Aliant, aLos Angeles-based international law firm, has observed a significant spike in the number of clients moving wealth outside the United Statesfollowing the presidential election.
Donald Trump’s successful campaign clinched him the presidency, but his ‘America First’ foreign policy has raised concerns in the global community and among the affluent Americans. It is not unusual for governments with a nationalist bend to restrict the outflow of wealth.
Jacob Stein, one of Aliant’s partners in Los Angeles, chairs the firm’s private wealth and asset protection practice and represents a significant number of ultra-high net worth families, including Forbes 400 families. Stein states, “A lot of our wealthy U.S. clients have contacted us about moving wealth offshore. Some have expressed concerns about the uncertainty of the Trump presidency, the future of the U.S. economy, possible currency controls, prohibitions against foreign investment and currency risks. These clients are looking to diversify their wealth out of the U.S., access foreign markets, diversify their currency portfolios and set aside a secure box of wealth beyond the reach of the U.S. government.”
Analysts speculate that trade and investment will drop sharply because Trump’s proposed foreign policy will place a strain on alliances and trade agreements, leading to instability. An unstable economy makes investors fearful.
Stein confirms that the fear of economic and financial instability is the primary reason for the flight of capital out of the U.S. The firm is representing these clients to establish offshore wealth holding structures like foreign trusts and private foundations, to set up offshore bank and investment accounts and to ensure that all offshore structures are protected from creditors and anonymous to the greatest extent possible, without running afoul of the tax laws and government mandated disclosures.
Photo: Pok_Rie. Por qué no es buena idea seguir ignorando a los mercados emergentes
According to Derek Silva, Portfolio Manager at Elvi, nothing scares more than the words “Emerging Markets corporate debt.” in his opinion, the list of frightening aspects is plentiful:
There’s Russia’s geopolitical issues.
Turkey’s coup attempt and downgrade to junk.
Brazilian corporate and political scandals.
President elect Trump’s Mexico obsession.
And then there’s China, for which CNBC and Bloomberg have a favourite term, “China worries”, to lazily explain any down day in global markets when they cannot find any other good reason.
So, EM corporate debt? Who buys this stuff? Well, if you ignore it, Silva believes you’re missing out on some excellent diversification and the best risk/return over the past 17 years. In fact, since 1999, EM IG has the best risk/return (in terms of Sharpe ratio) among all major fixed income asset classes. And EM HY outperforms its US and EU counterparts by the same measure.
It is interesting that diversification is one of the basic principles of investing and yet many investors, both professionals and laypersons, only put tiny portions of their equity/fixed-income allocations into EM, despite EM growth rates being double those of DM economies. Only in this year’s extreme scenario of a global low rate environment have investors piled into EM equities and debt. But even after retail inflows into EM corporate debt reached record levels this summer, a recent survey by JP Morgan revealed most are still underweight in EM debt. To see the benefits of adding EM to an investor’s portfolio, since 1999, the addition of EM IG & HY (to US credit holdings) have provided an extra 0.5% of return for the same level of risk, and dramatically higher returns for smaller increases in risk.
Silva believes that the EM market is more resilient to crises than US and European markets. Why? Because DM markets are priced to perfection and any scandal or crisis can have wide-ranging negative effects for the whole DM markets. Just look at the most recent example, with problems at one bank (Deutsche Bank) shaking the European markets and even spilling over into the US.
In contrast, “EM” is truly diversified by 5 vastly different regions (Asia, Latin America, Middle East, East Europe, Africa) and over 40 countries within the broad corporate bond benchmark (no country more than 10% weighting). These include even advanced (but not yet officially “DM”) economies like Singapore, Taiwan, Hong Kong and Korea, along with riskier “high beta” countries like Russia, Turkey and South Africa. But it is rare for any individual crisis to affect the EM credit market as a whole.
