It Takes 1.4 Million Dollars To Be Considered Truly Wealthy in the USA

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Se necesitan 2,4 millones de dólares para ser considerado rico en Estados Unidos
CC-BY-SA-2.0, FlickrPhoto: Gnuckx. It Takes 1.4 Million Dollars To Be Considered Truly Wealthy in the USA

According to the Modern Wealth Index, developed in partnership with Koski Research and the Schwab Center for Financial Research, nearly half of Americans (49%) believe saving and investing is the way to achieve wealth over time. 

The survey, conducted among 1,000 Americans aged 21 to 75, shows respondents believe it takes $1.4 million to be considered financially comfortable. To be considered truly “wealthy,” that number increases to $2.4 million.

In the short-term, respondents say that other things make them feel wealthy in their day-to-day live, such as:

  • Spending time with family (62 percent)
  • Having time to myself (55 percent)
  • Owning a home (49 percent)
  • Eating out or having meals delivered (41 percent)
  • Subscription services like movie/TV and music streaming (33 percent)

Other things that make people feel wealthy in their daily lives include owning the latest tech gadgets (27 percent), having a gym membership or personal trainer (17 percent), and using a home cleaning service (12 percent).

According to the Modern Wealth Index, millennials are in many cases more focused on saving, investing and financial planning than older generations, and are almost as likely as Boomers to work with a financial advisor (22% and 25%, respectively) while Gen X lags (16%)

“The idea that financial planning and wealth management are just for millionaires is one of the biggest misconceptions among Americans, and one of the most damaging,” said Joe Vietri, senior vice president and head of Schwab’s retail branch network.

“Whether people think they don’t have enough money, believe it would be too expensive, or just find the whole concept too complicated, the longer they wait the harder it is to achieve long-term success. We must make planning and advice more accessible to more people. Simply put, we believe every American deserves a financial plan, regardless of how much money they have today,” Vietri concludes.

 

 

2017 Brought More Clients and AUM to the Biggest 25 Global Wealth Management Operators

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Más clientes y también más volumen de activos: Así les fue en 2017 a las 25 mayores firmas de banca privada
Pixabay CC0 Public Domain. 2017 Brought More Clients and AUM to the Biggest 25 Global Wealth Management Operators

 Assets Under Management (AUM) at the top 25 global wealth management operators grew 17.0% on average this year, finds Scorpio Partnership’s 2018 Global Private Banking Benchmark. This means the top 25 operators now collectively manage 16.2 trillion dollars.

Just as a rising tide raises all boats, wealth managers were able to capitalize on favourable market conditions in 2017 as a core driver of growth. The FTSE All-World Index advanced nearly 22% during the year and global economic growth was estimated to have reached 3%, an uptick from 2.4% in 2016.

However, there were also positive indicators that firms achieved greater success in drawing additional assets from new and existing clients in 2017. On average, the contribution of Net New Money to AUM, which was flat in 2016, rose to 4.3% in 2017 for those firms who declared this data.

China Merchants Bank gained two positions, taking over Northern Trust and Pictec. BNP Paribas, Safra Sarasin Group, Banco Santander and Credit Agricole are the few non-American firms.

Asian firms grew the most, with a median increase in AUM of 15.2%, versus the 7.5% European ones got and the 13.8% from the Americans.

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“Conditions have been exceptionally positive for global wealth management in the last 12 months, but wealth firms must also be given credit for starting to find new revenue” says Caroline Burkart, Director at Scorpio Partnership. “Our client engagement assessments throughout 2017 have indicated that client sentiment is on the up which is inevitable when markets are good.

Wealth firms should put processes in place now to measure and respond to customer feedback, so that when the next market downturn occurs, they have the insight they need to continue delivering a compelling client experience. A handful of wealth firms are starting to publish their client satisfaction data, highlighting that this is creeping up the agenda as a complementary measure to financial performance.”

Asia’s wealth managers achieved the most significant gains this year, with average AUM growth of 15.2% (in base reporting currency), compared to 7.5% among European operators and 13.8% among firms based in the Americas. Many wealth managers present in Asia continued to increase their focus in this region in 2017. In several emerging markets, strategic acquisitions contributed to inorganic growth in AUM.

Most notably, Bank of China – a new entrant to the top 25 table last year – stood out by reporting double-digit growth for a second consecutive year. The firm attributed its success to effective marketing, customer developed client profiles and proposition enhancements.

Sandra Crowl (Carmignac Gestion): “We Are in the Start of a Structural Dollar Depreciation Tendency”

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For more than ten years, Sandra Crowl has been both Member of the Investment Committee and a Portfolio Advisor at Carmignac Gestion, the European leading asset management firm that was founded in 1989 by Édouard Carmignac and Eric Helderlé. Ms Crowl, who holds a bachelor’s degree in Economics and French from the University of Melbourne and, since 2007, is also a Chartered Alternative Investment Analyst (CAIA). She started her career at Bankers Trust Australia in 1987, before transferring to Paris in 1991. Two years later, she became Managing Director and Head of European Foreign Exchange in London. In 2003, she returned to Paris and specialized in fund management seeding at New Alpha Advisers, a subsidiary of ADI. Four years later, she joined Carmignac Gestion.

