Puerto Rico’s Broken Promise

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Puerto Rico's Broken Promise
Foto: Christopher Edwards. La promesa rota de Puerto Rico

According to Philip Villaluz, Head of Municipal Credit Research at Schroders, Puerto Rico’s recent default does not pose a broader contagion risk to the municipal bonds market, but it marks the beginning of a long process to repair the country’s economy.

Puerto Rico defaulted on roughly US$ 900 million in principal and interest due on 1 July, most of which was general obligation (GO) bonds and Commonwealth-guaranteed debt.

Despite this historic default, which is the first state or US territory to default since the State of Arkansas in 1933, the municipal market has taken it in its stride. In fact, prices of Puerto Rico bonds are generally flat (increasing by 3.4% since introduction of legislation in the US House; declining by 2.8% following the default).

While the default had been expected by the market for quite some time and risk premium priced in, Schroders thinks this event marks only the beginning of a long process to restructure debt and repair Puerto Rico’s (also known as the Commonwealth) economy and fiscal house.

A deteriorating situation has led to a shift in investor base

Puerto Rico has suffered from a recession since 2006; where current unemployment is close to 20%, roughly 50% of the population lives in poverty and hundreds of thousands who have the means have already left the island.

The Commonwealth’s pension fund stands at a less than 1% funded rate, with thousands of retirees who rely on the payments to make ends meet.

Due to a decade of economic and fiscal woes, the Commonwealth amassed US$ 70 billion in debt which was bought by islanders and US municipal bond investors who benefit from triple tax-exemption (income is exempt from federal, state and local taxes).

As Puerto Rico credits drifted into junk bond territory over the past few years, mutual funds sold most of their Puerto Rico bonds; only 125 mutual funds actually hold the bonds, and seven of those funds have more than 50%, according to Morningstar. Opportunistic hedge funds are now the largest holders of Puerto Rico debt.

Decision to break its promise

With liquidity nearly exhausted, Puerto Rico Governor Alejandro Garcia-Padilla announced the Commonwealth’s intention to default on its obligations. He successfully pushed through legislation earlier this year to allow the government to decide whether to make payments on its debt—specifically, its general obligation debt which carries a constitutional guarantee—in order to conserve cash. Puerto Rico itself – like states of the US – does not have the legal authority to declare bankruptcy.

Congress acts

On 30 June, Federal legislation called PROMESA (Spanish for “promise”) was passed, creating an Oversight Board consisting of seven appointed officials, with the “exclusive control” to enact and enforce fiscal plans, so the island attains fiscal solvency and access to the capital markets.

The Board would have ultimate control over all economic and fiscal matters for the government and would have the authority to restructure its debts. It would also have the authority to prevent the execution of legislative acts, executive orders, regulations, rules and contracts that undercut economic growth initiatives or violate the Act, in addition to other powers.

The seven members—appointed by the President with recommendations from leaders in the House and Senate—will likely consist of four Republicans and three Democrats with experience in municipal bond markets, finance, or government operations who cannot be a former or current elected official or candidate for office, among other restrictions.

PROMESA states that any debt restructuring must respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered instrumentality in effect prior to the date of enactment of the Act.

To impose a voluntary restructuring agreement on a specific pool of creditors (i.e., GO bondholders, COFINA bondholders, etc.), a two-thirds vote with at least 50% of the creditor pool voting is needed (based on amount outstanding). This would effectively allow one-third of bondholders to bind the entire group. However, if no agreement is possible, the Oversight Board could then petition a court to force an involuntary restructuring.

It also establishes a firewall between creditors and pensions in the development of fiscal plans. The Board will be terminated when the Commonwealth government: (i) has adequate access to short- and long-term credit markets at reasonable rates; (ii) has four consecutive years’ worth of budgets in accordance with modified accrual accounting standards; and (iii) balances its budget.

Helped to default

According to Schroders, the passage of PROMESA may have facilitated the GO default, because it initiated a stay of litigation against the Commonwealth through February 15, 2017. Hence, PROMESA wouldn’t excuse a default, but gives Puerto Rico cover.