When Turkey’s credit rating was junked recently, only the Turkish credits were weak. Last year, during 2015’s corporate and political scandals in Brazil, it was mainly Brazil’s markets that suffered. The prior year, in 2014, when Russia was in conflict with Ukraine, it was mainly Russia and Ukraine that were affected. During all of these events, regions like Asia continued chugging along with attractive returns, immune to the crises in other EM regions. Even for a more wide-ranging crisis, like when many commodities prices fell dramatically in late 2015 and early 2016, some countries suffered (LatAm, Middle East), while some countries benefited (Asia).
In 2016, EM credit markets have been the best in global fixed-income, with double-digit returns, in spite of a myriad of negative factors:
still low commodity prices,
slow turnarounds in Brazil and Russia,
Turkish political problems and downgrade to junk,
South Africa’s impending downgrade to junk,
“China worries”,
the Trump-Mexico effect,
and the looming threat of a Fed rate hike.
“I believe this is a testament to EM’s superior diversification, growth and ability to derive attractive long-term risk/return performance. This is something that cannot be ignored for long.” He concludes.
Pixabay CC0 Public Domain. PIMCO Announces Joint Venture with Solar Capital Partners
PIMCO has entered into a joint venture with Solar Capital Partners as the firm continues to develop and expand its private credit platform. Solar Capital Partners is an experienced and highly respected investor in private corporate credit with a successful 10-year track record of making private loans to corporate borrowers. The firm also has an extensive network of relationships with middle market borrowers and private equity sponsors.
This joint venture is the result of collaboration between PIMCO and Solar Capital Partners that began in 2014. Emmanuel Roman, PIMCO’s Chief Executive Officer said: “This joint venture is a continuation of the disciplined expansion of PIMCO’s alternatives’ strategies since 2004, where we have sought to capitalize on targeted market opportunities by leveraging PIMCO’s broad investment expertise and long-term performance focus.” Dan Ivascyn, Group Chief Investment Officer of PIMCO added: “We believe the combination of Solar Capital Partners’ proven credit underwriting and relationships matched with PIMCO’s global credit investment experience creates a superior ability in sourcing, evaluating, and underwriting private investments. We believe that private credit is an attractive super-secular opportunity.”
Michael Gross, Co-Founder of Solar Capital Partners, said: “We are excited about expanding our partnership with PIMCO and the depth of resources they can bring to our investment process. We believe that a well-managed, private direct corporate lending strategy has the potential to provide an attractive risk-adjusted yield premium relative to public credit investments.” “Together with the two publicly-traded Business Development Companies that we manage, Solar Capital Ltd. and Solar Senior Capital Ltd., our joint venture with PIMCO can provide us with significant scale to deliver full solutions to our clients,” said Bruce Spohler, Co-Founder of Solar Capital Partners.
Pixabay CC0 Public Domain. Amundi Acquires Pioneer Paying €3,545 Million to Unicredit
Amundi announces that it has signed a binding agreement with UniCredit in order to acquire Pioneer Investments for an all-cash consideration of €3,545 million. As part of the transaction, Amundi will form a long term strategic partnership with UniCredit for the distribution of asset management products.
With €222 billion of assets under management, a majority being retail assets, Pioneer Investments has a highly complementary business and geographic profile with Amundi, the firms declare in the press release.
Eighth Largest Asset Manager Globally
This acquisition will strengthen significantly Amundi’s industrial project and reinforce its position as the European leader in asset management. It will create the 8th largest asset manager globally with €1,276 billion of assets under management, and will allow Amundi to reinforce its leadership in key European markets. “The combined entity will be number 1 in France, in a top 3 position in Italy and in Austria, and in a strong position in Germany.”
Italy will become Amundi’s second domestic market with €160bn under management, and Milan will become one of the Group’s investment “hubs”. The number of staff in Milan will therefore significantly increase.
The price of the acquisition is €3,545 million. The transaction will be financed by c.€1.5 billion of excess capital, a c.€1.4bn capital increase (rights issue), and c.€0.6bn of senior and subordinated debt. The rights issue will be launched in H1 2017 and will be underwritten by Crédit Agricole Group.
The transaction is expected to close in the first half of 2017.
