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Old Mutual: “The High Levels of Political Risk Are the Key Driver behind the Pessimistic Sentiment in the Market”

Old Mutual: “Los altos niveles de riesgo político son el factor principal detrás del sentimiento negativo generalizado en el mercado” — Photos: Old Mutual's Conference in Punta del Este, Uruguay. Old Mutual: "The High Levels of Political Risk Are the Key Driver behind the Pessimistic Sentiment in the Market"

The second Old Mutual Global Investors investment conference in Latin America began in mid-May. On the 12^th and 13^th of May, Chris Stapleton, Head of Distribution in Americas, Andrés Munho, Head of Sales in Latin America, Florida and Texas, and Santiago Sacias, Regional Manager in Southern Cone, met with more than 60 investment professionals from Uruguay, Argentina, Chile, Colombia and Peru, in Punta del Este under the banner “Global thinking, Local understanding”.

Following an overview of the capabilities and strategy of the British fund management company, a discussion panel among the five fund managers attending the event, was moderated by renowned Uruguayan economist Michele Santo. Major themes for the evening were China, the stimulus policies of the European Central Bank, market sentiment and its divorce from fundamentals and political risks which threaten markets with the arrival of Bréxit, as well as the presidential elections in the United States.

The first round of questions began with concerns about the continued low oil prices and a weaker dollar, and how these two factors could have affected the Chinese economy. Josh Crabb, Head of Asian Equities and Principal Portfolio Manager at Old Mutual Pacific Equity and Old Mutual Asian Equity Income, commented that the fact that oil prices remain low is positive for Asia: “The fact that oil prices have stabilized at these levels is also important because investors use the price per barrel as a measure of risk. As per the US dollar, whatever happens with the path of rates in the normalization process, I believe this is already taken its toll in the market and that investors have adjusted for that. If you go to Indonesia and India, you can pick up the best part of 10 cents bond yield around the world, as pretty impressive as it is in Brazil, and I think, once you start seen currency stability, people are going to start chasing those yield down again”.

Ian Ormiston, fund manager at Old Mutual European Smaller Companies (Ex UK), added his insight into the behavior of oil following interviews with the management teams of oil service companies: “Because we have a very deep deflation in the cost curves, decisions have been deferred. One of the companies with whom we met last week is very confident that they will see a sudden recovery in the projects, but at the same time they are telling their clients that they may get the same project next year 20 % cheaper. So as I putted to the company’s CEO, ‘if you can get it a 20% cheaper, why not do that?’ to what I really received no response.” Ian is confident that the industry related to shale oil will recover if the oil price continues to strengthen; and he believes it is conventional crude oil which will face more challenges, once it reaches a threshold where there is a risk of delay in project margins.

What is the outlook for the Chinese economy?

On returning to the China issue, as a major player in the global economy, Josh Crabb revealed the two factors which in his opinion are most relevant in order to understand what is happening in the Asian giant’s economy: “Ironically, not as much is happening in China as people think. I think the reality is everything happens at a much slower path that people gives a credit for. From my perspective, there are a couple issues to consider: the first is the currency, let’s put what actually happened into context, we had a currency that was pegged to the dollar. Chinese authorities announced that, going forward, the Renmimbi would be linked to a basket of currencies, but did not really specify what currencies would make up this new basket, the only two options were the yen and the euro, both of those currencies depreciated suddenly, authorities made a one-time adjustment, and the whole world panicked.” Josh is confident that from now on, greater communication by the Chinese government will provide more clarity and intra-day variations, so this problem will disappear with time, now that the levels of speculation in the yen and the euro have drop off.

Josh Crabb’s second concern is the real economy and the excess credit perceived by a large part of the market’s participants: “Many people believe that the Chinese economy is back to a debt driven disaster because they are only looking at the credit data, but considering how credit works in China, where banks receive a quota on how much lending they can do over the course of a year, if they can lend at the beginning of the year or at the end of the year at the same interest for the whole year, the more likely is that they are going to try to lend at the beginning of the year, and as a result there is seasonality at the beginning of the year, and then comes back off again “. In relation to where the government’s stimulus measures are being directed, Josh insists that it’s not being spent on building ghost cities or bridges that lead to nowhere, but on real projects: “The stimulus is being directed at things as simple as metro systems, and the question that arises is, ‘how many metro systems can be built?’ That is because people do not appreciate that there are 190 cities with a population of over one million people in China, which involves the construction of 190 metro systems, a very significant figure”.