Latin American investors be aware

Ms. Crowl believes that the tightening of Central Bank’s liquidity is going to create a great deal of volatility in fixed income markets, therefore, investors -particularly Latin American investors who traditionally have a fixed income bias-, should change their focus away from passive management towards active management. “We are seeing a great deal of interest in our unconstrained global bond strategy, a strategy that provides the flexibility necessary in a rising interest rate environment. It is a non-benchmark strategy able to invest across sovereign and corporate debt, both in developed and emerging markets. Considering our commitment to investors, we want to make sure that we provide an appropriate risk framework for them. We do contain some of the risks by having internal limits on some sub-classes of bonds, like the contingent convertible bonds or structured credit. We have four fixed income strategies and all them, at the aggregate part of their portfolio, must have an average credit rating of investment, they will not ever become high yield strategies,” she said.  

On the bond side, Ms. Crowl suggests a very diversified bond portfolio that is still concentrated on sovereign issuers that are providing high real yields today. That would be the case of the sovereign debt in Greece, Mexico or Brazil. “Sovereign bonds with good real yields will act as a cushion for future volatility. Using our expertise for identifying value opportunities, we could also invest in cheap corporate bonds that are perhaps being sold off indiscriminately by the market. We also want to build up our portfolios in structured credit strategies based on floating rates, a suitable asset class in a rising interest rate environment,” she added.  

Carmignac’s unconstrained global bond strategy aims to protect investors in a bond bear market. As is clear in the Funds prospectus, the strategy has the capacity to actively manage modified duration, ranging from -4% to 15% and it can take short and long positions in currencies. “If we are invested in a country where there is short term volatility, we may want to hedge the currency for short periods but stay invested in the local debt of the country. That is the case of Brazil today, while we are very confident about their macroeconomic recovery and improved current account , we are less sure of the political outcome of elections later this year. Whereas in Mexico, we have chosen not to hedge the currency, that is to stay invested in local currency debt.”     

Uncertainty in Latin American

Ms. Crowl states that, despite the short-term risk that Argentina is currently experiencing, Carmignac Gestion is very positive about the fundamental improvements through economic reforms achieved since Mr. Macri became president. “Recently investors lost confidence in the independence of the central bank, inflation was accelerating, but Mr. Macri has always delivered on budget reform. He has recently promised even more constraint with will sooth credit agencies nerves. And we expect inflation to drop back in the second half of the year. Some large international money managers have already bought back into the asset class just one week after the Central Bank of the Republic of Argentina raised rates and Macri asked the IMF for a credit line. The announcement of the assurance by IMF to provide funding necessary for future months will be considered as a positive catalyst. Also, they could obtain support albeit smaller from the Bank of International Settlements.”      

Regarding Mexico, this year elections have added uncertainty to the ongoing renegotiation process of the NAFTA agreement. “It appears that Mr. López Obrador will lead the incoming government. This provides a bit of challenge going forward should the NAFTA agreement be decided before US mid-term elections. We believe the new government may create some difficulties with whatis has been previously signed under Peña Nieto’s term. There is a small degree of risk premium built into Mexican assets today, the election risk is being correctly priced by markets. We believe Mexican assets will be positively revalued as soon as a relatively friendly NAFTA agreement can be discerned,” she added.    

A not so positive view on the US or the dollar?

For 2018, the market consensus is expecting a 2.8% of GDP growth in the US, but Carmignac Gestion is expecting a slightly less, something around a 2.2% for the end of the year. “We do not anticipate the investment cycle to be as robust as it has been in last years. We do not think that corporate firms will be able to use the fiscal reform to create jobs or to implement strong capital expenditures programs, but rather to paid down debt or buy back stock. We are not seeing the strength in the order books of cyclically oriented companies that perhaps growth-oriented companies have. But we are invested in the US, in an overweight nature if we compared to the benchmark and are positive about the country’s economy. Particularly in equity, we are invested in some of the very strong secular growth themes: in the disruption created by e-commerce, the change in spending patterns, the digitalization of the economy, the increase of energy efficiency, the improvement of connectivity and cloud usage. All these themes provide strong secular earnings, generating very good returns on equities. We are investing on technological multinationals, but we are also focusing on companies that offer specific services to US corporations that need to improve their capacity. And we are bearish on the companies that are challenged by this new digitalized environment. In some strategies, we have the capacity to sell against a corporation that we have in effect a long-term position and that we have identified that would be challenged. This is part of how the portfolio is constructed to compose the winners and losers of this digital era”.    

On the dollar, Carmignac Gestion believes a structural dollar depreciation tendency is about to start, despite the dollar has strengthen a little bit lately in the face of raising short-term interest rates. The new issuances made by the US administration to finance part of the tax fiscal stimulus created some pressure on the short end of the interest curve, but there are some medium-term influences that will determine the dollar value. “In the US, current account and budget deficits are deteriorating. The budget deficit would be hitting towards a 6% of GDP. Also, the implementation of tariffs and trade barriers can affect the current account. Initially, imported goods subjet to tariffs will be costlier for the US to import. And, historically, in the periods in which the US is maintaining a loan with the rest of the world, the US economy needs to be ahead in the economic cycle for the US dollar to remain strong. But, today we have a synchronized global recovery, and that usually reflects in a dollar bearish period that may last for 5 or 6 years. That is how cycles have behaved since World War II,” she explained.       

