The hedge fund industry saw its lengthy run of positive performance taper off in October, as funds recorded ne returns of 0.01%. Most leading strategies recorded modest gains, with credit strategy funds returning 0.84%, and relative value funds returning 0.49%. However, equity and event driven strategy funds both saw losses, returning -0.27% and -0.26% respectively, contrasting with their position as the highest-performing leading strategies in September.
While most commingled hedge fund benchmarks were close to 0.00% in October, other fund types were underwater for the month. UCITS funds returned -0.15% for the month, while alternative mutual funds made more substantial losses of 1.40%. As result, both fund types have recorded losses for the past 12 months, returning -0.23% and -0.93% respectively. CTAs, meanwhile, recorded their third consecutive month of losses, as they returned -1.74% in October. This run of negative performance has resulted in YTD losses of 0.86%, and 12-month losses of 0.47%.
Other key hedge fund performance facts:
Longer Term Returns: Although October does not maintain the momentum of positive performance that the industry has recorded since March, hedge funds have still posted overall gains of 5.46% so far in 2016, and 4.99% over the past 12 months. As long as no further losses are posted, 2016 will mark the highest performance year for the industry since 2013.
Performance by Region: Hedge funds focused on North America and Europe both recorded losses in October, returning -0.76% and -0.39% respectively. Asia-Pacific-focused funds, however, made gains of 0.46%, while emerging markets hedge funds returned 2.35% for the month, far beyond any other region.
Discretionary Gains: Hedge funds using a discretionary trading methodology once again outperformed systematic funds, as they made gains of 0.13% compared to the latter’s -0.52% performance. In 2016 so far, discretionary funds have now returned 4.94%, compared to 3.34% for systematic funds.
Returns by Size: October performance shows little variance per fund size, but it is notable that emerging funds once again posted the highest returns, gaining 0.30%. Small and medium hedge fund both saw losses, returning -0.04% and -0.03% respectively for the month.
“Despite many hedge fund investors stating that they are dissatisfied with the returns of their hedge fund portfolios, the hedge fund industry over recent months has seen a period of positive performance unmatched since 2012-13. Unfortunately, in October this seems to have lost momentum, as the industry recorded near-flat performance.
However, many strategies and geographies have continued to make modest gains through the month, and the industry as a whole has not lost ground. Provided they can hold these gains in the last two months of the year, hedge funds are on course to mark their highest performance year since 2013. Among other fund structures, however, the overall picture is less positive. CTAs, alternative mutual funds and UCITS funds are all showing negative performance over the past 12 months, and recorded losses in October. CTAs in particular have experienced their third consecutive month of losses, and are currently on course to record lower performance in 2016 than they did in 2015”, said Amy Bensted, Head of Hedge Fund Products at Preqin.
CC-BY-SA-2.0, FlickrPhoto: Jeff Gunn
. The Old Mutual Global Investors’ Annual Conference in Boston Brought Together 55 Delegates
Last October, about 55 delegates from Miami, Bogota, Montevideo, Santiago, Lima, Houston, Dallas, San Antonio, San Francisco, and New York, gathered in Boston for the Old Mutual Global Investors’ annual conference.
With Chris Stapeton, Head of Distribution for the Americas, as Master of Ceremonies, attendees were able to listen to several of the company’s portfolio managers, such as Lee Freeman-Shor, portfolio manager of the European Best Ideas Fund, who spoke about his post-Brexit vision, and John Peta’s presentation on emerging market debt, as well as Josh Crabb, Head of Asian equities.
John Peta joined OMGI in 2015 from Threadneedle. In recent years, the company has been attracting professionals of a very high-level. An example is that of Mark Nash, who arrived at Old Mutual from Invesco (fixed income), or Rob Weatherston (Asian Equities), who came from BlackRock. “They have come to Old Mutual because our managers can develop their strategies, based on their vision, to generate alpha in their teams,” explained Warren Tonkinson, Managing Director of Old Mutual GI, in his opening speech.
The presentation led by Ned Naylor-Leyland, Manager of the new Gold & Silver Fund strategy, entitled “Gold’s Perfect Storm,” attracted the attention of the audience and detailed, among other things, why “Gold ETFs do not make much sense,” or, that right now, the precious metal “is the only asset you can have that is not discounting another round of quantitative easing.”
Old Mutual Global Investors’ path to its current position as a benchmark company in the Asset Management industry and ranked in the top 5 in the United Kingdom, could be described as meteoric. Founded in 2012 from the merging of two smaller UK management companies, OMGI has gone from managing 17.9 billion dollars in assets to 35.7 billion. Its team, which started with 140 people, currently has 273 professionals. Tonkinson explained that in order to grow, they first invested in their investment, operational, and risk platforms, and later in their distribution platform by opening sales offices in several markets. They started with London, Hong Kong and Boston, and recently added Miami, Uruguay, Singapore, Zurich, and Milan.