Another factor that is changing Chinese society is concern about pollution, five years ago nobody cared, they are now more aware about the high levels of pollution and require large investment amounts.

The subject of the conversation then changes, beginning a discussion regarding the return of high levels of volatility to markets, Justin Wells, Investments Director on the Global Equities team, who is involved in the management of the fund Global Equity Absolute Return (GEAR), a Market Neutral strategy that is the one flagship funds of Old Mutual, among other strategies,commented: “One of the areas which is more difficult to understand when assessing the environment in which we invest, is the fact that North America has seen the highest levels of volatility according to our indicators; and the greatest deal of pessimistic sentiment, a fact which is contrary to the economic growth embedded in that great nation, in that great economy. There are a lot of strange things happening in the markets today.” For Justin, this volatility has returned to stay for a while, but the positive side is that it can create opportunities for the active investor, which is the approach that his team is taking for the forthcoming months ahead.

ECB’s Purchasing Program

As for the effectiveness of the latest measures announced by Mario Dragui, Bastian Wagner, the fund manager who, along with Christine Johnson, makes the investments decisions on the structure of the Old Mutual Monthly High Yield Bond, expresses his opinion on the market reaction to the European Central Bank’s purchases program, which includes the purchase of corporate bonds: “I think the market was quite surprised by the magnitude of purchases announced with the new measures. When you think about it, the most challenging part will be to buy between 3 and 5 additional trillion on top of established government bonds purchases every month. They explicitly expressed that they wanted to buy investment grade debt denominated in Euros and up to 70%, which represents a large amount when taking into consideration that 5 billion Euros represent almost 2% of the all eligible market.”

Bastian refers to the generalized narrowing of spreads in the investment grade bond markets, but mentions that the effect on speculative grade bonds will be greater. He also points out several issues that have yet to be answered, such as what the effect of a new rate cut may be on the real economy, and what would happen if any of the bonds purchased by the European Central Bank loses its investment grade.

Meanwhile, Huw Davies, co-manager for the Old Mutual Absolute Return Government Bond fund said to be quite impressed with the ECB’s performance: “We believe that the program of the European Central Bank is aggressive and most likely to work. We have already seen some of these effects in falling unemployment rates, which really were at very high levels”.

Complementing previous opinions, Ian Ormiston pointed out that it is important to mention that, for the first time, the Central Bank recognizes that there is a problem in the European banking system, particularly within the Eurozone: “The negative interest rates are compressing spreads and are causing issues for the banks. It’s good that it is good that they now are talking about it, because the debilitation of bank credit is probably the biggest problem in Europe”.

Investor sentiment and divorce from the fundamentals

When asking Ian about the sentiment of the management teams of the companies in which he invests, the divorce between investor sentiment and fundamentals rapidly arises: “It’s amazing the way it is evolving. Especially, when comparing the first quarter reports to the end of year reports three months earlier, a time when CEOs were not providing guidance or giving very cautious guidance. Then the market fell, influencing the opinion of those who thought that Europe was heading back into a recession.”

Ian Ormiston mentions the case of the French economy as a symptomatic case of the entire European economy. In which most investors talk about France as a country which will never grow, and for which bad sentiment is developing due to the lack of proposals for economic reforms by the French government: “Just when everyone had given up on France, its economy begins to grow, fantastically, but not dynamically. Many equities basically reflected no growth at all; but growth is starting to come back. In France, one of the biggest impediments for growth are the labor laws which have really affected large companies. While small companies can more easily hire and fire, they can also help large companies by providing them with employees who are not necessarily included in their payroll.”

Meanwhile, Bastian Wagner compares the differences between the European and US markets, amongst which there is a curious divergence. While during the past four years the United States has seen significant activity in projects of M&A (mergers and acquisitions) and private equity; in Europe, this activity has either decreased or remained flat. “In Europe, we have not seen many private equity firms entering the market, making purchases, or with big M&A operations, which is a sign of lack of confidence. Which raises the question of whether the ECB’s measures are sufficient for the company directors to sit and decide whether an investment project should be executed, or whether maybe we need to go a step further, and the government should provide confidence to the private sector.”

