Pixabay CC0 Public Domain. The Impact of Brexit on Hedge Funds: Year - End 2016 Update
Preqin’s year-end update on attitudes to Brexit in the hedge fund industry has found that managers have become more upbeat about the result in the intervening five months. As the majority of fund managers believed the UK would vote to remain in the UK (71%), it is unsurprising that a large proportion were caught out by the immediate market turbulence. In July, 34% of firms thought Brexit had negatively impacted their performance in the aftermath of the vote, although 27% managed to capture this volatility and boost returns.
Since then, managers have been able to navigate the market more adeptly, despite the vote still considerably affecting performance. In November, just 21% of firms have seen a negative impact from Brexit over H2, while 32% have seen their performance affected positively. Going forwards, a quarter of hedge fund managers expect the impact of Brexit to be positive for their portfolios, and now the industry has an opportunity to prove its value in generating non-correlated returns. Investor confidence in the UK also seems to have returned since the referendum.
Immediately after the referendum, 31% of hedge fund investors expected to invest less in the UK over the next 12 months, and 24% expected to invest less in the longer term. As of November, those proportions have fallen to 21% and 18% respectively, while the proportion looking to invest more in the UK over the coming year has risen from 7% in July to 13% currently.
Other Key Facts on the Impact of Brexit on Hedge Funds:
Performance Recovery: UK-and Europe- focused hedge funds incurred steep losses in June 2016, immediately following the referendum result. However, both have more that recovered those losses in Q3, and as of the end of October are showing YTD gains of 1.91% and 0.99% respectively.
Business as Usual: The majority of investors do not think Brexit will alter their hedge fund commitments in either the EU or the UK. Three-quarters of investors plan to invest at the same level in the UK over the long term, while 81% of investors will maintain their current level of investment in EU-based hedge funds.
Fund Manager Location: Although the majority (70%) of UK-based hedge fund managers surveyed in November do not anticipate changing location, this proportion has shrunk since July (80%). Meanwhile, a greater proportion of firms (24%) are now uncertain of their position compared to five months ago (17%).
Firms and Investors: The UK is still home to the majority of hedge fund industry participants. Preqin tracks 944 EU-based hedge fund managers of which 590 (63%) are headquartered in the UK, and 757 EU-based investors of which 408 (54%) are located in the UK.
Size of EU Industry: As of 30th September 2016, the UK hedge fund industry dwarfs that of the rest of the EU market. The UK-based industry currently holds $478bn in assets, while the EU market (minus the UK) is worth $125bn.
You can read the full report in the followig link.
Wikimedia CommonsFoto: Gratisography / Pexels. Cuatro estrategias para vincular mejor valor y precio de los family offices con los clientes de grandes patrimonios
A recent report from Family Office Exchange (FOX) has uncovered new strategies that forward-thinking advisors are beginning to use to better link value and price with their ultra-wealthy clients in the face of increasing price competition.
The findings stem from the recently released 2016 FOX Value Price Study: The Critical Link in Ultra-Wealth Market, which is available to all FOX members. According to the report, advisors have lost at least some pricing power with prospects, as fees quoted to prospective clients have dropped 17% since 2008 and 15% since 2012. Among current clients, fees have flattened-out—in large part due to the difficultly advisors encounter in articulating value.
In response, some advisors have begun utilizing four strategies to better link value and price:
Mastering Underlying Economics: Achieving sustainable business economics by thoroughly understanding value while making pricing and cost management everyone’s job at the firm.
Realigning Price and Value: Making it easier for clients to see how competitor fees line up, and enabling a more effective method to match firm talent against client needs.
Adapting Resources to Meet Changing Client Needs: Making it easier for clients to access the firm’s capabilities, and determining more efficient ways of bringing resources to bear on the client’s most pressing needs.
Managing Perception of Value: Better connecting client needs to the full value the firm may provide to them, and continually assessing whether their fees are aligned with that value
“The 2016 FOX Value Price Study reveals that the state of the ultra-wealth business remains quite healthy, even in the face of market volatility and growing competitive intensity. However, we have uncovered mounting evidence that the prevailing pricing model employed by ultra-wealth advisors needs attention,” said David Toth, Director of Advisor Research at Family Office Exchange. “The value/price relationship deserves careful thought when considering what changes to make to the pricing model. This report takes a look at how some firms are taking on the challenge of finding better ways to demonstrate value to their clients while refining their pricing models.”
