an industry, keep pushing the government, the public sector, to deliver on those promises that are made.
Pixabay CC0 Public DomainRiesgos en las bolsas. Wall Street
The U.S stock market set a record high in mid-November before a sharp selloff that started when the new COVID-19 variant, Omicron, was identified, and ended the month with a slight loss. Other factors in the backdrop were supply chain disruptions, labour shortages, a higher U.S. dollar and lower oil and UST yields. Rising inflation, previously termed “transitory” by Chair Powell who now says, “It is probably a good time to retire that word,” shortened the bond taper timetable.
From Economist Gary Shilling’s Insight: ‘Historically, global supply shortages haven’t existed outside of wars, so the current episode, the result of temporary supply-chain bottlenecks and economy reopening disruptions, is unusual. But the reaction to it by consumers and businesses isn’t, as they rush to order and buy in anticipation of shortages and price increases in a self-fulfilling cycle.’
Another note, from economist Ed Hyman, on stock market tops vs Fed tightening: ‘The last three major S&P peaks occurred after 6 hikes in fed funds to 6.50% in 2000, after 14 hikes to 5.25% in 2007, and after 9 hikes to 2.50% in 2018.’
M&A activity remained robust in November with newly announced deals to the portfolio including: American Tower’s acquisition of data center operator CoreSiteRealty for $10 billion; Novo Nordisk’s acquisition of biopharmaceutical company Dicerna Pharmaceuticals for $3 billion; GIC and CPP’s acquisition of IT security company McAfee for $15 billion; KKR and GIP’s acquisition of adata center operator CyrusOne for $15 billion; and, DuPont’s acquisition of specialty materials company Rogers Corp for $5 billion. Deals that closed in November included Merck’s acquisition of Acceleron Pharma for $11 billion, Pfizer’s acquisition of Trillium Therapeutics for $2 billion, and Paper Excellence’s acquisition of Domtar for $3 billion.
From the WSJ’s Buyout Boom Gains Steam in Record Year for Private Equity: ‘Private-equity firms have announced a record $944.4 billion worth of buyouts in the U.S. so far this year, 2.5 times the volume in the same period last year and more than double that of the previous peak in 2007…The IPO market is also running at a record pace, and merger volume in the U.S. is twice last year’s level.’
Lastly in the convertibles space, similar to the first quarter, the market saw multiples contract, which disproportionally affects growth equities. The convertible market is generally more growth oriented, so there was some weakness as the month came to a close. Despite this, issuance picked up significantly and we expect global issuance for the year to come in just below last year’s level. This expands our investible universe and is a sign of a healthy market.
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Class R USD LU2264533345
Class R EUR LU2264533261
Class F USD LU2264533691
Class F EUR LU2264533428
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Pixabay CC0 Public Domain. HSBC Launches a Thermal Coal Phase-out Policy
HSBC has recently set out a detailed policy to phase out the financing of coal-fired power and thermal coal mining by 2030 in EU and OECD markets, and worldwide by 2040. In recognition of the rapid decline in coal emissions required for any viable pathway to 1.5°C2, the policy will mean HSBC phasing out finance to clients whose transition plans are not compatible with HSBC’s net zero by 2050 target.
In a press release, the firm has pointed out that this measure builds on its current policy that prohibits finance for new coal-fired power plants and new thermal coal mines; “broadening the approach to drive the phase-out of existing thermal coal”.
The new policy, which will be reviewed annually based on evolving science and internationally recognized guidance, is a key part of executing on the bank’s October 2020 ambition to align its financed emissions – the greenhouse gas emissions of its portfolio of clients – to net zero by 2050 or sooner. It includes short term targets to help drive measureable results in advance of the phase-out dates.
Besides, a science-based financed emissions target will be published in 2022 to reduce emissions from coal-fired power in line with a 1.5°C pathway. HSBC also intends to reduce its exposure to thermal coal financing by at least 25% by 2025 and aims to reduce such exposure by 50% by 2030, using its 2020 Task Force on Climate-Related Financial Disclosures (TCFD) reporting as its baseline.