Insured bondholders protected

Investors who hold insured Puerto Rico bonds will be paid their amount owed in full, with bond insurance policies making up the shortfall. Schroders also remains confident that the two bond insurers, Assured Guaranty and MBIA (through National Public Finance), with the largest insured exposures to Puerto Rico will continue to pay as expected.

This is not the end

PROMESA is more the start than the conclusion of the process that will determine outcomes for creditors. The restructuring process is contentious and time-consuming. Furthermore, it forces courts to opine over the power of Puerto Rico’s Constitution and the definition of government resources in determining priority of claims between different bondholders (i.e. GO and COFINA) across a very complex debt structure. Creditors may also challenge the constitutionality of PROMESA, which could delay the process even more.

For comparison, the municipal market has recently witnessed other restructurings, albeit on much smaller scales. These include the City of Detroit’s restructuring which took nearly a year and a half; Jefferson County, Alabama took over two years and San Bernardino, California remains ongoing after almost four years.

Philip Villaluz thinks that the situation remains fluid and not enough is known, particularly with regard to private negotiations and formation of the Oversight Board, to make any confident predictions or take a more constructive view on Puerto Rico’s bonds. However, he emphasizes his belief that Puerto Rico’s crisis does not pose a contagion risk to the broader municipal market. 

Brexit’s Impact on Financial Services

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Financial services are possibly the policy area where Brexit will have the strongest impact. The City of London is the largest financial centre in Europe; many financial firms offer their services from their London base, making use of “passporting” rights granted through European legislation, which are now clearly at risk.

As a result of being the financial heart of Europe, the UK has historically been deeply involved in shaping financial markets policies and pushing further financial markets integration, due to their great interest, expertise and resources devoted to this particular area. This is the case in terms of the European legislative work, where the responsible European Commissioner for financial services was the British Commissioner Lord Hill.

The strong British influence is also felt at the regulatory level. The European Supervisory Authorities (European Securities and Markets Authority, European Banking Authority, European Insurance and Occupational Pensions Authority) define the finer details of financial legislation and have grown in relevance since their inception in 2010. The UK plays a strong role in these authorities in terms of their technical input, physical resources and market expertise. Decreasing UK influence in the ESAs as a result of Brexit could have significant effects on the final content of legislation as well as on the way European supervisors agree to apply the rules.

I. Institutional impact

a) Lord Hill resignation: The most immediate institutional impact of Brexit was the resignation of Lord Hill as Commissioner for Financial Services, along with his Cabinet (political advisers), who will be replaced by Vice-President Valdis Dombrovskis, the former Latvian Prime Minister, Finance Minister and MEP.

b) European Supervisory Authorities:

Funding:

The three European Supervisory Authorities (ESAs) are funded through the EU budget and contributions from Member States, in accordance with their size. The UK leaving the EU means that a significant contribution to the budgets of the ESAs will disappear.

This could accelerate ongoing discussions on ESA funding in the context of the ESA review. The UK was one of the fiercest opponents of increasing the proportion of funding from the EU budget (as it would lead to a greater grip of the European Commission (EC) on the activities of the ESAs). Without UK opposition, this shift towards greater EC influence could become areality.

Negotiations:

Within the ESAs, Member State authorities negotiate policy and draft implementing legislation just like Member States do in the EU Council. Although the UK will remain a full member of the ESAs for at least the next two years, the UK NCAs could refrain from active participation which will mean that ESA outcomes will inevitably change as although all Member States have equal voting in the ESAs, members with larger financial markets are far more active and influential.

European Banking Authority (EBA):

The EBA, currently based in London, will need to be relocated to another Member State. Italy, Germany, Netherlands and Poland have already expressed interest in hosting the EBA and other Member States might follow.

Of more importance than the physical location of EBA is that Brexit could reduce the EBA’s influence. The EBA’s current role as a bridge between Eurozone and non-Eurozone banks risks being significantly diminished when the UK leaves. The European Central Bank (ECB) is the single supervisor for the Eurozone banks. The main counterweight to the ECB is the Bank of England.

With the UK exiting the EU, the ECB will progressively become more important for the entire banking sector and the EBA’s role in adopting technical standards for the single rulebook will be reduced.