A deceleration in Europe?  

According to Ms. Crowl, Germany is signaling small a slowdown, but it will not probably be reflected on the economy for as long as the European Central Bank continues with its Quantitative Easing program. Since the global financial crisis, the world economy has experienced mini-cycles that have lasted around 18 months or 2 years, there have not been 5 or 6 years boom and bust cycles due to Central Banks’ intervention in the markets, which created a distortion in prices. Now, the liquidity retraction started by Central Banks could lead into another shallow dip recession. 

“The interest rates in Germany are still around 60 basis points for the ten-year bond, when they have an over 2.5% GDP growth rate and a 2% inflation rate. It makes no sense; interest rates need to be normalized. For this year, the growth rate may still be above 2% because the ECB will continue to purchase 30 billion euros worth of European bonds on monthly basis to the end of the year. However, 2019 will be quite challenging year for European bonds. In the meantime, bond curve has started to price in Quantitative Easing tapering and we are positioned rather tactically to pick up performance. We intend to benefit from rising interest rates by having short positions in German bonds, actively managing duration, a feature that fixed income investors would need to consider”.

J.P. Morgan Asset Management Takes Nine U.S. ETFs to Mexico

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JP Morgan Asset Management lleva nueve ETFs de EE.UU. a México
Yazann Romahi, Photo J.P. Morgan AM. J.P. Morgan Asset Management Takes Nine U.S. ETFs to Mexico

J.P. Morgan announced the expansion of its business in Mexico and the launch of nine US equity ETFs. Leveraging J.P. Morgan’s existing capabilities and expertise, the funds will be managed by an investment team led by Yazann Romahi, CIO of Quantitative Beta Strategies and Portfolio Manager at J.P. Morgan Asset Management. 

“The listing process of US ETFs in Mexico underscores our commitment to providing choice for Mexican investors, what believe are, some of the best and most innovative products to market,” said Juan Medina-Mora, representative in Mexico for J.P. Morgan Asset Management. “The ETFs allow investors to customize their portfolios in an effort to meet distinct outcomes, also considering currency-hedged alternatives.”

The funds, which are designed to provide exposure to traditional indexes for better risk-adjusted returns, are:

  • J.P. Morgan Diversified Return Global Equity (JPGE): The fund is designed to provide global equity exposure with potential for better risk-adjusted returns than a market cap-weighted index. It tracks the FTSE Developed Diversified Factor Index.
  • J.P. Morgan Diversified Return International Equity (JPIN): The fund tracks the FTSE Developed ex-North America Diversified Factor Index, which utilizes a rules-based approach combining risk-weighted portfolio construction with multi-factor security screening based on value, low volatility, momentum and size factors.
  • J.P. Morgan Diversified Return International Currency Hedged (JPIH): The fund is designed to provide core developed international equity exposure with potential for better risk-adjusted returns than a market cap-weighted index. It tracks the FTSE Developed ex North America Diversified Factor 100% Hedged to USD Index.
  • J.P. Morgan Diversified Return Emerging Markets Equity (JPEM): The fund is designed to provide emerging markets equity exposure with potential for better risk-adjusted returns than a market cap-weighted index. It tracks the FTSE Emerging Diversified Factor Index.
  • J.P. Morgan Diversified Return U.S. Equity (JPUS): The fund tracks an index whose methodology is designed in an effort to capture market upside while providing less volatility in down markets compared to a market cap-weighted index, the Russell 1000 Diversified Factor Index.
  • J.P. Morgan Diversified Return U.S. Mid Cap Equity (JPME): The fund is designed to provide U.S. mid-cap equity exposure with potential for better risk-adjusted returns than a market cap- weighted index. It tracks the Russell Midcap Diversified Factor Index.
  • J.P. Morgan Diversified Return U.S. Small Cap Equity (JPSE): The fund is designed to provide U.S. small-cap equity exposure with potential for better risk-adjusted returns than a market cap-weighted index. It tracks the Russell 2000 Diversified Factor Index.
  • J.P. Morgan Diversified Return Europe Equity (JPEU): The fund is designed to provide developed Europe equity exposure with potential for better risk-adjusted returns than a market cap- weighted index. It tracks the FTSE Developed Europe Diversified Factor Index.
  • J.P. Morgan Diversified Return Europe Currency Hedged (JPEH): The fund is designed to provide developed Europe equity exposure with potential for better risk-adjusted returns than a market cap-weighted index. It tracks the FTSE Developed Europe Diversified Factor 100% Hedged to USD Index.

