A patchwork approach to corporate governance regulation has created an imperfect system which needs a holistic policy approach to meet investor needs.
A new report by CFA Institute, Corporate Governance Policy in the European Union: Through an Investor’s Lens, finds that a silo-ed approach to corporate governance policy is endangering the creation of a unified EU capital market. The report suggests that a joined-up approach to governance policy, encompassing the Capital Markets Union initiative, is now necessary to achieve meaningful reforms.
While corporate governance reform over the past 15 years has been positive, important issues remain unresolved, including fixing the “plumbing” of cross-border proxy voting, protecting the rights of minority shareholders, and strengthening the accountability of boards, among others.
CFA Institute engaged with more than 30 investment practitioners, governance experts, and other stakeholders from across Europe to inform the report. The findings reveal there is much to be done to simplify mechanisms to enhance corporate accountability and realise maximum value from reforms that have already been undertaken. Investors are open to many stakeholder issues, such as promoting board diversity, and paying greater attention to environmental, social, and governance factors. But importantly, investors are concerned there is still inadequate protection against abuse by controlling shareholders, where the principle of one share one vote is essential for the exercise of good governance.
Josina Kamerling, Head of Regulatory Outreach (EMEA), CFA Institute, commented: “Corporate governance is vital to making the EU’s Capital Market Union work – it is central to its ecosystem but has fallen off the financial services and markets agenda altogether.
She continued: “With a renewal of the investor vision for European corporate governance and with proper attention to the governance “ecosystem,” there is a considerable prize to be won in the growth, productivity, social, and environmental responsibility of European public companies. To realise these benefits, a more joined-up approach to corporate governance policy is needed; one which serves investors and which reconciles the shareholder, stakeholder, and open market perspectives of corporate governance.”
Based on the report’s findings, CFA Institute makes a series of recommendations to establish a sustainable balance among the various goals of governance:
Comply-or-explain mechanism- Investors have a critical role to play in making comply-or-explain systems of corporate governance effective in Europe. This role means that they need to press for the rights to allow them to fulfil their fiduciary duties as stewards. It also requires them to exercise these rights responsibly. Companies must accept the need for accountability and embrace comply-or-explain monitoring mechanisms.
Protection of minority shareholders – Urgent measures are needed to uphold protection of minority investors. The recommendation to implement these measures includes:
Promoting better board accountability to minority shareholders through a greater role in the appointment of board members, more robust independence standards and stronger board diversity
Continuing to press for rights relating to material related-party transaction votes
Fixing the “plumbing” of cross-border proxy voting to ensure all shareholders can vote in an informed way and ensuring all shareholder votes are formally counted
Clearer guidance following Shareholder Rights Directive II – The European Commission should promote investor engagement including a guidance statement for company boards and institutional investors, which explains the expectations from the Shareholder Rights Directive II.
The Memorandum of Co-operation (MoC) on the establishment and implementation of the Asia Region Funds Passport (ARFP) has come into effect. Representatives from Australia, Japan, Korea, New Zealand and Thailand have signed the MoC.
These five economies have up to January 2018 to work to implement domestic arrangements under the MoC.
Activation of the Passport will occur after any two participating economies complete the implementation.
The MoC also ensures any other eligible economies are able to participate in the ARFP.
The ARFP is an international initiative that facilitates the cross border offering of eligible collective investment schemes while ensuring investor protection.
Australia, Japan, Korea, New Zealand, the Philippines, Singapore and Thailand have contributed expertise as part of a working group in developing the framework of the ARFP and other economies in the Asia Region have taken part in consultations.
The MoC is available on the ARFP page of the APEC’s website.
Tim Sloan, foto de Spence Brown. Wells Fargo nombra CEO a Tim Sloan y presidente a Stephen Sanger
Wells Fargo & Company announced Wednesday afternoon that Chairman and Chief Executive Officer John Stumpf has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.
Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.
Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”
Stumpf, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman in January 2010.
“I am grateful for the opportunity to have led Wells Fargo,” Stumpf said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”
Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”
Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.
Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committee and is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.
Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.
Cathy Hepworth, Senior Portfolio Manager at Nordea. Courtesy photo.. "We Favor Select Opportunities in Commodity-Sensitive Africa, in Russia and Kazakhstan, and in Latin America and Asia"
Investing in EM debt needs a new perspective, according to Nordea. “In the current environment, however, we believe that successful investing in EM debt requires a nuanced approach that can capture idiosyncratic relative value opportunities, rather than simply underweighting countries exposed to macro headwinds or specific negative events ”, say Cathy Hepworth, Senior Portfolio Manager and Sovereign Strategist, PGIM Fixed Income, and Matthew Duda, Portfolio Specialist, PGIM Fixed Income. In this interview with Funds Society, they explain their view on the asset class.
How will a possible US interest rate hike affect emerging market debt?