A further post-Brexit supervisory effect is likely to impact those banks of EU Member States not in the Eurozone, and therefore not supervised by the ECB. These will face greater scrutiny as international investors might consider their supervision less strong and therefore the banks less stable. Brexit could lead to non-Eurozone member states opting in to the Banking Union at a faster pace than previously expected.

European Securities and Markets Authority (ESMA):

The UK has been a driving force in ESMA, which has been active in implementing legislation and coordination of supervision for capital markets and the UK expertise is undeniable. Staff at the UK’s Financial Conduct Authority (FCA) have been seconded to ESMA, and task forces and standing committees have regularly been chaired by FCA personnel. This has contributed greatly to the reputation of ESMA as a knowledgeable and credible supervisor at international level. Without UK membership, ESMA could lose considerable expertise.

ESMA’s powers might well increase; the UK, supported by Germany, was a fierce opponent of more direct supervisory powers for ESMA. For example, CCPs are now still supervised by colleges of national competent authorities instead of by ESMA directly; this might change. In the context of Capital Markets Union, the European Commission did not go as far as to propose a European supervisory mandate for the capital markets for ESMA.This, too, might change.

European Insurance and Occupational PensionsAuthority (EIOPA):

EIOPA is currently leading the joint committee of the ESAs, which devotes much attention to consumer protection and product governance standards. In this area, the UK is clearly ahead of the curve in Europe. This has meant the UK has been very much involved in developing European standards from within EIOPA.

Without the UK, it is very possible that this work stream will slow down within the joint committee.

c) EU in international Bodies(FSB, IOSCO, BIS)

The position of the EU in international supervisory bodies has been strengthened by the UK’s contribution to EU policy. Although there was not always full alignment, European cooperation has smoothed over the major differences, strengthening the overall European position. With the UK exiting the EU, the chances increase that the Bank of England (in Basel) and FCA (in IOSCO) will no longer discuss their respective positions ahead of international negotiations, making for increased differences of views within these fora. This will enhance the relative weight of non-European supervisors meaning that European interests could suffer. The UK has stressed the importance of sticking to international agreements, whereas some Member States feel less pressure to apply Basel agreements unaltered. Post Brexit, and without such pressure by the UK, it is more likely that the European Commission could consider deviating from the Basel Committee outcomes to the advantage of European banks.

II. Ongoing financial services policy discussions

The general assumption is that the Capital Markets Union project will suffer due to the departure of two of the powerful drivers of the project, the UK and Commissioner Hill. However, there is a broad consensus amongst Member States on the benefits of CMU.

Perceptions that CMU was purely beneficial to the UK may have hindered progress to date; without the UK, other Member States might feel more inclined to support the project.

There were even concerns that CMU would not go far enough, especially as the EU did not propose creating a Pan-European supervisor for financial markets. Without the UK, this idea to centralize supervision of European financial markets might well return.

III. UK industry and political motivations

A state of inertia between businesses and politics is occurring with both perspectives looking to see what issues the other will prioritize first. Fortune will favor businesses and industries that are able to do their thinking quickly and put it to the UK government and the EU as a priority negotiation position. While financial services may be headquartered in the UK, they are global by nature and therefore have a stake in other European markets. UK policy makers are cognizant of this and will look for businesses to make the case to other European capitals to explain why the UK’s negotiating position for financial services is mutually beneficial for EU Member States.

Financial services will be a priority for the UK negotiation team due to its political status, tax revenue and global interconnectivity. During the negotiation period, UK representatives will try to find a balance between:

1) giving their EU counterparts some appeasement wins (likely to be status orientated);

2) retaining the eminent position in real terms (as opposed to physical locality) of London as the location in Europe for ‘hubbing’ financial transactions;

3) ensuring there is parity of regulation so that transactions can occur seamlessly with Europe, but also;

4) ensuring the UK is able to competitively differentiate itself outside of the EU.