Pixabay CC0 Public DomainPhoto: Joakant . North America-Focused Hedge Funds Post Strong Returns in November
According to research done by Preqin, North America-focused hedge funds recovered from losses suffered in October (-0.69%) to post returns of 2.89% through November, the greatest of any region. This takes North America funds’ 2016 YTD performance to 9.09%, also the highest of any region. By contrast, Europe-focused hedge funds posted smaller gains of 0.09% in November, while Asia-Pacific funds suffered losses of 0.47%, taking YTD performance to 1.07% and 1.88% respectively for the two regions.
Overall, November saw positive performance across the hedge fund industry; the Preqin All-Strategies Hedge Fund benchmark recorded gains of 1.00% in November, taking 2016 YTD performance to 6.34%. All top-level strategies saw positive returns for the month, with event driven strategies seeing the biggest gains of 2.34%.
Through 2016 so far, event driven funds have returned 10.74%, the highest of any strategy, while relative value funds have had the lowest YTD performance, returning 4.08% as of the end of November.
Amy Bensted, Head of Hedge Fund Products, Preqin, said: “Hedge funds focused on North America generated healthy performance in November and exceeded all other regions, as firms capitalized on opportunities arising from the US election result. The majority (53%) of hedge fund managers surveyed by Preqin in November said that they expect the performance of their portfolio to profit as a result of the US election over the remainder of 2016. Europe-and Asia-focused funds have seen more marginal gains, but all regions have performed positively over the year so far. Overall, the hedge fund industry has rebounded well over 2016 from the difficulties seen at the beginning of the year, and can approach 2017 with optimism, as performance is on track to exceed 2015 and 2014. Although the industry benchmark has not made monthly gains exceeding 1% across most of the year, the run of positive performance from March to September was the longest consistent run of gains seen since 2012-13.”
Other Key Hedge Fund Performance Facts:
Emerging Markets Lose Out: In November, emerging markets- focused hedge funds suffered losses of 1.73%, while developed markets posted gains of 0.96%. However, in 2016 YTD vehicles focused on emerging markets have returned 7.91%, above that of developed markets (+5.20%).
Large Funds Return to Form: In 2016, Preqin’s performance by size classification breakdown in 2016 has largely seen smaller funds post the highest returns. However, in November funds larger than $1bn posted 1.10%, the best performance of any size, with emerging and small funds making gains of 0.89% and 0.97% respectively.
CTA Struggles Continue:CTAs ended their run of negative performance in November, as they returned 0.07% for the month. Despite this, CTA funds have made YTD losses of 0.30%, and 12-month performance is also negative, standing at -1.69%.
Positive Month for Activist Funds: 2016 has been a positive year for activist hedge funds so far; the trading style recovered from losses in October to post returns of 2.34% in November, and have now made gains of 8.67% in 2016 YTD. Volatility-focused funds also saw gains of 0.85% in November, and have posted only one month of negative performance through the year so far.
According to KPMG‘s 2016 Global Women in Alternative Investments Report: The Time is Now: Real Change, Real Impact, Seize the Moment, mandates and programs for women-owned and managed fund increased to 10 percent in 2016 from just two percent in 2013. At a majority of investors, women-led funds represent less than 5 percent of their total portfolio.
This year’s report highlights that emerging manger mandates are on the rise among investors, presenting additional opportunities for women-owned and managed funds. Forty percent of women-owned and managed fund respondents have pursued emerging manager mandates, up from 31 percent last year. Nearly half who pursued mandates this year won them.
However, while 32 percent of investors polled said they expect an increase in their allocations to emerging managers over the next 18 months, only 16 percent expect allocations to women-owned and managed funds to increase over the same timeframe.
Alternative Investments Audit partner Kelly Rau, also a co-author of this year’s report, added: “Although we have not seen considerable improvement in some areas since last year, there are signs of progress. Firms are embarking on creative initiatives designed to better retain and advance women in alternatives, and there are greater numbers of investors considering allocations to women-owned and managed funds.”
Alternative Investments Sector Outlook Is Mixed for the Next 18 months
48 percent expect hedge fund performance will improve. However, 18 percent of investors expect to decrease allocations to hedge funds while the same percentage plans to increase allocations to the sector.