J.P. Morgan Asset Management’s ETF suite in the U.S. features 22 product offerings with over 4 billion dollars in assets under management. J.P. Morgan achieved a top ten position in flows in the U.S. across smart beta ETFs in 20161. J.P. Morgan was also named one of the “Most Trusted” ETF providers according to Cogent Reports’ 2016 Advisor Brandscape report

Jean Raby, CEO of Natixis IM: “I Would Be Very Surprised if We Do Not Announce One or Two More Acquisitions by the End of the Year”

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Jean Raby, Chief Executive Officer of Natixis Investment Managers (Natixis IM) and a member of the senior management committee of Natixis, joined the firm sixteen months ago. Since February 2017, he oversees Natixis IM’s Asset Management, Private Banking and Private Equity business lines. Of French-Canadian origin, Mr. Raby began his career in 1989 as a corporate lawyer with Sullivan & Cromwell in New York, where he worked in corporate finances projects based in Argentina, Chile and Mexico. Later, in 1992, he got transferred to the Paris office.

After four years, he joined Goldman Sachs’ investment banking division, where he worked for sixteen years in corporate finance, M&A, restructuring and capital markets, as well as he worked occasionally in asset management projects. He became a Partner of the firm in 2004, he served as CEO of the division for France, Belgium and Luxembourg and head of the firm’s Paris office in 2006 before becoming co-CEO of Goldman Sachs in Russia in 2011. Then in 2013, he served as Executive Vice President and Chief Financial and Legal Officer for Alcatel-Lucent, the global telecom equipment manufacturer, at a time when the company was on the verge of bankruptcy. A year and a half later, they were able to sell the company to Nokia for 15 billion euros. He subsequently served as Chief Financial Officer of SFR, an integrated media operator in France. But, he missed the hectic and fast pace environment of the asset management industry, so he decided to sign with Natixis.

The value proposal

Mr. Raby firmly believes that Natixis IM offers an attractive value proposition to those asset managers that want to expand their business but feel they have hit a glass ceiling in their growth. “You would be surprised by how many asset managers want to enlarge their business but, either because the pressure of the regulation or their need for investing in technology, they do not have the time or find it difficult to go through the effort of distributing their products outside their niche markets. That’s when they come to us. We want them to do what they do best, which is to manage money, and we take care of everything else, preserving the autonomy of the investment process. On the other hand, in Europe, and to a lesser extent in the US and Canada, sizable asset managers are owned by a financial institution. Their DNA is to stick with the footprint of the financial institution to which they belong to, and there is very little momentum or incentive to do something different than that of their parent company. In our case, we have the strength and solidity of a large banking group, but we are not constrained.  In fact, we benefit substantially from the stability of the structure and the financial support. However, we are able to act nimbly and demonstrate the entrepreneurship of a third-party business. We manage very little of our own money, and that is a unique feature, you will not find many asset managers of our size owned by financial institutions that are so focused on third-party’s money. We are the only one, and that is an additional value-add to these partnerships, to offer the stability of a long-term shareholder,” he said.

In September of 2017, the firm made its most recent transaction. Natixis IM, which has a network of 26 autonomous asset managers affiliates, acquired a majority stake in Investors Mutual Limited, an Australian fund management company, as part of its plans to expand in the Asian region. “I would be very surprised if we do not announce one or two more acquisitions by the end of the year. It is about adding entrepreneurial teams joining us; we seek asset managers that have a strong track record of generating performance and that have a brand. That will be right set up for us, either because we bring a solution to them and the support of a long-term shareholder, or because they bring something new to us, like a platform that our other affiliates can use or a strategy or investment category that supplements our offering. We want to do business with management teams that we consider our partners,” he added.     

Natixis seeks the growth of their affiliates’ business. For this, they offer a centralized distribution throughout the world. “In our business model, we respect the autonomy of our asset managers in their investment process and allow them to upgrade their business. For example, in 2015, we welcomed DNCA Finance into the group, a value equity France-based asset manager. At that time the firm had 14 billion euros of asset under management. Today, the firm has more than 25 billion euros. We accomplished that figure in only three years and with tremendous pressure on fee rates. We can maintain pricing because our clients see value -we do not sell expertise cheap-, and because there is a central management of distribution, creating a healthy discipline. We are also trying to mutualize investments on technology, finding the right balance between the investment autonomy of the affiliates and the benefits of sharing technological developments. The group is defining its digital roadmap, and we are going to add more joined development of technological innovations that hopefully will benefit everyone.”

Active vs passive asset management

Although Mr. Raby acknowledges that passive asset managers have dominated the market narrative in the latest years, the return of volatility may, in his opinion, turn the tables. “Passive investment is here to stay, but we are not going to participate in that business and we are not going to change our strategy. Volatility has returned, we may be at the end of a 35-year bond bull market and at the end of a 10-year equity market. In a more volatile and uncorrelated environment, an active approach to managing risks and chasing opportunities may make more sense. Individual investors will have a rough wake up call when they realize that with greater transparency and disclosure on fees, passive investment is not as cheap as it seems. People will hopefully start looking beyond the low fees and study the actual performance deliverance after fees, which is what really matters. When that happens, I am confident the value proposition of active management will be recognized.”  