Commenting on the acquisition, Xavier Musca, Chairman of the Board of Directors of Amundi, said “This acquisition is fully in line with the selective acquisition strategy announced at the time of the IPO: Pioneer Investments will reinforce Amundi’s product expertise, broaden its distribution channels and networks, and generate significant synergies. It confirms Amundi’s position as a clear European leader in asset management, in terms of size and profitability.”
Yves Perrier, Chief Executive Officer of Amundi, added “The acquisition of Pioneer Investments is a major step to anchor Amundi as the European leader in asset management. This acquisition will reinforce Amundi’s industrial model and will benefit our clients whilst creating significant value for our shareholders. Pioneer Investments is a world class asset manager that has a highly complementary business and geographic profile. At Amundi we are all excited to welcome soon our new colleagues who will join us in a leading asset management group fully dedicated to serve its retail and institutional clients.”
Pixabay CC0 Public DomainFree photos. Crédito corporativo europeo: perspectivas para el segundo semestre de 2018
PineBridge Investments a leading global multi-asset class investment manager, today released its 2017 Global Investment Outlook, a comprehensive analysis and preview across asset classes of the opportunities and risks for investors in the year ahead.
“We surveyed the state of the markets on behalf of multi-asset, fixed income, and equity investors around the world. What we found is that all of these markets are ripe for change – and the catalysts are everywhere,” said Greg Ehret, CEO of PineBridge. “Political winds are shifting across developed and emerging economies and globalization shifts are creating new challenges and opportunities. Investors will have to look within and across geographies, sectors, and asset classes to best position themselves for this new chapter. ”
In 2017, investors will need to keep an eye on the rise of political risk in the developed world, particularly in the US and Europe, which could depress growth and raise market volatility. Markus Schomer, Chief Economist, is looking for a move in monetary policy away from excessive stimulus in the developed world and toward a more balanced stance that will gradually turn into policy normalization in the next few years.
“There should also be a gradual shift toward growing business investment – as long as interest rates remain low – instead of labor expenditures. Overall, the team expects a moderate reacceleration in global economic growth from the 3% average in the past two years to 3.4% in 2017 and 3.7% in 2018,” said Schomer. For US GDP, growth forecasts have been raised to 2.7% in 2017 and 2.9% in 2018.
Multi-Asset: Fasten Your Seat Belts, It’s Going to Be a Bumpy Regime Change
“The year ahead marks several simultaneous secular turning points including the initial signs of deleveraging ending in the US. A net plus to global growth with more meaningful differences to regional, sector, asset class, and factor winners and losers is a healthy backdrop for seeking alpha from choosing beta,” said Michael J. Kelly, Global Head of Multi-Asset. “When the two largest economies – the US and China – pivot from slowing to revving up, take notice. Several other simultaneous regime changes are also likely to be fellow travelers.”
While the US equity market previously appeared modestly overvalued, after-tax cash flows will now be worth more if taxes are meaningfully reduced. US GDP should also accelerate from a host of factors. Given US small-cap and value stocks’ economic sensitivity, their attractive valuation is now being complemented with improving fundamentals by the second half of 2017, when tax rates should decline.
Countries with accelerating and domestically sourced growth –like India and Indonesia– provide compelling opportunities. Commodity producers should be big winners with infrastructure programs working their way through the pipeline. Risks to the outlook include trade negotiations spiralling into a global trade war, an inflation scare (but not an actual spike) emanating from the US, sluggishness in Europe and Japan, where negative interest rates and commensurately low output gaps persist, and China rethinking its faster trajectory.
Fixed Income: Investors Return to Coupon-Clipping in a Shifting, More Uncertain Environment
In 2017, PineBridge expects fixed income returns to decline while tail risks increase. More caution is in order given the likelihood of volatility flashpoints related to rising political risk in developed countries as well as a limited valuation cushion to absorb market shocks.
“With political risk and a transitory environment of monetary and fiscal policy we can expect heightened bouts of volatility to impact investing in fixed income. Investors must capture incremental alpha opportunities both across and within asset classes through micro views and security selection,” said Steven Oh, Global Head of Credit and Fixed Income.