But this lack of confidence doesn’t only occur in developed markets, Josh Crabb comments that sentiment towards emerging markets has been quite pessimistic for a long period of time, so that current valuation levels are very low. “Current levels are as low as they can be in a world without crisis. So, in that respect, they are quite negative, but the interesting part comes when we consider the positioning in stock. During the last six months we have seen that commodities stocks rallied a 100% to 200%, we have seen markets like Brazil which, with the wonderful news of the ‘impeachment’, rallied 50% in the course of three weeks. And most investors have missed it, which is a clear indicator of how extreme the sentiment is, therefore, a simple little event which makes the current situation somewhat less bad, can really change the market.”

Crabb also adds that perhaps it’s time for fiscal policies to begin to step in. In his opinion, fiscal policy tends to benefit emerging countries and obtains better results for the majority of the population by redistributing wealth.

As for the political risks facing the markets, Huw Davies believes that it’s unlikely that the UK exits the European Economic Community. For the fund manager, much of the risk of that event has manifested in the currency, the sterling pound. As the date of the consultation approaches, the strategy in which he participates will be distancing their exposure to the event, as it is an event of a binary nature. As for the US presidential elections, he admits to not having a sure bet: “Six months ago nobody imagined that Trump would get the Republican nomination, currently everything looks possible.”

Finally, Justin Wells refers to the role that these events are playing in terms of market sentiment. “All regions where we have positions are in pessimistic sentiment territory, the higher levels of political risk are the key driver behind that.”

Old Mutual Global Investors Strengthens Absolute Return Government Bond Team With New Hires

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Old Mutual Global Investors reorganiza el equipo de renta fija absolute return — CC-BY-SA-2.0, FlickrPhoto: Russ Oxley. Old Mutual Global Investors Strengthens Absolute Return Government Bond Team With New Hires

Old Mutual Global Investors, part of Old Mutual Wealth, announces that, as a consequence of a difference in opinion regarding future strategic direction, Russ Oxley will leave the business with immediate effect. Old Mutual Global Investors would like to thank Russ for his valuable contribution in supporting the launch of the ARGB capability.

Adam Purzitsky and Paul Shanta have been appointed Co-Heads of the Absolute Return Government Bond team, reporting to Paul Simpson, Investment Director.

Adam and Paul joined Old Mutual Global Investors in early 2015 along with the other members of the ARGB team. They have been instrumental in the management and development of the Absolute Return Government Bond strategy over the last seven and eight years, respectively.

Old Mutual Global Investors also announces the enhancement of the ARGB portfolio management team with the appointment of two highly experienced investment professionals, Mark Greenwood and Peter Meiklejohn. Both Mark and Peter have already made valuable contributions to the ARGB team during the time they have been working alongside the team as consultants. These appointments bring the total number of portfolio management professionals working on the ARGB strategy to six, supported by two additional specialist investment professionals.

Supported by the rest of the team, Adam and Paul will continue to co-manage the Old Mutual Absolute Return Government Bond strategy. Their focus will remain on meeting clients’ expectations and delivering the outcomes and investment journey clients expect. Adam and Paul were among the first members of the team to join Old Mutual Global Investors, and were instrumental in the pre-launch preparation, as well as actively managing the strategy since launch in October 2015. The managers will continue to employ exactly the same investment process and philosophy that they have been at the heart of developing over many years.

The European Property Growth Fund Sold 20% of its Assets

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The Standard Life Investments European Property Growth Fund has sold a portfolio of eight assets across Europe, as it adjusts its focus to concentrate on its core markets.

Logicor has acquired the portfolio of logistics assets from the fund in an off-market transaction. Located in Belgium, Germany, Italy and Hungary, the assets in the portfolio total 241,753 sq m with a total average occupancy rate of 99.7%. Tenants include third party logistics providers such as DB Schenker, DHL and online electronics retailer Redcoon.

This sale represents around 20% of the Standard Life Investments European Property Growth Fund, which reflects the significant emphasis the fund is placing on its research-led strategy of targeting its core markets in Europe. Proceeds from the sale of the portfolio will be reinvested in the acquisition of high quality assets across a range of sectors in markets such as the Netherlands, Germany, Spain and Ireland.