These are important criteria for financial services businesses to consider during Brexit negotiations. Access to the Digital Single Market and CMU will be prioritised by UK policy makers and the financial industry, and the bulk of existing financial services legislation is likely to be grandfathered. However, UK policy makers are looking for financial services to decide, firstly, which of the ongoing EU legislative briefs are a priority and, secondly, which existing legislation can be disregarded. This should be the starting point of any financial services industry dealing with the Brexit hangover. Throughout this process the role of trade bodies will be essential and we are likely to see a renewed interest by UK and EU policy makers in their significance – especially those such as the BBA, ABI, AFME and IMA. During the period of negotiation, trade bodies will be viewed by UK and EU policy makers as providing an element of much needed consensus and it would be wise for financial services industries to stick close to their peers.

North America Loses Top Spot in HNW Wealth and Population to Asia-Pacific

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Norteamérica deja de ser la región con mayor riqueza en manos de grandes patrimonios del mundo
CC-BY-SA-2.0, FlickrPhoto: Jonathan Kos-Read . North America Loses Top Spot in HNW Wealth and Population to Asia-Pacific

While globally in 2015 High Net Worth Individual (HNWI)  wealth saw only a modest growth of 4 percent, wealth in Asia-Pacific grew at an aggressive 10 percent propelling Asia-Pacific into the lead position as the region with the most HNWI wealth globally according to the 20th edition of the World Wealth Report (WWR), released by Capgemini.  This is the first time that Asia-Pacific is ahead of North America for both HNWI wealth and population. In 2015, Asia-Pacific held US$17.4 trillion in wealth with a 5.1 million HNWI population in comparison to North America’s US$16.6 trillion in HNWI wealth and 4.8 million in population.

Global HNWI wealth reached US$58.7 trillion and the HNWI population grew at 4.9 percent to be 15.4 million in 2015. Since 1996, global HNWI wealth growth has expanded by four times equaling nearly US$59 trillion, and if current modest growth rates hold, wealth is projected to reach US$100 trillion in 2025. Despite these record wealth levels, the report also found that only one-third (32 percent) of global HNWI wealth is currently being managed by individual wealth managers, representing a challenge and an opportunity for firms to consolidate assets.

“It is remarkable that only one-third of HNWI wealth is currently with wealth management firms which shows how great the growth potential is for firms that can combine digital technology and FinTech capabilities with human expertise and relationships, to reflect state-of-the-art services for clients,” says Anirban Bose, Head of Banking and Capital Markets, Capgemini’s Financial Services Business Unit.  “Those firms that can offer a digitally-integrated customer experience that builds on high levels of trust and confidence in firms and captures the characteristics of speed, flexibility and ease of use will be well positioned to become leading firms of the future.”

Asia-Pacific has been a driving force, doubling HNWI wealth and population over the decade. Asia-Pacific’s HNWI wealth grew by 10 percent in 2015 which is almost five times North America’s 2 percent wealth growth in 2015 decelerating substantially from 2014’s 9 percent growth rate. Using a more aggressive growth projection, if markets in Asia-Pacific continue to grow at its 2006 to 2015 rate, Asia-Pacific will represent two-fifths of the world’s HNWI wealth in ten years, more than that of Europe, Latin America, and Middle East and Africa combined. Japan and China stand out as regional dynamos, driving almost 60 percent of global HNWI population growth in 2015.

Opportunity for wealth management firms to attract more clients
Wealth management firms are well positioned to capture a greater share of the rising tide of HNWI wealth, the report found. HNWIs exhibited substantially more confidence in wealth management firms (+17 percentage points) and the financial markets (+30 points) in 2015 compared to 12 months prior. And while trust in individual wealth managers remained flat, 68 percent of HNWIs expressed satisfaction with the relationship, indicating a willingness to consolidate more of their assets with wealth managers.

Wealth management firms and wealth managers, however, have yet to gain a majority share of HNWI investable assets. In 2015, more HNWI wealth (35 percent) was essentially liquid, held in bank accounts or as physical cash, compared to the 32 percent that was overseen by individual wealth managers. Under-40 HNWIs were even less likely to turn to wealth managers (28 percent), while those in North America were more likely (39 percent).

This year’s report includes a retrospective of the last 20 years of HNWI wealth, which was marked by resiliency, even in the face of global financial disaster, as well as the rise of various trends, including social impact investing and technology disruption. Looking ahead, the report predicts that the pace of change will accelerate with disruption in four key areas: clients, operations, regulations, and digital technology. You can read it in the following link.