Client transition plans
“Thermal coal financing remaining after 2030 will only relate to clients with thermal coal assets in non EU/OECD markets, and will be completely phased out by 2040. HSBC will report annually on progress in reducing thermal coal financing in its Annual Report and Accounts”, the bank said. It also revealed that it will work with impacted clients and will expect them to formulate and publish transition plans by the end of 2023 that are compatible with HSBC’s net zero by 2050 target.
“Client transition plans will be assessed annually, based on a range of factors including: level of ambition to reduce greenhouse gas emissions; clarity and credibility of transition strategy including any proposed abatement technologies; adequacy of disclosure and consideration of the principles of ‘just transition’”, HSBC commented. If no transition plans are produced, the bank will need to assess whether to continue to provide financing for that client, as there will be no basis on which to assess alignment with its commitment to phase out coal financing.
In this sense, it will decline to provide new financing (including refinancing) and advisory services to any client that fails to engage sufficiently on its transition plan, or where plans are not compatible with its net zero by 2050 target. In addition, HSBC will seek to withdraw any financing or advisory services with any client that makes a commitment to, or proceeds with, thermal coal expansion after 1 January 2021.
The energy transition in Asia
Given the bank’s substantial footprint across Asia, with the region’s heavy reliance on coal today and its rapidly growing energy demand, HSBC recognized it has “a critical role to play in helping to finance the region’s energy transition from coal to clean”. That’s why it will expect its clients to lay out credible transition plans for the next two decades to diversify away from coal-fired power production to clean energy, and from coal mining to other raw materials, including those vital to clean energy technologies.
”We want to be at the heart of financing the energy transition, particularly in Asia. This is where we can have the biggest impact to help the world achieve its target of limiting global warming to 1.5°C. We have a long history and strong presence in many emerging markets that are heavily reliant on coal for power generation. We are committed to using our deep relationships to partner with clients in those markets to help them transition to cleaner, safer and cheaper energy alternatives in the coming decades”, pointed out Noel Quinn, Group Chief Executive.
Meanwhile, Group Chief Sustainability Officer, Celine Herweijer, added that they need to tackle “the tough issues head on” to deliver on their net zero commitment, and for a global bank like HSBC with a significant presence across fast growing coal-reliant emerging economies, unabated coal phase out is right up there.
“Asia’s ability to transition to clean energy in time will make or break the world’s ability to avoid dangerous climate change. Whilst our coal phase out dates and interim targets are driven by the science, we need an approach that recognizes the realities on the ground in Asia today. The transition will only be successful if development needs are addressed hand-in hand with decarbonization goals”, she added.
In this sense, she insisted that their clients in Asia are at different starting points to their EU/OECD counterparts, with more infrastructure, resource, and policy obstacles, “but many have declared a strong interest and ambition to invest in the transition and diversify their businesses”. In her view, the good news is that zero-marginal-cost renewables, rising carbon prices and a terminal contraction in coal demand are factors helping them diversify.
Pixabay CC0 Public Domain. La indexación, la ESG y la digitalización impulsan el crecimiento de las soluciones de inversión personalizadas
According to new research from quant technologies provider SigTech, 70% of pension funds and other institutional investors believe demand for custom portfolio solutions will increase strongly. The disruptive market forces of ESG, indexing and digitization are driving this increased demand for customization.
Customized portfolio solutions are bespoke investment strategies that are developed to meet the specific needs of investors. Two thirds of those surveyed (67%) believe it will become one of the biggest growth areas in asset management and is one of the industry’s most exciting developments.
“One of the key reasons for growth in this market is that 75% of institutional investors said they are becoming increasingly sophisticated in their individual ESG requirements. In addition, investors are finding it difficult to find off-the-shelf products offered by fund managers that are fully aligned with their needs”, explained the authors of the research.