Veronica Gallo-Alvarez, Fund Manager of the Standard Life Investments European Property Growth Fund said: “This is a strategic transaction that meets our long-term objectives for the fund, which is about continuing to deliver robust long-term returns for investors. We are targeting income generating assets as well as opportunities to create value in core and recovery European markets with a demonstrable opportunity for strong rental growth. As part of this repositioning, we are already undertaking due diligence on a number of possible acquisitions.”

Mo Barzegar, CEO & President, Logicor added: “This is a well-let portfolio of high-quality modern logistics assets. This acquisition strengthens our pan-European logistics platform and is consistent with our strategy of investing in key logistics locations across the European supply chain.”

Allfunds Bank’s 46% Growth Cements Position as Europe’s Largest Mutual Fund Platform

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Allfunds Bank has cemented its position as Europe’s largest mutual fund platform as assets under administration (AuA) soared to EUR 215 billion from EUR 147 billion last year, according to Platforum’s latest findings on European fund distribution.

With growth of 46%, Allfunds Bank’s soared far ahead of its nearest rival, UBS Fondcentre, which grew 17.6% to EUR 169.4 billion. Platforum described Allfunds’ growth in Europe as being across all regions including in its traditional core markets of Italy and Spain.

“Despite its clear Asian and Latin American ambitions, Allfunds Bank still regards Europe as a market with great potential that will continue to drive growth. Reinforcing this view, assets in Central Europe and the Nordics more than doubled (+119%) in Q4 2015 over Q4 2014,” said Platforum.

Of the 46 asset managers surveyed by Platforum 55% suggested that Allfunds Bank had the best “distribution potential” compared with 35% and 20% for its nearest two rival platforms.

The Platforum survey also found that half the fund managers believed Allfunds Bank represented “value for money” compared to 20% and 15% for its nearest two rivals.

Allfunds Bank received another top billing regarding the provision of management information, with 35% of managers polled suggesting it was best for providing good information compared with 30 and 15% for its two nearest rivals.

Commenting on the Platforum’s findings, Allfunds Bank’s CEO, Juan Alcaraz said, “Allfunds Bank had an outstanding year which led us to grow across the board. Our relentless pursuit of the open architecture model, which provides consumers with the widest fund choice possible, is proving ever more attractive to a wider range of wealth and asset managers across Europe.In the UK, where we have taken a long time to establish our model, the business is now thriving with a very strong pipeline. We therefore remain very confident that our approach, which is clearly gaining traction in the UK, will continue to help propel our business forward across Europe.”

The Narrowing Corridor of Global Growth

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According to Rick Rieder, BlackRock‘s Chief Investment Officer of Global Fixed Income, global growth appeared to sputter earlier this year, roiling markets. However, investors should get used to living in a moderate growth world. “I see low global growth persisting for a while, with economic growth overall settling into a narrower corridor in the years ahead” he writes in his company blog.

Global growth over the past decade has been driven primarily by investment-fueled growth in China and other emerging markets (EMs). In contrast, comparative growth in developed markets (DMs) has been relatively stagnant. When looking at investment as a percentage of gross domestic product (GDP) since 2000, it has largely been the EM economies that have led the way, with DM investment declining, according to BlackRock’s analysis.

“But now we are witnessing a contraction in EM investment growth, as investment and trade are slowing on the back of a decade-long boom. This is resulting in slowing EM real GDP growth rates, as the chart above shows,” Rieder writes.

This EM slowdown will have a larger impact
Since the EM share of the total global GDP is approaching 40 percent, the broad-based slowdown in EM growth is likely to reverberate more strongly around the world than it would have in decades past. And with very low DM growth rates forming the lower bound of the new growth corridor, the candidates to take up the share of global growth that EMs are relinquishing are few and far between.

Growth is likely to be stuck in this narrower corridor in the years ahead for other reasons too, including changing demographic trends across much of the globe and the natural evolution of maturing economies. These big-picture trends are difficult to change and likely to be with us for a long time. In addition, technological innovations are disrupting every industry, creating strong deflationary pressures that are further dampening growth.