 

TIAA buys the Wealth Management Tech Provider, MyVest

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TIAA buys the Wealth Management Tech Provider, MyVest
Foto: Groman123 . TIAA adquiere el proveedor de tecnología para wealth management MyVest

TIAA has announced that it has acquired MyVest, an holistic wealth management technology company. This acquisition underscores the firm´s commitment to help individuals navigate their financial lives in a clear, simple and efficient way. Terms of the deal were not disclosed.

Headquartered in San Francisco, MyVest provides scalable, customized wealth management services on a single unified platform for financial institutions. It  will now operate as a subsidiary of TIAA that focuses on emerging technologies and will report to its Chief Digital Officer, Scott Blandford.

Both companies have collaborated since 2009 to help provide customized discretionary investment and tax management services for individuals. This acquisition will advance TIAA´s efforts to deliver a full suite of digital advice capabilities in addition to its in-person and phone-based services.

Following this acquisition, the firms will continue to work together to deliver simplified advice and planning technology across TIAA’s portfolio of financial services products, from retirement plans to IRAs and banking products.

MyVest employs a team of experienced technology, investment management and services operations professionals and will continue to serve its current client base.

“We remain committed to serving our clients and continuing to provide the tools advisors need to prepare their clients for the future,” said MyVest CEO Anton Honikman.

 

FINRA Board of Governors Elects Vanguard´s Brennan as Chairman

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FINRA Board of Governors Elects Vanguard´s Brennan as Chairman
FINRA elige al presidente emérito de Vanguard, Jack Brennan, como nuevo presidente - Foto Youtube. FINRA elige al presidente emérito de Vanguard, Jack Brennan, como nuevo presidente

The Financial Industry Regulatory Authority (FINRA) Board of Governors on Friday unanimously elected John J. “Jack” Brennan, Vanguard Group Chairman Emeritus and Senior Advisor, as FINRA Chairman effective Aug. 15, 2016.

Brennan has served as FINRA’s Lead Governor since 2011 and succeeds Richard G. Ketchum as Chairman. His term will be effective upon Ketchum’s previously announced retirement. In June, FINRA announced that Robert W. Cook will become FINRA’s new chief executive in the second half of 2016; his expected start date is Aug. 15. It was also announced at that time that FINRA would move to a non-executive chair structure for its board governance.

Brennan joined the Board of Governors of the National Association of Securities Dealers (NASD) and remained on the Board following the merger of the NASD and New York Stock Exchange Regulation in 2007, a combination that gave rise to FINRA as the largest independent regulator for all securities firms doing business in the United States. 

“Throughout his tenure on the boards of FINRA and its predecessor, as well as his many years leading Vanguard, Jack has been a tireless advocate for individual investors and liquid, fair markets,” said Ketchum.  “During my tenure at FINRA, Jack has been a trusted adviser and partner, helping us develop a number of important programs to support our mission.”

“FINRA plays such a critical role in safeguarding and educating investors, while upholding the integrity of the most robust capital markets in the world,” said Brennan. “The entire Board and I look forward to working with Robert and all of FINRA’s constituents to accomplish FINRA’s mission.”

“Jack is widely respected throughout financial and regulatory circles as a champion of the individual investor with a commitment to fair, transparent and efficient markets,” Cook said. “He has an unwavering dedication to FINRA and its mission of investor protection and market integrity.  I’m looking forward to a productive partnership with Jack and the entire Board of Governors.”

 

BCP and Apex Sign a Fund Administration Services Partnership

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This Monday, BCP Asset Management and Apex Fund Services jointly announced their partnership for fund administration services.

As part of the recent acquisition of four High Street buildings in a prime Dublin 2 location by BCP and Meyer Bergman, BCP announced the successful launch of two new funds with global independent administrator Apex Fund Services; The Kells Investment Fund I and Kells Investment Fund II. The BCP acquisition was in partnership with Meyer Bergman and is valued in excess of EUR€100 million.