The managing director pointed out that while at the beginning 95% of its assets were generated in the United Kingdom, currently only half of their flows come from there, due to its internationalization process. Old Mutual GI has also carried out a diversification process by type of client, just last year, they took their first steps in the institutional business, and thus far they have received 750 million dollars in assets from this type of client.
Andbank Spain, an entity specialized in private banking, has launched the Key Clients division, specialized in wealth management for high net worth individuals (HNWI). The objective of this business area is to attract €1bn over the next three years.
The new Key Clients division will offer a comprehensive wealth management service, with access to “exclusive” investment opportunities, Andbank said in a release. To this end, it will integrate a personalized private banking service, independent financial advice adapted to Mifid II, patrimonial planning and the “most advanced” technological tools of the market.
The head of the new Key Clients area will be Juan Carlos Solano, executive director at Andbank España since 2012, with more than 20 years of experience in the wealth management sector. Solano holds a degree in Business and Law from the University of Comillas – ICADE E3 and he is a member of the European Financial Planning Association (EFPA) in Spain.
Mirae Asset Global Investments, one of the world’s largest investors in emerging market equities, has announced that Peter Lee CFA, Ph.D. is stepping into the role of CEO and Chief Investment Officer. Previously, Lee had been the Executive Managing Director of the Global Investment Unit for Mirae Asset Global Investments in Seoul, South Korea, leading the equity investment team from the group’s global headquarters.
In his new role, Lee will be responsible for leading Mirae Asset USA through its next stage of expansion in the US market. In addition, Lee has set a number of ambitious objectives for Mirae Asset USA, focusing on increasing flows into existing products as well as new product development.
“Mirae Asset has established itself as a true competitor in the US market on the strength and heritage of our actively managed, emerging markets focused investment capabilities,” says Lee. “Our objective is to continue building on the global strength of the Mirae Asset brand by introducing attractive products and investment options.”
Mirae Asset USA is the US-based asset management entity that delivers the investment capability of Mirae Asset, a diversified financial services entity with over $100 billion in client assets under management. Mirae Asset USA brings to US investors the client focus and investment resources available to investors in other global markets for two decades.
A veteran of Mirae Asset, Lee has held senior investment strategy and executive management roles at several global entities within the group since 2014. Lee has a Doctoral degree in Economics from the University of Illinois at Urbana-Champaign. He also holds a Master of Arts degree in economics and a Bachelor degree in economics from the Seoul National University.
Lee steps into the CEO role that had been vacated by the departure of Peter Graham.
The Federal Reserve Board on Friday announced it is broadening the scope of post-employment restrictions applicable to Federal Reserve Bank senior examiners and officers.
By law, senior bank examiners are prohibited for one year from accepting paid work from a financial institution that they had primary responsibility for examining in their last year of Reserve Bank employment. This post-employment restriction has applied primarily to central points of contacts (CPCs) at firms with more than $10 billion in assets.
The revised policy expands the number of Reserve Bank examiners subject to this one-year post-employment restriction to include CPCs, deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers, and supervisory team leaders. The new policy will more than double the number of senior examiners subject to this post-employment restriction from about 100 employees to about 250 employees.
In addition, a new policy prohibits former Federal Reserve Bank officers from representing financial institutions and other third parties before current Federal Reserve System employees for one year after leaving their Federal Reserve position. The new policy also imposes a one year ban on current Reserve Bank employees discussing official business with these former officers.
The restriction on former officers will be effective on December 5, 2016, and the revised senior examiner policy will be effective on January 2, 2017.
Foto: Michael Mayer
. Las inversiones sostenibles crecen el 33% hasta 8,7 billones en 2016
Sustainable, responsible and impact investing assets now account for $8.72 trillion,or one in five dollars invested under professional management in the United States according to the US SIF Foundation’s biennial Report on US Sustainable, Responsible and Impact Investing Trends 2016 which was released last week.
The biennial Trends Report—first conducted in 1995 examines a broad range of significant ESG issues such as climate change, human rights, weapons avoidance, and corporate governance.
“The trend of robust growth in sustainable and impact investing is continuing as investment managers apply ESG criteria across broader portions of their portfolios, often in response to client demand,” said Lisa Woll, US SIF Foundation CEO. “Asset managers, institutional investors, advisors and individuals are moving toward sustainable and impact investing to advance critical social, environmental and governance issues in addition to seeking long-term financial returns.