Long-term savings

In Europe, long-term savings have not been privatized, by contrast, that has been the case in the US, Canada, UK and Australia, thus funding the savings for retirement. These countries are the fourth largest asset managers markets in the world, being China the fifth largest market, and that is mainly because they have a population 1.6 billion of people. There is a big question mark on whether, in ten to twenty-year time, those people who relied on defined contribution plans, abandoning defined benefits plans, will have enough savings for retirement. According to Mr. Ruby, experience demonstrates that people with the right incentives for long-term savings will save enough for retirement, without having to depend on the government. “At the end of the day, if it materializes that the privately arranged retirement systems are no sufficient to fulfill the needs of the population the government will have to chip in. I would hope for a bigger debate on the privatization of long-term savings in Europe. There should be greater tax incentives for people to save and a strive for the right balance. In Canada, there is a mix of both systems, people are encouraged to save through tax incentives and yet, they also have the promise of a basic retirement savings for everybody. Even the US created the 401k plans, with lots of tax incentive to do so, with does encourage people to be prepared, and I think that is the way to go. In UK, the debate is also out in the street, but unfortunately there is no enough discussion in Europe right now. In France, we are having the debate on pensions and insurance policies, trying to get some more flexibility, but I wish we could go further and discuss about private pension funds.”

The growth opportunities

Natixis IM has a history of 25 years of presence in Europe and the Americas. Their arrival in Latin America is more recent but is a key piece in their growth plans: “When I arrived last year, one of the first conversations that I had with Sophie Del Campo, -Executive Managing Director, Head of Iberia, Latin America, and US Offshore, at ‎Natixis Investment Managers, was about the opportunity in Latin America. Obviously, we want to be careful, invest for the long term and with a steady approach. On the other hand, we think that the region is an opportunity for us to locally manufacture products, but again we need to find the right partner in the region with four characteristics: entrepreneurial character, a good brand, a good performance track record and that we can bring something to them in terms of revenue synergies, or that they can bring something to the group. This type of partner does exist, but it takes time to find it,” he concluded. 

Robeco Appoints Bart Oldenkamp as Head of Investment Solutions

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Bart Oldenkamp, nuevo jefe de soluciones de inversión de Robeco
Pixabay CC0 Public DomainRobeco, courtesy photo . Robeco Appoints Bart Oldenkamp as Head of Investment Solutions

Robeco has hired Bart Oldenkamp as Head of Investment Solutions, effective July 1st, 2018. In this role, he will be responsible for further expanding Robeco’s Investment Solutions business, which includes services such as fiduciary management and multi-asset solution products.

He will succeed Martin Mlyná, who currently holds this role, while also serving as Managing Director at Corestone, Robeco’s manager selection platform. As from 1 July 2018 he will focus fully on his position at Corestone to further increase its added value for clients and to further grow Corestone’s multi-manager business.

Gilbert Van Hassel, CEO of Robeco, said: “I welcome Bart to Robeco; in him we have found a highly experienced professional to fulfil this crucial role for our clients with a strong network and reputation in the area of fiduciary management and investment solutions. This appointment underlines our commitment and ambition to grow our fiduciary business, which is a key element of our strategy for 2017-2021.”

Oldenkamp said: “I am excited to join Robeco and I am looking forward to working together with clients to achieve their financial objectives. I am confident that based on Robeco’s strong academic and research driven approach we will be able to further strengthen our solutions for clients and achieve sustainable growth of our business.”

He previously worked at NN Investment Partners, where he was Managing Director Integrated Client Solutions. Before that, he headed the Dutch office of Cardano, a consultancy firm specialized in fiduciary management, risk management and investment advisory services, after having held various positions at ABN Asset Management, including Global Head of LDI & Structuring and Product Specialist Structured Asset Management in the US. He is the academic director of the Pension Executive program at the Erasmus School of Accounting & Assurance, and a non-executive board member at the pension fund for the Dutch railway transport sector. He holds a PhD in Econometrics from Erasmus University Rotterdam.

How Family Offices Allocate Their Capital

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According to Vidur G. Gupta, Finance Expert at toptal and based on a report by UBS, the origins of a given family’s wealth determines the family offices’ risk appetite, its investment style, and its allocation choices. US and Asian families are most keen on investing in “growth” assets, with heavy weighting toward venture capital and private equity.

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iCapital research shows that first-generation single family offices tend to prefer alternative assets such as real estate, private equity, and venture capital. In addition to the generation, country, and origin of wealth, the sfamos’ strategy is also defined by the size and stage (institutional maturity/experience) of the family office itself.

Longer-tenured family offices increasingly employ experienced management teams to invest their capital across an array specialty asset classes. This is especially true for active positions in equity and bond markets, given family offices have historically invested in hedge funds or private equity funds as fund-of-funds investors. The increasing size of Famos and desire to have stronger control over investments and outcomes has propelled them to “insource” professional management teams.

As an asset class, private equity also holds some other advantages over hedge funds regarding family offices. It fits with families’ “emotional desire to back entrepreneurs and ideas they believe in,” according to Philip Higson, Vice Chairman of the family office group at UBS.

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“In the search for yield, family offices are playing to their strengths by allocating longer-term and accepting more illiquidity,” a report from UBS and Campden Wealth notes. “This approach is successful when experienced in-house teams have sufficient bandwidth for conducting due diligence and managing existing private market investments.”

Anupam Damani (TIAA Investments): “Mexican Elections Are Considered a Buying Opportunity Given the High Nominal and Real Rates of the Country”

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TIAA Investments’ Emerging Market Debt strategy, which has a track record of more than ten years, launched in October 2015 an UCITS fund with an Irish domicile. The fund, which is about to reach the three-year milestone, has a solid track record versus the benchmark and against its peers on absolute and on risk-adjusted return basis and around 36 million dollars in assets under management-although its team manages around 13 billion at the strategy’s level.