BCP, one of the leading independently owned investment managers in the Irish market, boasts over EUR€2 billion in assets under management and has an exceptionally strong track record in commercial property. Apex Fund Services is one of the world’s largest independent administrators, with local offices in both Dublin and Cork, and a total AuA of $45bn USD.

John Calvert, CEO of BCP, said, “BCP has chosen to partner with Apex to deliver our fund administration requirements as they demonstrate an exceptional knowledge and capability of service in the private equity and property funds space in particular. They combined commerciality with strong technical support and compliance knowledge. We required an expert administrator that could deliver a cost effective solution for our 3 existing funds, with further funds planned. Having completed the required infrastructure, Apex continues to work closely and effectively with our internal operations and administration teams”.

John Bohan, Managing Director for Apex EMEA and Apex Ireland, said, “We are delighted to be able to provide BCP with the specific solution they require to support this important part of their investment portfolio. We have a great deal of experience administering regulated funds, both liquid and illiquid, and can add true value to support the already robust internal infrastructure at BCP. Apex is committed to delivering relationship based service and unrivalled experienced resource to our clients and will support BCP’s real estate investments locally, via our Dublin office.”
 

Marsh McLennan, Russell and BlackRock, the Most Successful in Fund Launching

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The first three years are the most critical period in a fund’s lifetime for attracting asset flows, according to the MackayWilliams Product Innovation Perspectives report.

While the investment industry may be dedicated to encouraging saving for the long-term, perversely, a fifth of industry assets are invested in funds that are less than five years old.

The analysis revealed that sales tend to tail off rapidly and turn negative within just a couple of years of their heyday. “If you have a winning product today by all means make the most of it – but plan for a scenario where, by 2018, it may well have fallen off the podium. Even in uncertain times, like the post-Brexit vote, asset managers must fight the temptation to freeze budgets and halt product innovations. Maintaining a new product pipeline is vital for companies wanting to protect their future asset gathering potential” says Chris Chancellor, partner, MackayWilliams.

Also highlighted in the report are the most successful companies for overall fund launches and the factors behind their success. Topping the table in Gold and Silver positions, in the latest six monthly update, were Marsh McLennan and the Russell Group where their strength with institutional clients underpinned their high success rate. Commenting on changes in the top ten over the six-month period to 31/03/2016, Chris Chancellor said: “Many of these groups are very close in terms of their launch success rates with relatively small changes leading to notable shifts in rankings. Fidelity is an important beneficiary; in the latest five-year window we have measured it has just three more successful funds than six months ago, but this has propelled it up 12 places.” It’s not a level playing field across all asset classes, though. Scaling the heights of success even to meet the relatively low minimum threshold of €100m is much more difficult to achieve in the mixed asset arena than in fixed income. Fixed income success rates of fund launches are roughly 50:50. Whereas in the highly competitive mixed asset category, 78% of fund launches failed to achieve the €100m grade.

Alix Chosson Joins AXA Investment Managers

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Alix Chosson Joins AXA Investment Managers
CC-BY-SA-2.0, FlickrFoto: milito10 / Pixabay. AXA Investment Managers ficha a Alix Chosson

AXA Investment Managers announced the appointment of Alix Chosson as Energy Fundamentals Analyst within the firm’s Responsible Investment (RI) team. Alix will be based in London, reporting into Matt Christensen, Global Head of Responsible Investment at AXA IM.

Commenting on the appointment, Christensen said: “Responsible investment is a key business priority for AXA IM and Alix’s appointment is the first in a series of hires to further strengthen our RI team. We are excited to have her on board and certain that her strong background in RI and impact analysis, particularly within the energy sector, will make her a valuable addition to the team. The COP 21 meeting in December last year put climate change firmly on investors’ agenda and as a result we are seeing considerations around energy become a major factor in business decision making across various jurisdictions. Alix’s arrival strengthens our in-house expertise in the energy sector and our ability to work with clients to match their specific needs in this area.”

Alix joins AXA IM from Standard Life Investments where she was a Responsible Investment Analyst from 2013 specialising in energy and technology sectors. She focused on both ESG integration and impact investing. Prior to that, Alix worked at Generali Investments as RI Analyst. She started her career in 2010 at Amundi Asset Management as an RI and Corporate Governance Analyst. Alix holds a Bachelor’s degree in Finance and Economics from Sciences Po Lyon as well as two Master’s degrees from  Sciences Po Lyon and Institut d’Administration d’Entreprise Paris Est-Créteil.