“A diverse group of investors is seeking to achieve positive impacts through such strategies as shareowner engagement or investing with an emphasis on addressing climate change, corporate governance, and human rights including the advancement of women.”
The significant growth in ESG assets reflects demand from individual and institutional clients, growing market penetration of SRI products, the development of new products that incorporate ESG criteria and the incorporation of ESG criteria by numerous large asset managers across wider portions of their holdings.
The research found the top reasons managers report incorporating ESG factors include client demand (85%), mission (83%), risk (81%), returns (80%), social benefit (79%) and fiduciary duty (64%).
The number of investment vehicles and financial institutions incorporating ESG criteria continues to grow and includes mutual funds, variable annuities, ETFs, closed-end funds, hedge funds, VC/private equity, property/REIT, other pooled investment vehicles, and community investing institutions.
The leading ESG criteria that institutional investors consider are restrictions on investing in companies doing business in regions with conflict risk (particularly in countries with repressive regimes or sponsoring terrorism) and consideration of climate change and carbon emissions.
Vontobel Asset Management has appointed Patrick Sege as Sales Head of the Thematic boutique, including the mtx Global Leaders Fund range, to drive further the boutique’s global expansion.
Patrick will also be heading the Swiss Intermediary team to support the growing demand for the firm’s offering in its home market. Patrick brings to his new role over 22 years of industry experience.
He joins from the global multi boutique AMG (Affiliated Managers Group) where, as Country Head for Switzerland, Austria and Liechtenstein, he was responsible for business development and relationship management. Prior to that, Patrick worked as Head of Business Development for Switzerland and Continental Europe at Liongate Capital Management.
Patrick holds an M.A. in Economics and a PhD from the University of St. Gallen. “Vontobel’s multi boutique model is the foundation for the strong consistent growth we have enjoyed with our clients over recent years. As passion for performance and specialist product knowledge is at the core of our relationship management culture, Patrick is a perfect addition to our team. His appointment allows us to prudently manage further growth and enhance the level of service we provide to our clients.” said Marko Röder, Head of Global Sales at Vontobel Asset Management.
Foto: Christine und Hagen Graf
. La SEC aprueba que FINRA solicite información sobre mark-ups en operaciones de deuda
The Securities and Exchange Commission has approved FINRA’s proposal requiring its member firms to disclose on retail customer confirmations the “mark-up” or “mark-down” for most transactions in corporate and agency debt securities. The SEC at the same time has approved a similar proposal from the Municipal Securities Rulemaking Board, which harmonizes the requirements across the FINRA and MSRB rulebooks and eases implementation for the securities industry.
The new rule will require that if a firm sells or buys a corporate or agency fixed-income security to or from a retail customer and on the same day buys or sells the same security as principal from another party in an equal or greater amount, the firm would have to disclose on the customer confirmation the firm’s mark-up or mark-down from the prevailing market price for the security. The confirmation would also have to include the execution time and a reference (and hyperlink if the confirmation is electronic) to trade-price data in the security from TRACE, FINRA’s Trade Reporting and Compliance Engine.
The disclosure requirement will not apply to securities acquired in a fixed-price offering and sold the same day to the retail customer at the fixed price offering price, or in situations where the firm does not have an offsetting principal trade in the bonds sold to the retail customer on the same day. An implementation date for the new rule will be announced in an upcoming regulatory notice.
According to Joachim Fels, PIMCO’s global economic advisor, after a short initial post-election shock, many financial market participants seem to have adopted a Dr. Strangelove attitude toward the election of Donald Trump. Developed market (DM) equities, bond yields and the U.S. dollar rallied on hopes for fiscal stimulus and less regulation. (Fels notices that the exception to this apparent market optimism is in emerging market (EM) assets, which dropped sharply on fears of more U.S. protectionism and adverse repercussions from a stronger dollar and higher “risk free” rates.)
“I’m not Dr. Strangelove, and I believe it’s too early to stop worrying. A more differentiated view of the potential long-term economic and policy consequences of President-elect Trump must take on board both the considerable uncertainties still surrounding the next U.S. administration’s economic policies and the global links between economies and markets (which have become closer over the years).” He mentions
Fels strongly believes that there are five things investors may want to consider before “embracing the bomb”:
First, both right-tail and left-tail risks for the global economy and markets will likely become fatter under President Trump. If the new administration focuses on reforming taxes, increasing infrastructure spending and easing regulations, both demand and potential output growth could be lifted without creating excessive inflation. Conversely, a strong focus on punitive tariffs and immigration bans could risk retaliatory responses from other nations and potentially provoke a trade war that fuels deglobalization. It is too early to tell which of these two scenarios, if either, will prevail. In the meantime, markets are likely to oscillate between hope and fear.