Of course, there will be periods of relatively good growth within the narrower growth corridor. Case in point: Second-quarter U.S. GDP growth is likely to come in at a pretty good level after a weak first quarter, driven by a strong U.S. consumer. But the long-term story will be low growth.

So what does this mean for investors? “These dynamics help explain why we’re living in a world of lower yields and harder to come by cash flows.” Concludes Rieder.

XP Securities: “The largest risk to the world economy remains the risk of deflationary pressures once again reentering the world lexicon”

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Expert XP 2016, one of the largest events in Latin America for professionals in the financial industry, will take place next 24^th, 25^th and 26^th of June in a convention center and hotel in Atibaia, a town near the city of Sao Paolo, where XP Investimentos will bring together renowned speakers and professionals from major investment, wealth management, and insurance firms from the current Brazilian panorama.

Alberto Bernal, Chief Investment Officer at XP Securities, will travel from Miami to offer his view on the consequences of a prolonged environment of negative interest rates and the ongoing world’s total factor productivity collapse.

Bernal, of Colombian origin, who joined XP Securities at the end of 2015, was Head of Emerging Markets Research at Bulltick Llc and Managing Director of Fixed Income Research at Bear Stearns in New York, and specializesin covering the Latin American markets. In addition, he is a frequent contributor to several communication media, such asCCN International, Bloomberg Television, and Reuters TV.

He was named Colombia’s most accurate economist in 2006 by the publication “Revista Dinero”, one of Colombia’s top five future economists by the newspaper “La República”, and one of the future top 40 executives under 40 by “Revista Gerente”. He graduated in Economics at the University of New Orleans and has a Master’s Degree in Macroeconomicsfrom the Kiel Institute of World Economics; he is also Associate Professor at the Universityof Miami.

In an interview with Funds Society, Alberto Bernal shares his outlook on Latin American markets, the likely interest rate hike by the Federal Reserve, and the concerns of Latin American investors. Hereunder, his answers:

What is your outlook for Latin American markets for the next six months? Are you expecting any rebounds in the price of commodities that may benefit Latin America´s largest economies?

XP Securities’ base case view remains that the largest risk to the world economy is not inflation accelerating materially from current levels, but rather the risk of deflationary pressures once again reentering the world lexicon. And, keep in mind that we are assuming that oil prices continue to inch higher as the year evolves, following massive supply constraints in the industry and the drying out of financing windows available to non-conventional oil producers from around the world. Paradoxically, a scenario of the risk of deflation remaining material is relatively positive for commodity prices, and hence our view on the expected performance of commodity-dependent economies. The causality here will remain the market pushing the value of the US dollar lower, because a stronger US dollar is deflationary in nature, meaning that the Fed will have no alternative other than to downshift its policy normalization goals going forward.

Are you expecting the Fed to raise interest rates in the next couple of months? If so, how do you think the Latin American markets will react? What countries do you think would be more affected by the increase in rates?

XP’s base case is one of the Fed NOT raising rates before December 2016. If the economy so allows, we see the Fed hiking rates by another 25bps at that time. If our view proves accurate, we think that the whole Latam region will benefit from US policy gradualism. Still, we think that Mexico will be one of the main beneficiaries of the likely Fed decision to continue moving very slowly on the policy front. If our view proves inaccurate, then the stability of Latam markets will continue to be compromised (i.e. FX rates will continue to sell-off, inflation expectations will deteriorate further, and further rating downgrades could materialize).

What are the main concerns of Latin American investors right now? What are the clients worrying about?

Most of the questions from our clients continue to be focused on three key fundamentals. (1) Politics, especially the future political situation of Brazil, Argentina and Venezuela, (2) the stability of the external accounts, especially in the case of Argentina and Colombia, and (3) the fiscal performance, an issue of concern that encompasses virtually all of the countries in the region.

What does XP Securities offer to clients that differentiates it from other firms?

XP is a very young and energetic firm. In my view, XP delivers clients top level market intelligence, cutting edge technology, a wide portfolio of financial instruments, and the backing of a very strong capital support. I believe that the synergy between the knowhow of XP’s human capital and the capital base of General Atlantic has allowed this firm to enter “the big leagues” in a very speedy and efficient form.

It has been less than one year since you joined XP Securities, what attracted you most to the firm?