Anupam Damani, managing director and portfolio manager, works together with Katherine Renfrew and a team of 14 analysts in managing the TIAA Investments’ Emerging Market Debt strategy, which she defines as a blended strategy with a hard currency bias. Its benchmark, the JP Morgan Emerging Markets Bond Index Global Diversified is a hard currency sovereign index benchmark and it anchors how much local market risk they want to take in the portfolio. They tactically add exposure to local markets, an allocation that may range from a 0% to 30%.

“Our typical allocation to local markets is between the 10% to 15% area. We have been building that allocation in the last few years because we have been very positive on Emerging Market’s local markets, both on the rates space, because the real rates are quite high in the end local markets, but also in Emerging Markets foreign exchanges. In the earlier dollar rally of 2013-2014 and 2014-2015, we saw that, in an aggregated level, EM foreign exchanges had depreciated a bit. There are some exceptions to this rule and that may be Turkey and Argentina, both economies showing home-grown problems”, says Damani. 

“The team has the breadth and the scope to be able to look through the hard currency sovereign and corporate bonds and local debt markets. The portfolio is a mix of all three segments of the asset class, and we nimbly allocate among of these few segments where we prudently see the most compelling opportunities are. In the sovereign segment, the team has an early advantage of following the frontier market economies, which are the newer emerging markets so to speak. We have been doing a lot of due diligence and research deep down diving to frontier market and idiosyncratic stories in the sovereign space”, she adds.  

The team believes that diversification is key, even though they have high conviction ideas. They normally hold about 30 to 35 countries in the strategy while the index has 67 countries on it. They pick their bets and they are very focused on selection, but at the same time they believe in diversification because that is what works through economic cycles. They also have a special focus on risk and liquidity management. Any time they get into a position they make sure that they would be allowed to undo the position in times of stress, when the exit window is smaller. 

Conviction ideas

According to Damani, the recent events that have taken place in Argentina had made its debt market begin to look attractive again. “We are waiting for some more signs as to what the IMF is going to demand from the government and to see the impact of the announcement on the polls for President Macri. The political and social stability will be an important cornerstone of how aggressive Macri’s government can be in acting with IMF demands, but we think that part of the adjustment has been done, and the responsiveness by the government despite the initial stumble was quick. It was a bold and necessary move by the government and we like that, but, we also are cautious. After watching for those signs, we may look to build into that position in both the local and the hard currency space”.

From April 27th to May 8th, the Central Bank of Argentina increased its interest rates by 12,75 percentage points, from 30,25% to 40%, to avoid a currency crisis. “The Argentinian government had a very gradualist approach to its adjustment program while markets were demanding a much faster pace given inflation and inflation expectations as well as fiscal and current account deficits remained high. On top of that the central bank decided to cut rates which wasn’t prudent. The fiscal and current account deficit were running high, the currency still looked overvalued on a real effective exchange rate basis and the inflation was still running well above its target. I believe the investors needed to see a stronger policy response by both the central bank and the fiscal authorities, and a commitment maybe on more medium term to the fiscal consolidation. A fiscal plan to adjust the currency letting it to get closer to fair value and a long term central bank commitment into eventually bringing down inflation. In the 1990s you would not see such a quick policy response to market transaction, but the policy makers are increasingly obeying to market conditions and what it may mean for the financial stability risk within the country. They not only tried to manage the currency by letting it depreciate, getting it closer to its fair value just using some of the reserves, they really hiked up rates too. The Finance Ministry came out and declared that they will stay on a financial consolidation path and President Macri announced he had asked the IMF for a credit line. We think it was really important, because it will anchor policy making going forward and it will also be a source of liquidity for the government,” she explains.  

In the frontier market space, they like Ghana, a sub-Saharan economy rather diversified in its revenues sources: a third of its dollars and export revenues come from oil, a third from cocoa, and another third from gold. For the last year and a half, Ghana has a new government in place that is very private sector oriented and very focused on macroeconomic stabilization. Both the Finance Ministry and the Deputy Finance Ministry come from the private sector. Something that is very important as they want to privatize a larger part of the economy. “The central bank has been very focused on bringing down inflation and stability to the currency, therefore we like both the local bond market and the external debt in Ghana. The country has a very vibrant democracy, during the last two election cycles, the two parties that have been in place competed very aggressively. As a collateral damage of this competition, they have spent a lot of money right before the election to gain more weight. These large expenditures had haunted Ghana a few years back. They went through a crisis and enacted an IMF program. But now, this new government has elections coming up again in 2020. I believe they will be embedding some reforms, enacting a fiscal consolidation program and a macroeconomic stabilization program. We think this is going to be a better government in place and that they will not make the same mistake that the previous government did, but again, time will tell.”