Second, while a U.S. recession over the next year or two may now look less likely, the risk that the current expansion ends in tears in 2019 or 2020 has increased. This is because more fiscal stimulus will lift demand at a time when the labor market is close to full employment and the first signs of wage pressures have already started to emerge. Wage and inflationary pressures would be exacerbated if President Trump gets serious about the curbs on trade and immigration he campaigned on. It is possible the Federal Reserve would initially welcome higher inflation and tolerate an overshoot of the target for some time. However, under that scenario the Fed eventually would likely need to raise rates more aggressively than in a scenario without fiscal stimulus and cost-push inflation through protectionism, which could push the economy into recession in 2019 or 2020.
Third, central bank independence as we know it is likely to come under further attack, given both the long-standing criticism of the Fed in conservative Republican circles and the President-elect’s attacks on the Yellen Fed. At a minimum, the new administration is likely to appoint two hawkish candidates to the two vacant seats on the Federal Reserve Board. Also, a new Fed chair might be appointed when Janet Yellen’s term at the helm expires in February 2018. All of this would be common and legitimate practice and does not, per se, constitute an attack on the Fed’s independence. However, it remains to be seen how closely the policy promoted by any new appointees will hew to the new administration’s views. More importantly, the Republican majority in Congress may well start to push forward some of the proposals to narrow the Fed’s mandate that conservative circles have made in the past. The mere rumor of changing the Fed’s mandate may have an impact on monetary policy decisions.
Fourth, in the face of the sharp sell-off in bond markets, the Bank of Japan’s new strategy of “yield curve control” looks even smarter now and might become a blueprint for other central banks, potentially including the Federal Reserve. Consider a scenario where a large fiscal stimulus (or the expectation of such stimulus) pushes up bond yields so sharply that risk assets and the economy suffer. To prevent a bond tantrum, the central bank may want to limit the rise in yields by intervening in the bond market directly. The cleanest way to do this is to announce a cap on yields and stand ready to buy unlimited amounts to preserve the cap if needed.
Fifth, the market reaction to Donald Trump’s election provides a serious test case for the “Shanghai co-op,” as I have called an informal understanding by the world’s major central banks that excessive dollar strength is bad for everyone and should be avoided. The dollar strengthened not only against emerging market currencies but also against the euro and the yen in recent days. While the European Central Bank and the Bank of Japan probably welcome some weakening of their currencies given persistent “lowflation,” too much dollar strength would hurt the dollar debtors in EM, commodity prices and the U.S. energy sector, and could induce China to aim to devalue the yuan more aggressively against the dollar in order to prevent a sustained appreciation against the currency basket.
In the wake of Donald Trump’s election, Mexico, together with China, appears to be the country most exposed to Trump’s economic policy.
According to AXA IM, Trump’s proposed fiscal stimulus has already led to a strong increase in inflation expectations, and his pledges to restrict imports and immigration has spurred a record broad EM selloff.
Manolis Davradakis, Research and Investment Strategy at AXA IM says: “Mexico has been at the eye of this storm given its vicinity and close trade relations with the US. The Mexican peso has depreciated by 10% relative to its pre-election day closing level, the stock market is down 6% and the local currency sovereign 10-year rate has shot up by 112bps. The Mexican central bank had already pre-emptively tightened policy rates to mitigate the impact of a declining peso on headline inflation.”
Since election day, the president-elect has adopted a more reconciliatory tone, downplayed trade protectionism, and focused on deporting illegal immigrants and securing the US/Mexico border. Davradakis believes downside risks for Mexico are mainly exports and remittances, with implications on the current account deficit and economic growth. The US is Mexico’s main trading partner, shipping 81% of its total exports, or 27% of GDP, to the US, mainly consisting of machinery and transport equipment. Mexican exports to the US stood at 10% of GDP in 1994, before the implementation of the North American Free Trade Agreement that president-elect Trump argued in favour of renegotiating during the election campaign.
Remittances are an important component of Mexican household income, and a significant source of the hard currency flows which support the current account balance. The latter recorded a deficit of 2.8% of GDP in 2015, which would have been 5% of GDP without the remittances from the US. Remittances from Mexicans living abroad equate to 2%-3% of GDP over the last decade. Of these Mexicans living abroad, 95% reside in the US, 23% of which do so as illegal immigrants. “Remittances to Mexico from the US would be curbed, also, if levies on remittances for securing the US-Mexican border were to be imposed.”
He believes FX forwards suggest that the Mexican peso will depreciate (against the US dollar) by another 2.5% by year- end, bringing total year-to-date peso depreciation to 25%. This could top up inflation by 0.4pp to 3.4% in 2017 after 2.9% in 2016.