The entrepreneurial nature of the firm, the fact that one only sees young and optimistic faces in this office every day, the stability that having a partner like General Atlantic implies, and the “open book” nature of my job description. The mandate from senior management to me was very simple: “come here to do what you know best how to do: ensure that our clients will always find value in talking to you or reading the pieces that you write. Oh, and have fun in the process!”

You will be participating in the Expert XP event, which topics are you going to discuss?

I will be addressing two very specific issues during my Expert speech: the (to some) unexplainable concept of one large portion of the world’s bond market trading with negative yields, and the possible long-term consequences of the ongoing world’s total factor productivity collapse. In my view, these two fundamentals are intertwined and they are having immense consequences in the portfolios of investors, regardless of whether those investors are based in London, New York, Brasilia, Dubai, Hong-Kong, or Dublin. I call this world “spaceship earth”. We are all together, for better or worse.

German Wealth Managers Will Lose Market Share to Robo-Advisors over Next Two Years

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Over 86% of German wealth managers working with high net worth (HNW) individuals believe that they will lose market share to automated investment services over the next two years, according to financial services research and insight firm Verdict Financial.

The company’s latest report states that, of developed markets, HNW clients in Germany show the greatest interest in automated advice platforms. In global terms, however, robo-advisors are still struggling to attract the assets of the wealthiest, and consequently grow their businesses and turn them profitable.

Bartosz Golba, Verdict Financial’s Senior Analyst covering Wealth Management, notes that the HNW segment’s uptake of digital platforms is lowest in markets where robo-advice has been present for a while, such as the UK and the US.

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Golba explains: “The initial emergence of robo-advice platforms in these two highly developed regions was generally expected, and attracted the attention of young high-earners making their first investments. However, the wealthiest in mature economies have longstanding relationships with private bankers, and are not prone to switching to digital-only propositions.

“Robo-advisors in the US and the UK appeal mostly to HNW investors who are price-sensitive and self-direct a share of their portfolios to save on fees. German millionaires, however, are slightly different. The main factor attracting them to automated services is the appeal of a hassle-free means of rebalancing their portfolios.”

However, this single positive function will not prompt HNW individuals to transfer significant amounts of money to simple investment platforms provided by robo-advisors 1.0, so Verdict Financial forecasts the rise of more sophisticated digital propositions, not only in Germany.

Golba continues: “HNW individuals feel that their portfolios are complex and require advanced solutions that must be managed by humans. Indeed, the main challenge for every new entrant to the robo-advice space is client acquisition. Without HNW clients’ assets, digital platforms will struggle to become profitable in the long term, and their business models must therefore evolve to meet HNW individuals’ needs.

“Traditional wealth managers can actually help to bring robo-advice to the next level. With their huge budgets, incumbents can invest more in developing new technologies, and do this in partnership with robo-advice platforms provided by financial technology start-ups. In this way, we will see a growing number of deals between traditional players and challengers being signed across the globe.”

It will take years for US rates to go back to 2%

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US short-term interest rates may not rise back to 2% until 2019 or 2021, given weak domestic growth and protracted international headwinds such as China’s slowdown, Legg Mason Western Asset Chief Investment Officer, Ken Leech, says.

The 38,000 jobs added by the US economy in May, the lowest number in almost six years, is a sign that the US economy is not growing as fast as many observers believed. The data, however, confirms an economic backdrop more aligned with the firms´ moderate view of the US economy.

“I think it could still take 3 to 5 years for short-term rates to go back to 2%,” says Leech. “That’s a long time, but remember people also said 3 to 5 years in 2009. Given global fragility, I think that a rate hike now would be a misjudgement of the situation; it’s not just that global inflation hasn’t stabilized yet; it’s that it is still coming down. Japan and Europe are still fighting deflation. This is going to be a very long process.”

Pasadena, California-based Western Asset believes the US Federal Reserve won’t raise rates unless and until:

Financial conditions improve significantly, globally.  
Economic growth is in line with the Fed’s forecast – and it is still below.  
Inflation expectations rise.