Oil prices stabilizing

Damani likes to say that Emerging Markets are not a monolithic asset class. There is a huge diversity of countries and credits, some are oil exporters, and some are oil importers, therefore, oil can be a double-edged sword. “The exporting countries and the credits that are linked to the commodity will be benefited from the cycle. A lot of these companies and countries have adjusted their fiscal balances to a lower oil price and now they are going to see an increased windfall. We are hoping that countries use this windfall again as buffers for bad times, which in many EM economies is something commonly seen. We are hoping that policy makers have learnt and have created those local buffers. But for the oil importers, the increase in oil price is only a challenge because it negatively affects into their current account deficits. And then, just generally, oil price can directly affect inflation. In most emerging economies, inflation is not as much of a problem. In an aggregate level, inflation has continued to come down in the end, so there is some buffer here. But there are clear exceptions, and Turkey is one of them. As an oil importer, Turkey has not managed inflation correctly and it is very exposed to external financing. It draws a large current account deficit and it never benefited when oil prices went down because it did not enact the measures that were needed in place, and now is suffering. Argentina and Turkey can be contrasted in terms of their policy response. The markets are still looking for a response from the Turkish Central Bank, which according to the perception of the market, lacks the independence to be able to hike policy rates that could allow the currency to stabilize and to eventually bring inflation down. Turkey is going into an electoral cycle in June, even with a consistent deterioration happening, they have always managed their fiscal policy somewhat better. But, we have started to see signs that the fiscal stances are also deteriorating. Going forward, that gives us a bit more caution on the taking”.

Elections in Mexico

This year, Brazil and Mexico, the two biggest economies in Latin America will have presidential elections, and TIAA Investments’ Emerging Market Debt team will be very focused on them. These elections will determine what will happen with the reform path for these economies. “Currently Lopez Obrador (Andres Manuel Lopez Obrador, also known as AMLO), who is the left-wing candidate, is in the front running seat, but his disapproval is still rather high and there are still many undecided voters. Given that the election only has one round and not two, it can go both ways. The positive of only having a single round is that the third candidate which is the current party’s candidate, Meade, will be disregarded. At some point these voters are going to have to decide between Anaya and Lopez Obrador. They will have to decide where do they want to cast their votes, and most likely in terms of policy making, the rule should be expected to go to Anaya. AMLO has been doing a good job courting the investors and suggesting that nothing too dramatic will happen, but we do remain cautious because he has pledged to review energy contracts awarded since the energy reform was implemented by the current administration and has proposed to discard the Mexico City airport project, although the project is far along in the process. But, going back to the institutional framework of Mexico, it is fairly robust. Banxico is one of the most orthodox central banks, and we think they would be able to manage the situation well. The institutional framework will get tested if AMLO comes to power, but he is not going to be able to do a lot of the things he is talking about, he could be restrained both by the institutional framework and the markets. Investors may expect volatility going into the elections, but also the peso, the M-bono and the local curve is pricing in a risk premium for an AMLO victory, because the base case for everyone is currently that AMLO is going to win. The hard currency and the sovereign debt is not placing in any risk premium for the AMLO victory, and that is maybe where we may see more volatility. The peso is going to be affected, as currencies react the fastest, we should see more volatility here also, but I would not be surprised if that time is thought as a buying opportunity by most investors given how high the nominal and real rates are in Mexico. Some of the Mexican corporates, including Pemex, trade at decent risk premium over the Mexican curve.”

The contagion effect in Emerging Markets

The Emerging Markets asset class has matured over time. In the 1990s the contagion effect used to be much wider spread. Now, the contagion is increasingly limited to the country or its neighboring trade partners. Again, Damani explains that the cases of Argentina and Turkey are more home-grown problems, where monetary and fiscal policy had to be addressed. “Is a wakeup call for some of Emerging Markets policy makers that were in the same situation. Liquidity is tightening in the markets and the dollar is strengthening, this is something to be aware of and mindful, policy markers need to stand to their reform agenda and need to build buffers to protect the economy from both endogenous and exogenous shocks. EM debt came in the crosshairs of this recent volatility, but I would say it has less to do with what is happening in Argentina and Turkey. Certainly, it creates a higher noise factor and creates a little bit of panic, where people start saying we are back to the Mexican peso or Russian rubble crisis, but we are not. EM debt markets have really evolved. There is an increase in volatility and there would be some damage done. When the tide washes out, credits with good fundamentals and sovereigns with a good macroeconomic stability will be a good opportunity for investors, with spreads that have widened by 70 to 80 basis points and currencies that weaken versus the dollar. Selection will be very important, the big beta trade that occurred in 2016 and 2017 is over, it is increasingly about picking the right credits,” she concludes.          

Itaú Unibanco Celebrates 21 Years of Listing on the New York Stock Exchange

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Itaú Unibanco celebra 21 años en la Bolsa de NY
Photo . Itaú Unibanco Celebrates 21 Years of Listing on the New York Stock Exchange

Itaú Unibanco is celebrating 21 years of listing on the New York Stock Exchange (NYSE), the largest exchange by trading volume. To celebrate the date, Itaú received the honors at the traditional “closing bell” ceremony, which marks the conclusion of the trading day on the NYSE. At the event Candido Bracher, Chief Executive Officer of Itaú Unibanco; Eduardo Vassimon, General Director – Wholesale; Caio David, Executive Vice President, Chief Financial Officer (CFO) and Chief Risk Officer (CRO); Alexsandro Broedel, Executive Officer for Finance and Investor Relations; and Christian Egan, Executive Officer for Global Markets and Treasury as well as Roberto Setubal, Co-Chairman of the Board of Directors were present.