Chosson commented: “I am excited to join a pioneer in RI and look forward to working with the company’s experienced RI and impact team to grow the firm’s capabilities even further at an interesting time for the industry.”

According to a statement, “having won its first RI specific mandate nearly 20 years ago, AXA IM views RI as a key area for its business and clients.” The volume of ESG-integrated and impact investments managed by AXA IM reached €333 billion in 2015.

 

Deutsche Asset Management Adds Fund to Comprehensive Factor ETF Suite

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Deutsche Asset Management Adds Fund to Comprehensive Factor ETF Suite
Foto: mulan . Deutsche Asset Management suma un fondo a su suite de ETFs Comprehensive Factor

Deutsche Asset Management has announced the launch of Deutsche X-trackers Russell 2000 Comprehensive Factor exchange traded fund (ETF) the fourth ETF to be added to its multifactor suite. The new fund, DESC, seeks to track the Russell 2000 Comprehensive Factor Index. The FTSE Russell family of Comprehensive Factor Indices is designed to track the equity market performance of companies that have demonstrated relatively strong exposure to targeted investment style factors: value, momentum, quality, low volatility and size.

Fiona Bassett, Head of Passive Strategy in the Americas said: “DESC, focusing on small cap US stocks, is a logical addition to our Deutsche X-trackers Comprehensive Factor ETFs suite, which is based on an intelligently designed index construction mechanism that takes into account five investment factors. Academic research has identified certain stocks’ characteristics that are important in explaining a stock’s risk and performance. Emphasizing these factors can potentially make a significant contribution to outperforming traditional market-capitalization weighted benchmark indices.”

Deutsche AM rolled out its US multifactor suite late last year with the Deutsche X-trackers Russell 1000 Comprehensive Factor ETF and the Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF .The suite was expanded with the launch of Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF earlier this year. DESC follows the same investment methodology as the three previously-launched funds applied to the small cap US stock universe.

Luxembourg Approves an Alternative Fund Structure

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El Parlamento de Luxemburgo aprueba un nuevo fondo de inversión alternativo, RAIF, exento de supervisión por el regulador
Photo: Narch, Flickr, Creative Commons. Luxembourg Approves an Alternative Fund Structure

The law introducing a new Luxembourg alternative fund structure, the Reserved Alternative Investment Fund (RAIF), has been approved by the Luxembourg Parliament and will come into force three days after publication in Luxembourg’s Official Gazette Mémorial

Welcoming the new law, Denise Voss, Chairman of the Association of the Luxembourg Fund Industry, says: “The Luxembourg RAIF Law provides an additional – complementary – alternative investment fund vehicle which is similar to the Luxembourg SIF regime. Unlike the SIF, the RAIF does not require approval of the Luxembourg regulator, the CSSF, but is supervised via its alternative investment fund manager (AIFM), which must submit regular reports to the regulator. Luxembourg managers will therefore have a choice, depending on investor preference.  They can set up their alternative investment funds as Part II UCIs, SIFs or SICARs if they prefer direct supervision of the fund by the CSSF. Alternatively they can set up their alternative investment fund as a RAIF, thereby reducing time-to-market.”

Freddy Brausch, Vice-Chairman of ALFI with responsibility for national affairs, adds: “In order to ensure sufficient protection and regulation via its manager, a RAIF must be managed by an authorised external AIFM. The latter can be domiciled in Luxembourg or in any other Member State of the EU. If it is authorised and fully in line with the requirements of the AIFMD, the AIFM can make use of the marketing passport to market shares or units of RAIFs on a cross-border basis. As is the case for Luxembourg SIFs and SICARs, shares or units of RAIFs can only be sold to well-informed investors.

Denise Voss concludes: “The new structure complements Luxembourg’s attractive range of investment fund products and we believe this demonstrates the understanding the Luxembourg legislator has of the needs of the fund industry in order to best serve the interests of investors.“

You can click here to access the legislative history in French.