We look for the Federal Reserve to take a measured approach to raising short-term rates which should be positive for EM debt—and the fixed income spread sectors in general—as there will likely be ample global liquidity still searching for yield in today’s historically low global rate environment. The Fed is expected to be appropriately cautious in light of the current combination of: 1) volatile global financial markets; 2) mixed U.S. and global economic data; 3) prospects of persistently low global inflation pressures; and 4) its more limited ability to react to downside shocks at this point.
Regarding the effect on EM debt, the sector has generally performed well during Fed hiking cycles. EM debt produced positive total returns following the start of the Fed hiking cycles of 1999-2000 and 2004-2006. It also outperformed other fixed income sectors for the three years following the start of the 1994-1995 cycle. This largely resulted from the sector’s excess starting yield, U.S. Treasury curve flattening—which we expect to occur again during the next hiking cycle—and the longer-term improvement in sovereign credit quality which significantly dampened default fears.
In the current environment, however, we believe that successful investing in EM debt requires a nuanced approach that can capture idiosyncratic relative value opportunities, rather than simply underweighting countries exposed to macro headwinds or specific negative events.
What are the greatest risks facing an emerging debt fund manager currently?
Current risks include, among others, the potential for a global recession, unexpected volatility from China, or a sudden EM specific or broader developed market political or economic event that drives investors to adopt a more “risk-off” appetite. It’s important to have the resources to research and understand different risks to identify the best opportunities in an individual country. EM fixed income investing is about accruing that knowledge over credit and market cycles.
Is it the right time to move back into emerging market debt with a view to the remaining part of 2016 and next year? Why?
We believe there are attractive opportunities in EM hard currency bonds at present, along with select local bond markets. EM debt has performed well so far in 2016, rebounding from below-average returns in 2015. Year-to-date returns through 31 August 2016 range from a high of about 14.5% for EM hard currency debt to about 7% for EM local currency debt (hedged to USD) and FX. We believe the low yields available in the developed world and the prospect of major central banks maintaining accommodative policies and quantitative easing programs make the valuations in EM compelling. EM quasi-sovereign and sovereign spreads are trading at the wider end of the post-financial crisis range. From a macro perspective, industrial production in EM is rebounding in major EM countries including Brazil, Mexico, Indonesia, Russia, and Colombia.
Other factors supporting EM debt include a weaker U.S. dollar relative to recent highs, some stabilization in the Chinese Yuan, a recovery in commodity prices, and an attractive valuation environment. Also, EM equities have outperformed developed market equities in recent months, which tends to be a leading indicator of the positive performance potential of other EM assets. Finally, investor inflows into EM debt are providing an added layer of support. When investing in EM debt it’s important to maintain a long-term view. In this manner, investors can benefit over time from market dislocations which create opportunities to buy fundamentally sound assets at a discount.
Where do prices stand at the moment? Are they attractive?
Although EM debt has rallied in recent months, we believe prices are still attractive relative to historical levels. For example, the spread on the sovereign JP Morgan EMBI Global Diversified Index as of mid-September 2016 was +330 bps, which is about +75 bps cheap to the tighter levels reached at the beginning of the second half of 2014 and about +160 bps cheap to pre-global financial crisis levels in 2007. We believe there is still good fundamental value in many individual sovereign and quasi-sovereign issuers that trade wide to the index level in spread. Importantly, while some of these issuers may be rated below investment grade, we believe there are numerous opportunities to take advantage of mispriced risk.
In EM, it is often the case that political and policy uncertainty leads to volatility that is not commensurate with an issuer’s underlying fundamental value. It is these sell-offs that often lead to the most attractive opportunities in the sector. For example, there are currently many such opportunities in select “Next Gem” or “frontier” countries in Africa and Asia, as well as larger countries such as Indonesia, Russia, Brazil, Mexico, Argentina, and Venezuela. In the local bond markets, the average yield relative to developed market yields is still very attractive at over 6.25% as of mid-September. A number of EM countries are cutting rates, or are nearing the end of their hiking cycles, which is generally an indicator that rates are poised to rally.
And currencies? Have they bottomed out across all emerging markets?
In EMFX, we believe valuations relative to historic ranges are attractive in select Latin American and EMEA countries. The recovery and stabilization in commodity prices, bottoming out of EM economic growth, improved current account balances, and more benign global interest rate outlook should all support EMFX in the coming months.
Which geographical regions do you like most? Asia, Latin America, Eastern Europe…
Our portfolios are diversified and seek to take advantage of opportunities across multiple EM regions and EM sectors. Currently, we favor select opportunities in commodity-sensitive Africa, in Russia and Kazakhstan, and in Latin America and Asia, including Indonesian sovereign, quasi-sovereign, and local bonds.
On which Latin American markets are you focusing?