“The fact that we have shares traded on the New York Stock Exchange has contributed to the bank’s growth and made us better known around the world, helping us to expand the number of foreign investors among our shareholders. We are very satisfied with the results of these 21years of listing”, says Candido Bracher.

During this period, the shares of Itaú Unibanco (identified by the ITUB ticker symbol) have been turning in a consistent annual performance, appreciating on average by 16% (considering the reinvestment of dividends) and with a recurring return on equity of 24.4%. Over the period, US$ 32.7 billion has been distributed in dividends and Interest on Capital, net of income tax.

In the first quarter of 2018, Itaú’s shares recorded average daily trading amounts of, R$ 535.3 million (US$ 161.1 million) on the NYSE and R$ 724.7 million (US$ 218.0 million) on the Brazilian stock exchange, B3, and totaling R$ 1.3 billion (US$ 379.1 million). The total trade volume was 41.5% greater than the same period in 2017. On B3, growth was 68.7% and on the NYSE, 16.2%.

Pioneering spirit and appreciation

Unibanco was the first Brazilian bank to trade its shares on the New York Stock Exchange in 1997. Itaú launched its American Depositary Receipt (ADRs) program on the NYSE in 2002. Following the merger of Unibanco with Itaú in 2008, the shares of the two banks were unified.

Currently, 67% of the 3.2 billion preferred shares of Itaú Unibanco pertain to foreign investors, 38% trading on B3 and 29% on the NYSE. The remaining 33% belong to Brazilian nationals and were traded on B3. The numbers reflect shares in the free float, that is those free for negotiation in the market and excluding those shares in the hands of the controlling shareholders or held as treasury stock.

This performance is the outcome of a transparent agenda in the relationship of Itaú Unibanco with the capital markets started in 1996, with presentations in the United States and Europe for disclosing the bank’s corporate governance practices and for emphasizing its respect and consideration for its shareholders.

“The sustainability of any organization depends on how it interacts with its employees, clients, shareholders and society in general. For this reason, we run a far-reaching agenda of events and meetings for understanding investor requirements and to disclose the strategies and results of our businesses, based on clarity, transparency and on a long-term vision”, says Caio David.

Itaú Unibanco has 121 thousand direct shareholders and a further approximately 1 million indirect shareholders through participation in Brazilian investment and pension funds which hold the institution’s shares.

In the past three years, Itau contributed Value Add to the economy of R$ 189.4 billion (US$56.9 billion), distributed as remuneration to the employees (30%); taxes, charges and contributions (30%); profits and dividends to all shareholders (19%); reinvestments in the operations of the bank (19%) and rents (2%).

New Cycle

In September 2017, the bank changed the maximum limit for payment of Dividends and Interest on Capital, and previously set at 45% excluding share buybacks, introducing a payout (percentage of net profit distributed to the shareholder) of 83% (including buyback of its own shares). In the light of the new remuneration practices, Itaú’s shares have now also become attractive to investment and pension funds where the strategy is to prioritize assets with higher levels of payout and efficient capital management.

In 2017, the bank distributed US$ 5.3 billion in dividends and interest on capital, the result of a recurring net income of US$ 7.5 billion. 

Puente Will Exclusively Distribute a Partners Group Vehicle in Argentina, Uruguay and Paraguay

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Puente anuncia un acuerdo de distribución exclusiva con Partner Group, especialista en mercados privados
Pixabay CC0 Public DomainFederico Tomasevich, CEO at Puente. Puente Will Exclusively Distribute a Partners Group Vehicle in Argentina, Uruguay and Paraguay

After the new Argentine legislation allows Argentine investors to operate financial instruments abroad, provided that they have a local agent as a link to the operation abroad. Puente announced an agreement with Partners Group, one of the leading investment groups in the world, to exclusively distribute one of its innovative investment instruments in Argentina, Uruguay and Paraguay.

“We are very excited about Partners Group’s decision to choose us as its exclusive partner in Argentina, Uruguay and Paraguay, which further strengthens our investment platform, particularly in terms of alternative investments. It presents an opportunity to those that seek to diversify their portfolio, maximizing their capital through investments in private equity, real estate, private debt, and infrastructures. This strategy allows the investor to access dollar returns that aim to be above most of the options available today in the market, with investments with lower volatility and that have a low correlation with traditional markets,” said Federico Tomasevich, President of Puente.

With its head office in Switzerland and 19 offices around the world such as New York or Houston, Partners Group manages more than 74 billion dollars in assets invested in private equity, real estate, private debt and infrastructure projects.

“Partners Group, through Puente, makes available to the Argentine, Uruguayan and Paraguayan investment market, a modern and efficient investment alternative that gives access to Puente’s clients to investments in private markets, which are typically only accessible to large institutional investors. We are very enthusiastic about this agreement with Puente, a renowned institution in the markets in which it operates,” said Gonzalo Fernández Castro, Head of Private Equity for Latin America at Partners Group.

Puente has over 3,400 million dollars in assets under management.