In this scenario, global monetary policy is likely to stay accommodative, supporting sectors such as corporate and certain Emerging Market bonds. Ken Leech says:  “We believe U.S. investment-grade has very compelling valuations, as current spreads are very high when compared with recent recession levels. There are also opportunities in high-yield, where the implied cumulative default rate is a staggering 37%, well above the current 2%. The most controversial area may be emerging markets, which have a terrible storyline: slow growth, low commodity prices and political challenges. All this has created a stampede out of the asset class that has brought EM spreads back to 2008–09 levels. While we may agree, we ask ourselves: what’s the price?”  

Let the Games Commence, and the Winners Win

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Football, a term, a sport, which unites billions of people across the globe irrespective of ethnicity, race or religion. It can be played anywhere, anytime, with anybody, and almost with anything (as long as the object that represents the ball has a spherical shape). These attributes made it to be the world’s most popular sport, and while not only does it unite billions of people across the planet, but it is also one of the most powerful advertising mechanism thanks to its reach. The UEFA European Championship, along with the FIFA World Cup and Olympics Games, is one of the top three sporting events of the world. Furthermore, it is one of the most-followed sporting events in Europe, attracting the interest of both football fans and the business world alike. While for many it is pure enjoyment and even a way of life, for others it is a pure business opportunity. According to some estimates, the UEFA Euro 2012 co-hosted by Poland and Ukraine had a cumulated audience of about 1.9 billion, which is around one-quarter of the global population, and the final match between Spain and Italy was watched by nearly 300 million viewers worldwide vs. 237 million in 2008. The very same phenomenon can be observed when we look at the stadium attendance and its evolution over time (see chart 1).

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These figures clearly illustrate the opportunity embedded in these events, and no wonder companies stand in line, outbidding themselves just to have their names as the official sponsors (see chart 2).

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Football, the sport of the middle classes

“There is a school of thought that argues that watching top-flight football these days is a middle-class pastime, available only to those who can pay in advance for expensive season tickets.” And this really seems to be the case, unlike what it used to be twenty years ago. As previously explored in an earlier study entitled “Affordable Luxury” published on 7 April 2016, the global middle class is growing rapidly, and while football is everybody’s sport, the middle class is in the sweet spot.

Then there is globalization, and technological advances (online streaming), and all of a sudden we are at a point where billions of potential customers are watching the same event, seeing brands appearing, convincing them about their values and attributes, and for the first time in their lives they have the disposable income if they decide to act on their desires.

Those that will score the goals

While there are 10 global sponsors 4 for this year’s Euro Cup, it does not necessarily mean that they would be the sole winners. Even though most if not all of them should see a surge in their sales and brand awareness, for most it would only be a one-time push. The companies that we would focus on and identify as real winners are those who will be able to generate lasting brand awareness, have a certain appeal to their brands, and hence are capable of capturing the desires of billions of people.

Investment Threshold Frustrates New Fund Vehicle

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The high investment threshold of European long-term investment funds (ELTIFs) is being blamed for limiting take-up by investors, according to the latest research of Cerulli Associates.

The global analytics firm headquartered in Boston says this hurdle is hampering take-off, even as European regulators seek to encourage investment from mid-sized pension funds and insurers by easing the Solvency II capital requirements for insurers with ELTIF exposure.

ELTIF regulation was implemented across the European Union in December 2015, introducing a new type of collective investment vehicle allowing retail and professional investors to invest in companies and projects that need long-term capital.

“Given the various tax treatments in different countries across the EU, this may be a harder sell than envisaged,” says Barbara Wall, Europe managing director at Cerulli Associates. “There is greater optimism about the prospects for Luxembourg’s reserved alternative investment fund (RAIF) and Ireland’s collective asset management vehicle (ICAV), particularly if the latter is able to attract funds converting from other Irish investment funds structures.”

Noting that it is still early days for ELTIFs, Wall says there are signs of interest from managers already investing in the infrastructure space and those looking to target the mass affluent market.

“Demand will depend on liquidity, how investments are viewed for capital risk and the treatment of the fund over the long term,” says Wall.

The RAIF is the latest step in Luxembourg’s drive to become a hub for alternative investment funds. It has very similar features to Specialized Investment Funds and SICARs, but does not need to be approved and is not supervised by the Commission de Surveillance du Secteur Financier (CSSF). The ICAV has become the vehicle of choice for both UCITS and AIFs domiciled in Ireland.