Schroders Expands its Securitised Credit Capability

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Schroders has reached an agreement with Brookfield Investment Management to acquire its securitised products investment management team with more than $4 billion in assets under management.

The team is led by Michelle Russell-Dowe, Managing Director and Head of Securitised Products Investments at Brookfield, and will combine with Schroders’ existing New York based ABS team. The combined team will oversee more than $8 billion, with significant capacity for further growth.

The team also manages an Irish qualifying investor alternative investment fund (QIAIF), which will become an important component of the firm’s extension into alternative investments. These assets will be managed under the Schroders brand, with full access to the firm’s asset management platform, economists, research and risk management capabilities.

Karl Dasher, CEO North America at Schroders said: “This acquisition deepens our capabilities in one of the largest and most research intensive credit sectors globally. The process developed by Michelle and her team over two decades has delivered one of the longest and strongest track records in the sector with an extensive network of industry relationships. This will strengthen our investment capability for both US and non-US investors seeking higher return opportunities within fixed income.”

Michelle Russell-Dowe, Managing Director and Head of Securitised Products Investments at Brookfield said: “Our team is very excited to become part of Schroders. We feel the organisation, investment approach and environment will be a great fit for our team and our clients, which will benefit from the deep resources and capabilities Schroders has to offer globally. We look forward to working with Schroders to build on the exciting opportunities available in a changing fixed income landscape.”
 

Credit Suisse Closes its Panama Office

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Credit Suisse echa el cierre a su oficina de asesoría financiera en Panamá
CC-BY-SA-2.0, FlickrPhoto: Dronepicr. Credit Suisse Closes its Panama Office

Just as it was expected since early 2016, Credit Suisse closes its Panama advisory office. This decision has nothing to do with the Panama Papers, a scandal started with an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca. 

Until now, Credit Suisse served the Panama Private Banking clients from their offices at the MMG Tower, in Panama City.

In an email, Drew Beson, Vice President, Corporate Communications at Credit Suisse told Funds Society: “Credit Suisse remains committed to Latin America, a key growth region for our private banking and wealth management businesses supported by our market-leading investment bank. By closing our Panama advisory office, we expect to deliver the same high-quality advisory services to clients out of Switzerland and allow Credit Suisse to strengthen presence on local locations with growth prospects. Other local presences in Latin America are not affected.”.

TH Real Estate’s European Cities Fund Completes First Acquisition

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El European Cities Fund compra un parque industrial en Bolonia
CC-BY-SA-2.0, FlickrMeraville Retail Park. TH Real Estate’s European Cities Fund Completes First Acquisition

TH Real Estate has acquired Meraville Retail Park in Bologna, Italy, on behalf of its European Cities Fund for a net initial yield of circa 5.96%. This is the first acquisition for the Fund, which was launched on 1 March 2016 as a pan-European open-ended real estate investment vehicle with €200m of equity.

Totalling 35,975 sq m (387,232 sq ft), Meraville Retail Park has been open since 2003 and boasts very strong sales performance, making it one of the top-two performing retail parks in Italy. Featuring a diverse mix of top retail tenants including COOP, Mediaworld, Leroy Merlin and top fashion retailers such as OVS, Pittarello, Alcott and Piazza Italia, the retail park has an occupancy rate of 99.7%.

Liz Sworn, Fund Manager, Europe, TH Real Estate, comments: “Measured against other European cities, Bologna continues to outperform in areas such as employment, growth and GDP per capita. In addition, retail sales growth in the city is predicted to average 1.4% per annum in the next five years, outperforming the Italian average. We strongly believe in the investment fundamentals of Bologna and feel that Meraville Retail Park will prove to be a strong asset for the Fund.”

Located in Bologna, the capital of Emilia Romagna and Italy’s second wealthiest city, Meraville Retail Park benefits from a 30-minute drive time catchment of nearly 800,000 people. In a rating of 1,200 European regions by TH Real Estate’s research team on factors such as employment growth, employment structure, unemployment, population growth and GDP per capita, Bologna rated in the top 12%.

Mario Pellò, Head of Investment, Italy, TH Real Estate, adds: “With its high occupancy rate, strong sales performance and location in Italy’s second wealthiest city, Meraville Retail Park perfectly meets our investment requirements for the European Cities Fund. We believe that the retail warehouse market will be a sector where we will continue to see yield advantage and that Meraville specifically presents strong asset management opportunities.”

The retail park adds to TH Real Estate’s strong presence across Italy, where its current portfolio of 11 assets totals c.€1.3bn AUM.  

Matthews Asia Renames Fund to Matthews Asia Innovators Fund

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Matthews Asia cambia el nombre de su fondo Matthews Asia Ciencia y Tecnología
CC-BY-SA-2.0, FlickrPhoto: Robert S. Donovan. Matthews Asia Renames Fund to Matthews Asia Innovators Fund

Matthews Asia has announced the renaming of the Matthews Asia Science and Technology Fund to the Matthews Asia Innovators Fund.

Managed by Michael J. Oh, CFA, the Matthews Asia Innovators Fund seeks to generate long-term capital appreciation by investing in companies that the investment team believes are innovators in terms of their products, services, processes, business models, management, use of technology or approach to creating, expanding or servicing their markets.

Matthews Asia believes that as Asia’s economy has grown, many sectors such as manufacturing and technology have moved up the value chain in order to improve productivity and enhance their products and service offerings. In addition, Asia is moving beyond its reputation as a region of copycat production, with companies now focused on building market-leading positions through developments that disrupt existing business models.