We’re finding value in Brazil, Mexico, Argentina, Venezuela and the Dominican Republic. We evaluate the broad range of Latin American fixed income markets, including sovereigns, quasi-sovereigns, corporate bonds, local bonds and FX.
After difficult and still ongoing economic and political adjustments, we believe that select Brazil sovereign and quasi–sovereign issuers, including commodity-related quasi-sovereigns, can offer value. In Mexico, we like certain corporate issuers relative to the sovereign debt. In Argentina, the bonds of the larger provinces and energy-related bonds look attractive, along with exchanged bonds of the sovereign. Among smaller issuers, we view the Dominican Republic as an improving credit, and believe that El Salvador bonds are trading at attractive levels relative to default risk. In Venezuela, many bonds trade at levels that are attractive to expected recovery value, and we think very near maturity bonds will be paid.
In local currency bonds, we like the short-intermediate and long-end of the Mexican yield curve. In local Brazil, we look for an interest rate cutting cycle to begin this year and continue into next year. Here, we prefer a mix of nominal and inflation-linked bonds given that real rates are high. Finally, we believe there is value in the Mexican peso given that it is trading cheap relative to fundamentals and when evaluated from a real effective exchange rate perspective.
Nordea has recently registered the fund Nordea – 1 Emerging Market Bond in Chile. Do you believe that emerging debt is an attractive option for Latin American investors?
One of the benefits of investing in EM debt is its diverse geographic exposures and types of securities. A Latin American investor can benefit from the diversity of commodity sensitivities(i.e. exporters and importers), as well as varying industry and country economic growth trends. With more than 60 EM countries to choose from, investors and asset managers can potentially take advantage of numerous relative value opportunities through market cycles. Historically, investing successfully in EM debt entails diversifying risks, having a long-term view, and understanding that even though the markets appear unfavorable at times, EM debt tends to bounce back fairly quickly following a global shock or sell-off.
foto: Morgaine
. El número de acciones legales contra asesores de la SEC marca nuevo récord anual
The Securities and Exchange Commission has announced that, in fiscal year 2016, it filed 868 enforcement actions exposing financial reporting-related misconduct by companies and their executives and misconduct by registrants and gatekeepers, as the agency continued to enhance its use of data to detect illegal conduct and expedite investigations.
The new single year high for SEC enforcement actions for the fiscal year that ended September 30 included the most ever cases involving investment advisors or investment companies (160) and the most ever independent or standalone cases involving investment advisors or investment companies (98). The agency also reached new highs for Foreign Corrupt Practices Act-related enforcement actions (21) and money distributed to whistleblowers ($57 million) in a single year.
The agency also brought a record 548 standalone or independent enforcement actions and obtained judgments and orders totaling more than $4 billion in disgorgement and penalties.
“By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions,” said SEC Chair Mary Jo White. “Over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”
Microsoft and Bank of America Merrill Lynch announced a collaboration on blockchain technology to fuel transformation of trade finance transacting.
As part of this collaboration, the two companies will build and test technology, create frameworks, and establish best practices for blockchain-powered exchanges between businesses and their customers and banks. Microsoft Treasury experts will serve as advisors and initial test clients, establishing the first Microsoft Azure-powered blockchain transaction between a major corporate treasury and financial institution.
“By working with Bank of America Merrill Lynch on cloud-based blockchain technology, we aim to increase efficiency and reduce risk in our own treasury operations,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “Businesses across the globe – including Microsoft – are undergoing digital transformation to grow, compete, and be more agile, and we see significant potential for blockchain to drive this transformation.”
Currently, underlying trade finance processes are highly manual, time-consuming and costly. With blockchain, processes can be digitized and automated, transaction settlement times shortened, and business logic applied to related data, creating a host of potential benefits for businesses and financial institutions including: more predictable working capital, reduced counterparty risk, improved operational efficiency, and enhanced audit transparency, among other benefits.
“The potential benefits of blockchain will help drive meaningful supply chain efficiencies to the clients of both Microsoft and the bank. This project is another example of our continued commitment to introduce financial innovations for the betterment of global commerce,” said Ather Williams, head of Global Transaction Services at Bank of America Merrill Lynch.
“We are excited to be working with Microsoft on this groundbreaking blockchain proof of concept that has the potential to help redefine, digitize, and improve how trade finance instruments are executed today,” said Percy Batliwalla, head of Global Trade and Supply Chain Finance at Bank of America Merrill Lynch.
Development and testing of the initial application, built to optimize the standby letter of credit process, is currently in progress. The Microsoft and Bank of America Merrill Lynch teams will demonstrate the technology at Sibos in Geneva, Switzerland. Following the initial development and testing, the teams will work to refine the technology and evaluate applications to include more complex use cases and additional financial instruments.