30 percent expect improved performance for private equity; 30 percent of investors plan to increase allocations to the sector
18 percent expect improved performance for real estate funds; and 22 percent of investors plan to increase their real estate allocations
CC-BY-SA-2.0, FlickrPhoto: Anita Ritenour. Challenges in Frontier Markets: Kenya
Global Evolution’s, team visited Kenya in early Dec 16 in order to gauge the degree of likely policy slippage going into mid-2017 elections. The frontier markets experts met with various economic stakeholders including representatives from the Central Bank of Kenya (CBK) and the Finance Ministry. The visit reiterated their extremely constructive longer-term outlook for the economy, but highlighted some potential short-term vulnerabilities:
Growth outlook
Kenya is at an interesting inflection point: the combination of the new SGR railway between Mombasa and Nairobi and improved energy production should enable the development of an industrial corridor along its route. A shift into light manufacturing will have a major impact on the structure of the economy. Meanwhile, GDP growth was around 6.2% y/y in Q2:16 compared to 5.9% y/y in Q2:15
Political risk
Kenya has elections on 8 Aug 17 and it is likely that the government’s focus will increasingly look towards political gain rather than policy changes in the interim. It is likely that Kenyatta and his National Alliance will win the elections unless the so called National Super Alliance (NASA) which is being spearheaded by ANC leader Musalia Mudavadi is successful in getting agreement between Mudavadi and ODM leader Raila Odinga as to who will lead the party. They suspect an Odinga leadership is unlikely to unseat Kenyatta: a Mudavadi leadership just might.
As with the previous election, which saw limited security issues, the sense is that politicians will be more constrained in whipping up violent ethnic sentiment for political gain during the campaigning for next year’s elections.
The election is becoming more of a focus for policy decisions. In particular, the private members legislation on fixing interest rates, which was unanimously supported in parliament despite being opposed by the executive, is unlikely to be overturned or amended prior to the elections.
Monetary policy
The CBK has a problem. In late Aug 16 parliament unanimously passed a bill capping the spread on interest rates around the CBKs policy rate with a maximum spread of 700 bps. As with all such populist legislation, the rule has created some unwelcome influences. First, it has added to the liquidity pressure being faced by the lower tier banks following the collapse of 3 of them earlier in the year.
Second, it has reduced credit to the private sector as the government is presently financing above the cap intended for private lending. We met several private banks who suggested that once the administration and risk premium is added to private sector clients there was limited value in lending to them, rather than the government.
Third, in order to keep the lower tier banks solvent, the CBK is extending liquidity to them as the interbank market will not at present. This is pulling down the short end of the money market curve and placing upwards pressure on USDKES. Making it relatively cheap to short the KES into an election is always a very dangerous monetary policy move.
To some extent the CBK is between a rock and a hard place, as it balances the needs of banking sector and currency stability. The result has been a reduction in FX reserves to around USD7.33bn in late Nov 16 from USD7.78bn in late Oct 16. The upwards pressure on USDKES has also drawn the attention of a very maternal CBK who is attempting to micro-manage the FX trading of the major banks. Not surprisingly, most of the banks we spoke with believed that USDKES would grind higher into next year’s elections, although none saw an extended or aggressive sell-off.
Inflation appears to have found a bit of a bottom around 5.0% y/y in Q2:16 and has been drifted up again to 6.7% y/y in Nov 16. With a 3-6% inflation range target the move limits the room for the CBK to further cut rates, at least for now. Interestingly, despite policy rates likely remaining on hold, the bid from commercial banks for government paper created by the new interest rate spread legislation will keep fixed income well bid in coming months.
Global Evolution, an asset management firm specialized in emerging and frontier markets sovereign debt, is represented by Capital Strategies in the Americas Region.
Wealth and asset managers in Asia ex-Japan face the challenging task of managing the expectations of retail investors who are prone to poor investment habits, yet look for high returns on their investment portfolios. These findings and more are from a new report by global research and consulting firm Cerulli Associates, Asian Wealth Management 2016: Tailor-Made for the Wealthy.
According to the report, common investment habits among investors in the region include timing the markets or focusing on the short term, having a late start to investing, and lacking in portfolio diversification.
In Cerulli’s proprietary survey of a total of 1,800 investors in six countries in Asia ex-Japan–China, India, South Korea, Taiwan, Hong Kong and Singapore–more than 50% of respondents cited timing markets as their most common practice. While this practice is observed across the region, it is especially evident among Chinese and Indian investors. In terms of wealth tiers, this is more prevalent among high-net-worth investors.