Another interesting conclusion is that 41% of participants believed fixed income was the asset class with the biggest need for customization, followed by 27% who cited commodities, 18% said equities and 14% mentioned hedge funds.
When it comes to implementing their individual ESG policies, the study found that institutional investors use a combination of solutions. In this sense, 65% use off-the-shelf products (i.e. without any customization), 60% use customized portfolio solutions with external partners, and 52% said they develop these internally.
“Investing does not have to be just about searching for an existing product that offers the best possible fit to the investor’s needs. It is about creating a product that 100% corresponds to the investor’s requirements. Our research shows that 69% of institutional investors agree with this view”, pointed out Daniel Leveau, who heads SigTech’s strategic initiatives for institutional investors.
Pixabay CC0 Public Domain. Schroders se hace con el 75% de Greencoat Capital, gestora especializada en infraestructuras renovables en Europa
Schroders has announced that it has reached an agreement to acquire a 75% shareholding in Greencoat Capital Holdings Limited (Greencoat) for an initial consideration of 358 million pounds (471 million dollars). Greencoat is one of Europe’s largest renewable infrastructure managers, with 6.7 billion pounds (8.93 billion dollars) of assets under management at 30 November 2021.
In a press release, the asset manager has pointed out that Greencoat “pioneered large-scale renewable energy infrastructure investing in listed and private formats”, delivering compound AUM growth of over 48% per annum over the last four years to 31 March 2021. Over the past 12 months it has achieved net new commitments for private funds and equity raises for listed funds of 1.6 billion pounds (2.13 billion dollars).
After this agreement, both firms have an ambition to be a global leader in this “fast-growing and important” investment sector.
In Schroders’ view, Greencoat operates at the intersection of two significant growth opportunities. The first one is the global transition to net zero: the US and European markets for renewable energy assets are forecast to grow by more than 1 trillion dollars to 2030. The second is the “significant and accelerating” institutional client demandfor environmentally positive products in order to meet their own sustainability commitments.
As part of Schroders, Greencoat’s growth and its offering to clients will be significantly enhanced, benefitting from Schroders’ distribution reach, sustainability capabilities, management experience and brand. Greencoat will become part of Schroders Capital, Schroders’ private markets division and be known as Schroders Greencoat.
Strategic rationale
Schroders’ believes that the transaction is aligned with its strategy to build a comprehensive private assets platform andenhance its leadership position in sustainability. In its view, providing private capital for the energy transition required to achieve a net zero future will become increasingly important as governments around the world look to accelerate towards this goal: “This is an area where we can support one of the most significant transformations required in economies worldwide to mitigate climate change. In addition, there is strong investor demand for such long-duration assets providing long-term secure income streams”.
Peter Harrison, Group Chief Executive of Schroders, highlighted that Greencoat is “a market-leading, high growth business, with an outstanding management team”, which provides access to a large and fast-growing market in high demand among their clients.
“Its culture is an excellent fit with ours and its focus aligns very closely to our strategy, continuing our approach of adding capabilities in the most attractive growth segments we can provide to our clients. We have demonstrated our ability to integrate acquisitions successfully, to generate growth and create significant value for our shareholders. We are confident that we will be able to leverage the strengths of both firms while preserving Greencoat’s differentiated position in the market”, he added.
Meanwhile, Richard Nourse, who founded Greencoat in 2009, claimed to be “delighted” to have found a partner in Schroders who sees “the potential” of their business and believes deeply in their mission to build a global leader in renewables investing. “We are extremely proud of what the brilliant team at Greencoat has together achieved, creating a market-leading renewables asset management firm in the UK and Ireland, a strong platform in Europe and an important expansion into the US. Combining this team with Schroders’ global distribution network and expertise will enable clients to capitalise on the unequalled opportunity that our sector represents – a trillion dollar investable universe – and the chance to meaningfully support the global transition to net zero”, he concluded.