Across developed markets investment grade, US dollar credit is preferred over European credit with Treasury Inflation-Protected Securities (TIPS) as a defensive portfolio hedge, given higher US inflation risk. In leveraged finance, loans are favored over high-yield bonds on a risk-adjusted basis, with the US more attractive than Europe. In emerging markets, hard currency investment grade bonds over high yield segments are recommended for 2017, along with a targeted approach toward local currencies.
Equities: A Return to Fundamentally Driven Investing
The period of sharply falling earnings estimates for 2017 appears to have ended, with an increase in the number of companies seeing positive revisions, which should restore investors’ confidence in the broad equity market. The slump in emerging markets may be ending as many of the main factors that led to underperformance are now stabilizing or even reversing, and infrastructure spending ramps up in Asia. However, risks to equity markets remain with the uncertainty around US trade agreements or a potential disorderly increase in bond yields.
“We see equity flows pivoting to active strategies in a market driven by fundamentals where selectivity will be key, as global growth accelerates,” said Anik Sen, Global Head of Equities. “We maintain a high conviction on technology-related investments, small and midcap stocks, the US regional banks as well as in industries that benefit from infrastructure spending. In emerging markets, China is a bright spot with attractive secular growth in a number of sectors, and our positive view on India and Brazil, in particular, remains unchanged.”
A political agreement reached on the Money Market Fund Regulation was signed-off by the Council of Ministers on December 7th in a meeting of EU Ambassadors (COREPER) and on December 8th by the European Parliament’s ECON Committee. These votes followed an original proposal by the European Commission in September 2013.
According to a press release, “EFAMA is appreciative of the work done and time spent by EU policymakers, which has resulted in a more workable outcome than the initial proposal, for European investors, MMF managers and the Capital Markets Union more generally.”
Peter De Proft, Director General of EFAMA commented: “EFAMA members manage both VNAV and CNAV Money Market Funds. From the outset, we have indicated that a proportionate and balanced Regulation which ensures the viability of both CNAV and VNAV MMFs can support alternative sources of financing to the real economy, a key focus of the European Commission’s flagship initiative on a Capital Markets Union.”
He continued: “In terms of CNAV MMFs, we welcome the creation of the LVNAV product which has the possibility of offering investors a real alternative to European CNAV Prime MMFs. Equally important is the retention of a workable government CNAV regime in different currencies. For the VNAV industry, a number of serious operational challenges have been minimised. However, the MMFR is by no means a panacea for either the industry or investors in MMFs”.
One noteworthy concern for both sides of the industry are the liquidity calculations of MMFs. EFAMA believes that the lack of a principles-based approach on liquidity will make it difficult to determine whether the arbitrary thresholds set in the final political agreement will be workable in different market scenarios.
EFAMA also regrets the agreement’s rejection of MMFs being able to operate as funds of funds, an important mechanism used by many VNAV managers for diversification purposes, and points out to some outstanding concerns on how the exemption from the 10% diversification limit of assets in deposits would work.
Finally, there are some practical difficulties with the ‘Know Your Customer’ requirements and the periodic reviews of the internal credit quality assessments will, in EFAMA’s view, not be workable for smaller players on the market.
Peter De Proft concluded: “There is no doubt that today’s MMFR result is a better outcome than the initial European Commission proposal. However, one cannot ignore the number of question marks on the potential consequences of different parts of the agreement. It remains to be seen whether smaller players will be able to continue operating, given the more elaborate compliance and disclosure requirements, combined with low business margins”.
. Michelle Scrimgeour, New CEO EMEA at Columbia Threadneedle Investments
Columbia Threadneedle has appointed Michelle Scrimgeour as chief executive officer, Europe, Middle East & Africa (EMEA) and CEO of Threadneedle Asset Management Limited.
She will also join the executive leadership team of Ameriprise Financial, Columbia Threadneedle being the global asset management group of Ameriprise Financial.