One positive takeaway from Cerulli’s survey is that retail investors in the region intend to diversify their portfolios in coming months. However, the real dilemma for wealth managers is that they aspire for high returns with low-risk products amid volatile global markets.
A majority of respondents in Cerulli’s survey (barring those in Korea and Singapore) said they are looking for returns that are 5% higher than their respective country’s one-year deposit rates. In Singapore and Korea, a majority of investors’ desired returns are 3% higher than the one-year savings deposit rate in their country.
Yet, these investors have turned conservative and have significant allocation to cash and deposits in their investment portfolios. As such, wealth managers will need to convince these investors to look at other investment products to enhance portfolio returns over the longer term, given the low-yield environment.
As for wealth managers, they are striving to increase the risk profiles of investors by advising them to invest in liquid alternatives. However, Cerulli’s survey shows the percentage of retail investors who are willing to invest in alternatives, including the liquid versions, is low even in markets such as Singapore, Hong Kong, and Taiwan.
Further, new product launches have been mostly plain-vanilla funds across the region, while new product ideas have been limited except in Korea, which has seen the launch of robotics, water and clean-energy thematic funds, as well as a mutual fund sub-advised by a robo-advisor.
Meanwhile, product differentiation is one of the strategies private banks in Asia are adopting to stand out among the competition.
“Compared to improving on client service through the training of relationship managers or digitalization, which is often difficult to implement and measure, providing exclusive access to investment solutions is a more direct way of capturing and retaining investor loyalty,” said Shu Mei Chua, an associate director at Cerulli, who led the report.
Another finding from the report is that affluent Asians are gradually warming up to discretionary portfolio management (DPM) services, and this potentially offers opportunities for asset managers as well as wealth managers. “DPM is gaining traction as it has become increasingly difficult for clients to make their own decisions amid the volatile market conditions, leading them to seek professional services,” said Leena Dagade, senior analyst at Cerulli.
Foto: media.digest
. Más de la mitad de los activos de los grandes patrimonios se gestiona de forma discrecional
When approaching wealth managers for investment management, high net worth (HNW) individuals are more likely to opt for discretionary mandates over other services, according Verdict Financial’s 2016 Global Wealth Managers Survey, the company’s latestreport that analyzes the demand for discretionary asset management of HNW investors in 17 countries.
Although 52% of millionaires’ investable assets are managed on a discretionary basis globally, the level of interest in such services varies significantly between markets.
Bartosz Golba, Acting Head of Wealth Management at Verdict Financial, states: “HNW individuals in Singapore, the UK, and the US have an average of more than 70% of their portfolios placed in discretionary mandates – the highest share across the globe. These are all developed markets, where the uptake of discretionary asset management is generally higher than in emerging economies.
“Such services are a perfect match for clients lacking the time and expertise to manage their investments, both major factors driving demand for discretionary mandates. However, trust plays an important role as well. Investors will be skeptical about giving up control over the investment decisions to advisors they do not know well and do not have a relationship with.”
According to Golba, established wealth managers will try to leverage their relationships with existing clients to increase mandates penetration: “Discretionary services offer higher profit margins than advisory propositions. In this way, growing mandates penetration is at the center of many providers’ strategies, one example being Citi Private Bank, particularly in the Asia-Pacific region. For players with large client books, moving assets to mandated services might prove an easier way to grow revenue than competing for new clients.”
Verdict Financial’s research shows that discretionary portfolio managers will also experience competition from digital providers, which have traditionally been conceived as appealing mostly to self-directed investors.
Golba continues: “Wealth managers in developed markets have started to lean towards the view that digital players no longer compete only for execution-only business. Indeed, in Europe many providers dubbed ‘robo-advisors’ offer a discretionary investment management service. They have clear fee structures which appeal to price-sensitive clients, though the lack of a recognized brand remains their primary handicap.”
Lombard Odier Investment Managers has appointed Jerry Devlin as head of UK Third-Party Distribution.
Devlin was previously head of UK Distribution at Amundi for three and a half years. At Amundi, Jerry was responsible for implementing a distribution strategy in the UK with an emphasis on global distribution accounts.
Prior to this, he was head of UK Wholesale at Macquarie Group, and has also held head of Sales roles at Castlestone Management and Barings.
Following the departure of Dominick Peasley, head of UK Third-Party Distribution, to pursue other opportunities within financial services, Devlin will join Lombard Odier on 3 January 2017.