CC-BY-SA-2.0, FlickrMichel Tulle - LinkedIn. Michel Tulle, New Senior Director of Southern Europe and Benelux at Franklin Templeton
Franklin Templeton has appointed Michel Tulle as senior director of Southern Europe and Benelux.
Tulle, currently based in Buenos Aires, will report from Paris as of January 2017 to Vivek Kudva, managing director of EMEA, and responsible for the coordination and development of the business in this area.
With over 27 years of experience in the financial sector, of which 21 have been within Franklin Templeton, Tulle “will ensure strong leadership in his new role”, the asset manager said.
Co-heads of Italian branch
Antonio Gatta, former institutional sales director, and Michele Quinto, former retail sales director, where also appointed co-heads of the Italian branch as of September 30 2016. In their new role Gatta and Quinto will report to Tulle.
“The appointment of Michele Quinto e Antonio Gatta represents a significant recognition towards our important path of development implemented in recent years on the Italian market,” Tulle said.
Exchange-traded funds aimed at generating income have become one of the fastest-growing sectors in Europe as investors in search of yield increasingly shun costly active products, according to The Cerulli Edge-European Monthly Product Trends Edition.
Cerulli Associates, a global analytics firm, also notes that investors are increasingly using ETFs for tactical as well as strategic allocation, pointing to the lead role ETFs played in the recent resurgence of flows into emerging market funds. Cerulli believes that the trend towards negative government bond yields may further encourage the use of ETFs as investors look for vehicles that allow easy access and easy exit in the face of volatility caused by factors such as Brexit.”While the majority of assets under management (AUM) in European-based ETFs are admittedly equities, fixed-income ETFs are growing faster,” says Barbara Wall, Europe managing director at Cerulli.
Cerulli says that low-volatility ETF products are also attracting more interest from cautious investors, partly because such strategies have tended to outperform, thanks to phenomena such as the low-volatility anomaly. By combining low volatility with high dividends, providers such as Invesco PowerShares have added an extra dimension.
“Europe still has some way to go before its ETF market catches up with that of the United States. Nevertheless, income-oriented products may well offer the best growth opportunities for providers,” says Wall.
CC-BY-SA-2.0, FlickrPhoto: ING Group
. Asset and Wealth Management Sector Seems Oblivious of FinTech Opportunities
PwC’s 2016 Global FinTech Survey ranked the asset and wealth management sector as the third most likely to experience the game-changing impact of FinTech startups. In order to succeed in this new landscape, asset and wealth managers need to adapt and engage with FinTechs.
60%of asset and wealth managers think that at least part of their business is at risk to FinTech. When asked about any type of threat, asset and wealth managers were the least concerned of all financial services industry players. They believe FinTech will have only a limited impact on their businesses, with 61% of respondents expecting an increased pressure on margins, followed by concerns around data privacy (51%) and loss of market share (50%).
Julien Courbe, PwC’s Global FS Technology Leader, says: “Banking and payments industries offer palpable examples of FinTechs changing the financial sector by offering new solutions that are visibly disturbing traditional players. This should be an eye-opener for asset and wealth managers as they are next in line, while their FinTech mind-set is still in its infancy. For instance, over a third (34%) do not yet engage with FinTech companies at all, while collaboration with FinTechs is crucial and will be the only way for the traditional firms to deliver technological solutions at the speed expected by the market. We strongly believe incorporating FinTech solutions will visibly strengthen their market position.”
Data analytics was identified by 90% of the asset and wealth managers as the most important trend for the next five years. Followed by automation of asset allocation as “robo advisors” are putting pressure on traditional advisory services and fees. Unsurprisingly, when it comes to investments asset and wealth managers choose new technologies related to data analytics and automated asset allocation rather than expanding their digital and mobile offerings. Only 31% of asset wealth managers provide their clients with mobile applications, lagging behind all other financial players.
Julien Courbe says: “With ‘robo advisors’ becoming more sophisticated, they create an opportunity for asset managers to target the mass affluent who are looking for cheaper alternatives to receive advice on how to manage their assets. The key is to find the balance between human and technological interaction to create an omni channel experience at the speed expected by the market.”
CC-BY-SA-2.0, Flickr. Luciane Ribeiro Left Santander AM in Brazil
Luciane Ribeiro, Banco Santander Asset Management CEO in Brazil has stepped down after 10 years in the company.
According to Bloomberg, Conrado Engel, chairman of the asset-management business in the South American country, will take over Ribeiro’s role until a new CEO is named.
Brazil is Santander AM’s second-largest market with 54 billion euros ($60 billion) in assets under management and 87 employees, according to its website.
In July, and after 20 months in negotiations, UniCredit and Banco Santander broke off negotiations entered into on 11 November 2015 to combine Pioneer Investments and Santander Asset Management. The merger would have created one Europe’s leading asset managers with around 370 billion euros (almost $400 billion) in assets under management, of which close to 174 were from Santader.