Scrimgeour joins from M&G Investments, where she holds currently the roles of chief risk officer and director of M&G Group Limited.
Prior to joining M&G, she worked at BlackRock where she was a member of the European executive committee which led the firm’s $1trn EMEA business and oversaw the integration of BlackRock and BGI in London.
Formerly, she has also been chief operating officer for international fixed income; global head of Fixed Income Product; head of Alternative Investments and held senior roles in the quantitative equity and transition management businesses of Merrill Lynch Investment Managers and Mercury Asset Management (now known as BlackRock).
Commenting the appointment, Ted Truscott, global CEO of Columbia Threadneedle, said: “Michelle joins Columbia Threadneedle at an exciting time as we further build our global business and continue to focus on delivering successful investment outcomes and solutions for our clients.”
As of 30 September 2016, Columbia Threadneedle managed €416bn in assets.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.
To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP. In addition to the extension of the programme, the following parameters will be adjusted on 2 January 2017:
The maturity range of the public sector purchase programme (PSPP) will be broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year.
Purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will be permitted to the extent necessary. The implementation details will be worked out by the relevant committees.
CC-BY-SA-2.0, FlickrPhoto: Mark Morgan
. 2017 Outlook: Optimistic, but Not Euphoric
Optimistic, but not euphoric, is how Stefan Kreuzkamp describes his outlook for the international financial markets over the coming year. Yields only in the mid single figures is the best that can be expected right across all asset classes, according to the Chief Investment Officer at Deutsche Asset Management. Correct selection and diversification of investments will be even more important than last year. In principle, Deutsche AM favours investments with strong income components – such as good payers of dividends, selected higher-yield bonds as well as alternative infrastructure and real estate investments. “We are not pinning our hopes for economic growth and capital market returns very high for 2017. Having said that, we have no concerns that we will see recession in the major economic regions. However, political and central bank actions may continue to prompt short-term dips in the market,” said Kreuzkamp.
The political scene remains the biggest unknown in Kreuzkamp’s view: the unresolved Brexit issue and elections in some key European countries mean that the spotlight is firmly back on the future of the European Union (EU) as well as nationalism and protectionism. In recent times, EU opponents have gained some ground. Regional conflicts, such as Syria and Eastern Ukraine, continue to inflate and to rage. This is topped by Russian and Chinese foreign policy ambitions.
Politics shapes markets
Kreuzkamp believes that developments in the US are extremely important. In his view, President-elect Donald Trump is entirely capable of shaping the markets in a sustained way. This is especially true as a Republican-dominated congress could grant him considerable room for maneuver. “A combination of tax cuts, deregulation and infrastructure projects could stimulate the US economy to the extent that this boost could continue for eight or even nine years. But this will bring inflation,” said Kreuzkamp.
The financial markets have already given their initial reactions. But it is also conceivable that investor enthusiasm could soon fade somewhat. On the one hand, this could be the result of plans will not be executed as quickly as many in the markets would hope, and on the other hand, the flip side of Trump’s policies could rear its head again – for example restrictions on free global trade. But it is a matter of pure speculation if Trump really will, or will be able to, pursue protectionism – isolation would squeeze the competitiveness of American companies if costs were to increase. In this respect, Deutsche AM expects to see the pace of growth and inflation pick up only slightly during 2017. “We will be reviewing all our positions regularly in line with US political developments. We are fully aware of the President-elect’s potential to surprise – in both directions. Politics shapes markets”, explained Kreuzkamp.
In global terms, he expects to see growth of 3.5 per cent, which would make 2017 the eighth consecutive year with growth above 3 per cent – something last seen in the 1960s. An economic upturn is also expected in the Eurozone. For 2017, Deutsche AM expects to see growth of 1.3 per cent – mainly driven by consumption.
Strong dollar
In the bond and currency arena, this coming year will initially be marked by even more divergence in central bank policies with a knock-on impact for the US dollar. Two further interest rate hikes are anticipated in the US – following the move in December 2016 – yet the EU is expected to remain at its low levels and continue to actively pursue its bond buy-back program well into next year. Nevertheless the so-called tapering phase may then begin.