“Unprecedented negative rates and direct intervention of key central banks has created a number of unintended consequences for investors to contend with. At Lombard Odier we seek to re-evaluate and rethink the world around us, to build an innovative and specialist investment offering that helps investors face these challenges. We are pleased to welcome Jerry, who brings a wealth of experience and insight that will be valuable as we grow our distribution business in the UK,” said Carolina Minio-Paluello, global head of Sales and Solutions at Lombard Odier.
“We would also like to take this opportunity to wish Dominick well in his future endeavours and thank him for the work he has done during his time with Lombard Odier,” she added.
CC-BY-SA-2.0, FlickrPhoto: Nikolaj Potanin. US Reflation and Chinese Capital Flight Heighten Emerging Markets Outflows
According to Willem Verhagen, Senior Economist at NN Investment Partners, the most important development in EM recently has been the sharp deterioration in capital flows. After flows had improved in the period February‐June, mainly driven by the more urgent search for yield globally, they started to weaken again in the summer. The specialist notices that from the moment that US yields started to rise, EM outflows have increased. In October, when the pace of the US yield increase accelerated, also EM outflows accelerated. And when the Trump election caused a break‐out in US yields, EM flows reacted immediately: November became one of the worst outflow months on record, with an estimated outflow of USD 124 billion. This compares with USD 122 billion last January, USD 62 billion in June 2013 (Fed tapering fear) and USD 218 billion in October 2008. Large capital outflows lead to a tightening of financial conditions and a slowdown in economic growth.
In his opinion, one can distinguish two main factors that explain the increasing capital outflows. Firstly, the serious headwinds to the global search for yield due to the market excitement about US reflation. Given the huge inflows into EM debt markets in the past years (despite deteriorating EM fundamentals!), we should be worried that outflows can continue for a while and can get nastier.
And secondly, Chinese outflows have been accelerating in the past months, not so much because global money is leaving China. But it is Chinese households and corporates that are taking more capital offshore, despite tightened regulation by the authorities in Beijing. An important role plays the continuous depreciation of the renminbi versus the US dollar, that is making Chinese people with money more nervous. “The depreciation of the renminbi is likely to continue, due to the US reflation expectations and due to the dramatic rise in leverage and the sharp money supply growth with only a limited impact on Chinese growth. In the background remains the threat of US protectionism, that potentially can push the Chinese currency much weaker.” Verhagen concludes.
Wikimedia CommonsFoto: Hollingsworth John and Karen, U.S. Fish and Wildlife Service. Los inversores globales siguen reduciendo sus exposiciones a efectivo
The BofA Merrill Lynch December Fund Manager Survey shows Wall Street is bullish as cash levels continue to drop.
“Fund managers have pushed pause on a risk rally, with cash balances falling sharply over the past two months,” said Michael Hartnett, chief investment strategist. “With expectations of growth, inflation and corporate profits at multi-year highs, Wall Street is sending a strong signal that it is bullish.”
Manish Kabra, European equity quantitative strategist, added that, “Despite the improved outlook on European economic growth and inflation, global investors continue to shun European stocks amid concerns of further EU disintegration or bank defaults.”
Other highlights include:
Investor expectations of global growth jump to 19-month highs (net 57% from net 35% in November), while expectations of global inflation are at the second highest percentage level in over 12 years (net 84% from net 85% last month).
With a net 56% of investors thinking global profits will improve in the next 12 months, fund managers are the most optimistic about corporate profit expectations in 6.5 years.
Cash levels continue to fall to 4.8% in December from 5.0% in November and 5.8% in October.
Allocation to banks jumps to record highs (net 31% overweight from net 25% last month); the current reading is far above its long-term average.
Over one-third of investors surveyed name Long USD as the most crowded trade.
Investors identify EU disintegration and a bond crash as the two most commonly cited tail risks, corroborated by light EU and bond positioning.
On corporate investment, a record number of investors (net 74%) think companies are currently under-investing.
54% of investors, up from 44% last month, think the rotation to cyclical styles and inflationary sectors will continue well into 2017, supported by a strong USD and higher rates.
Allocation to US equities improves to 2-year highs of net 15% overweight from net 4% overweight in November.
Allocation to Japanese equities jumps to 10-month highs, from net 5% underweight in November to net 21% overweight in December; this is the biggest month-over-month jump in FMS history.
Investors are underweight Eurozone equities for the first time in 5 months, at net 1% underweight in December from net 4% overweight last month.