The firm has a strong, experienced team who have contributed to its success over many years and which is known for the depth and quality of its operational asset management expertise. It is led by its four founders Laurence Fumagalli, Bertrand Gautier, Stephen Lilley and Richard Nourse.
Vontobel has signed an agreement with UBS to buy its subsidiary UBS Swiss Financial Advisers (SFA), based in Zurich. In a press release, the firm has announced that with this acquisition, it expects to further strengthen its platform providing clients with a global investment approach and geographic diversification.
Vontobel will combine SFA and VSWA (Vontobel Swiss Wealth Advisors), its existing business serving North American Wealth Management clients. Preparations for this will start after the closing of the transaction, which is expected for the third quarter of 2022.
“This transaction is reflective of our confidence in the US market and our ongoing strategic growth efforts in the region. This is a major step toward making Vontobel a global name that serves sophisticated clients around the world and builds toward our goal of increasing US client revenue and overall assets under management”, said Georg Schubiger, Global Head Wealth Management Vontobel and Chairman VSWA.
Together with SFA’s CHF 7.2 billion (7.82 billion dollars) in assets under management as of September 30, 2021, Vontobel, through its SEC licensed entities, is expected to become the largest Swiss-domiciled wealth manager for US clients seeking an account in Switzerland for diversification purposes. The combined pro forma assets under management will more than double to over CHF 10 billion (10.8 billion dollars).
Following the transaction, UBS will continue to refer its clients to SFA, an SEC-registered investment advisor and FINMA-licensed securities firm, which offers US clients tailored investment solutions in a Swiss-based environment.
Tom Naratil, Co-President UBS Global Wealth Management and President UBS Americas, claimed to be “pleased” to partner with Vontobel, “a leading global investment firm that’s client focused and committed to excellence”. In his view, this acquisition not only ensures UBS’s US clients continue to have access to a Swiss-based money management firm, but it also simplifies their business structure and enables them to focus on core activities with scale in line with their “strategic priorities.”
Vontobel has long been present in the US as an asset manager, and for over a decade has been growing its wealth management business with teams in New York, Geneva and Zurich. In 2019, Vontobel acquired Lombard Odier’s US-based client portfolio and plans to open a new office in Miami.
The transaction, which is subject to regulatory approvals, will be fully funded with cash from Vontobel’s balance sheet, covered by its robust CET1 and Tier 1 capital ratios. Additional financial details of the transaction were not disclosed.
Citi announced that it has entered into a definitive agreement to sell its broker-dealer and its investment advisory business to Insigneo.
“The sale of CIFS (Citi International Financial Services), a Puerto Rico-based broker-dealer, and Citi Asesores, an investment advisory firm in Uruguay’s free-trade zone, is subject to regulatory approvals. Citi will maintain all existing bank deposit relationships with wealth clients moving to Insigneo”, said the press release.
In addition, both firms have agreed to explore for Citi to offer banking services to Insigneo’s existing clients. “Citi’s strong presence in Puerto Rico and Uruguay, serving institutional clients, remains unchanged”, they added.
Negotiations, which took over 15 months, were finally completed, and regulatory approvals could be confirmed by the second quarter of 2022. According to industry sources, the sale involves 4.5 billion dollars of AUM.
“This sale allows us to simplify our wealth business. At the same time, we saw an opportunity to continue to provide our clients with best-in-class retail banking while they seamlessly continue to work locally with their investment professionals, who upon close will move to Insigneo, which offers a broad spectrum of investment products and wealth management capabilities”, said Scott Schroeder, Head of U.S. International Personal Bank at Citi.
Raúl Henríquez, Chairman and CEO of Insigneo, commented that they are “extremely happy” to incorporate CIFS and Citi Asesores into Insigneo Financial Group’s growing platform. “And we are pleased to continue our relationship with Citi as a banking services provider for our new clients”, he added.