Next year the expectation is that the US dollar will remain strong. “We are assuming that the lowest interest rate is now behind us, but we are not counting on sustained increases. In 2017, key European countries and the US are likely to see negative overall yields from sovereign bonds. Interest rate divergence between the Eurozone and the US is likely to increase. In the medium term, we are not convinced that this era of very low interest rates is at an end, although 2016 may well have marked the lowest point for interest rates,” said Bill Chepolis, Head of Fixed Income EMEA at Deutsche AM. From an investment point of view, Deutsche AM continues to pursue its preference for corporate bonds in Europe and the US, as well as sovereign bonds from peripheral European countries. Within the emerging markets grouping, there are attractive hard currency sovereign bonds, even if these are subject to a higher level of price volatility.
Manage risk actively
Deutsche AM estimates the international equity markets will achieve single digit growth, but the situation differs widely across the important markets with US indices recently setting new records. Unfortunately any prognosis remains very difficult because of the uncertainty surrounding Trump policy. US equities could indeed benefit from deregulation and a new fiscal program, but this could be subdued by a strong dollar and wage pressures. Rising interest rates would tend to preclude increasing equity prices. In emerging markets, a higher US interest rate is just one issue that could fuel uncertainty. Having said that, emerging markets are witnessing an economic recovery which could benefit European equities, most especially in Germany, emphasised Thomas Schüssler, designated Co-Head of Equities at Deutsche AM. He points out that recent corporate figures out of Europe have started to look promising again. At the moment, stock exchanges have priced in a degree of political risk which explains the gap in valuations with the US. However, Schüssler believes it is precisely this that offers potential for a positive surprise.
Overall, volatile and sideways-moving markets tend to be a rich source of opportunities if investors are active, selective and tactical. In particular multi-asset investments should prompt considerable demand from investors: “With prospects of returns so poor, investors have to be prepared to actively manage risk – in the year to come this will be the key to successful investment. The challenge lies in optimising the risk versus a stated return objective”, said Christian Hille, Head of Multi Asset at Deutsche AM.
Foto cedidaCarlos Albiñana, socio de Jones Day. Carlos Albiñana Joins Jones Day in Madrid
Jones Day has hired Carlos Albiñana to the Firm’s Tax Practice in its Madrid Office.
Albiñana provides clients tax advice on capital markets, M&A and restructuring, banking and securitization, real estate, derivatives, project finance, and asset-finance transactions. He also has substantial experience in tax litigation and incentive schemes.
“Carlos is an excellent addition to our Tax Practice,” said Joseph A. Goldman, Co-Leader of Jones Day’s Tax Practice. “With more than 25 years of experience providing local and cross-border tax advice for global clients, Carlos has a well-deserved reputation as a leading tax lawyer in Spain. His arrival further expands our capabilities to offer clients a full range of tax-related transactional services in Spain.”
Albiñana has represented numerous clients in their tax structuring in Spain, advising leading companies in the financial, industrial, energy, telecommunications, and construction sectors. He has extensive experience in cross-border transactions working with clients to structure their investments in the most tax-efficient manner.
“The addition of Carlos to our office in Madrid will strengthen our Tax Practice, as he joins our senior tax counsel with years of experience advising our clients. He will be of great help to our M&A, Banking & Finance, and Real Estate teams” said Mercedes Fernandez, Partner-in-Charge of Jones Day’s Madrid Office. “We are delighted that Carlos joins us as we continue to focus on providing exemplary client service.”
Albiñana is a recognized leading lawyer by Chambers Europe and Best Lawyers in Spain. He is also a professor at the IE Law School where he regularly lectures and leads a number of executive tax programs.
Jones Day is a global law firm with 44 offices in major centers of business and finance throughout the world. Opened in 2000, Jones Day Madrid is a full-service office with more than 40 locally-qualified Spanish lawyers and significant experience handling a wide variety of national and cross-border transactions and disputes.