Underlying these important developments in the region’s economy has been a strong focus on fostering technology, encouraging entrepreneurship and increasing emphasis on creativity. The Fund seeks to identify companies that Matthews Asia believes demonstrate innovation in their businesses and that, over the long term, can generate opportunities for attractive returns for investors.

Michael J. Oh, CFA, Lead Manager: “We believe Asia represents a significant opportunity for investors seeking innovative companies that offer the potential for long-term capital appreciation. The region’s economy is now home to many leading companies within the Internet, e-commerce, software, health care and consumer discretionary sectors. Innovation has been a key driver of success for many of these companies. Since its inception in 1999, the Fund has focused on identifying and investing in businesses such as these, and a broader investment strategy better reflects Asia’s growing, more innovative economy.”

Robert Horrocks, PhD, Chief Investment Officer: “Investing in innovative companies has been central to our investment process for over 20 years. As we celebrate the firm’s 25th anniversary this year, the renaming of the Fund to the Matthews Asia Innovators Fund highlights just how far the region’s economy has progressed during this time. Far from being an economy dominated by export-led companies, we are now seeing innovative companies occupying market-leading positions in sectors as diverse as education, e-commerce and health care. Key to their success has been the ability to deliver products and services that are more closely aligned to the region’s consumers, and I believe over the long term, it is these types of businesses that will make a much greater contribution to the region’s economy.”

 

Credit Suisse Sets up a Wealth Management Team in Thailand

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Looking to service wealthy Thais, Credit Suisse has expanded its Thailand operations.

The bank that has had a full-service securities house in Thailand for 16 years, has hired a team of 6 – looking to grow into 12, to target two key client segments – HNW individuals with assets of more than US$2 million (Bt71 million), and UHNW individuals with assets of $50 million, or $250 million in net wealth, of which the Credit Suisse Global Wealth Report 2015, estimates are close to 340 in Thailand.

According to International Investment, Christian Senn, Credit Suisse’s private banking market group head for Thailand, noted that Thai clients are increasingly looking to diversify their domestic wealth through global investments, as the the regulatory policy towards overseas capital flows in the country “continues to evolve”. They also note that in 2014 there were  91,000 Thais with more than US$1m in investable assets.

The new team will be supported by the firm’s regional private banking hub in Singapore, which houses more than 200 investment specialists, and which was in charge of the Thai Wealth Clients until now. With Thailand, Credit Suisse now has an onshore wealth presence in six Asia-Pacific markets.
 

What Should Keep Investors Up at Night?

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A few months ago, when the already so distant summer of 2015 was coming to a close, we had the opportunity to talk to Art Hogan, MD, Director of Research and Chief Market Strategist at Wunderlich, at an event organized by Dominick & Dominick, a division of Wunderlich Wealth Management, for its Miami clients, regarding investors’ major concerns. We have now resumed that conversation to find out whether those concerns have changed and, if so, how.

On September 9th, 2015, at an event held for Dominic & Dominic clients in Miami, Art Hogan listed investors’ major concerns at that particular time in the following order: What will the Chinese government do to stimulate the economy? (Which had climbed from fourth place to the top of the list); Will there be continuity to the Fed’s policy or not? (An issue which was previously in sixth position); thirdly, an issue concerning valuations, are stocks expensive? The fourth concern was, what effect will geopolitical risks have? And as the last of the concerns in the top five, how will corporate earnings evolve?

Leaving concerns behind, Hogan III shared the good news: GDP growth, corporate earnings for the second quarter and estimates for the third, volume of mergers and acquisitions in the first half of 2015, employment growth; the strong recovery in housing sales; the low price of gasoline and electricity, the fact that banks were extending loans, and developments in Europe, which had improved greatly over the previous year.

And how do we stand now? Are the reasons that keep investors up at night still the same, and in the same order? Hogan responds by analyzing each of those topics.

Monetary Policy
Monetary policy is investors’ major concern, given the huge impact which the decisions of some countries have on the economy of others, both overall and on the financial sector, which is crucial for the functioning of the economy. “We must be aware of monetary decisions” as some potential errors could be disruptive, like China “irresponsibly ” devaluing its currency very quickly; another error would be for central banks to consider that negative interest rates help their economies become more competitive, when it has been shown that, at present, they cause the opposite effect; a third would be if the United States acted with undue haste in rising rates in an unstable economy. “It hasn’t done so yet, and I’m less concerned about us being too restrictive than about others being too lenient”. Monetary policy is definitely one of the issues that Hogan recommends we should follow closely.

Commodity Prices in General, and Energy in Particular.
The second major issue is the price of commodities and energy. Emerging economies are dependent on commodity sales to developed economies and, in general, the latter are favored by low prices. But make no mistake, the benefits obtained by developed markets is not as great as the damage suffered by emerging markets, because they need stable prices to grow. Furthermore, Hogan points out that “looking at the prices of commodities and the economy, can lead to the erroneous interpretation that the former are premonitory of the evolution of the latter. It’s an error to believe that if the price per barrel was US$100 18 months ago and $ 36 a month ago, the global economy must be in tatters. It is not always the case.” In fact, the real problem is the imbalance between the excess supply and the demand.

The first steps in the right direction are being taken to reach some agreement, says Hogan, his reasoning being that high prices are in everyone’s interest and there is movement within the sector (Saudi Arabia and Russia have made a first and difficult attempt at communicating, America is slightly reducing its production, Iran- starting to export after years of sanctions- is asked not to increase its production). By pointing out that intentions are not about freezing production altogether, but rather about halting its increase, and carrying out rational negotiations, Hogan makes it clear he does not expect the outlook to change from one day to the next, but he believes we are at the beginning of the path to recovery and invites us to see what happens at the OPEC meeting in June, although he believes there will be preliminary discussions.

China
China may not be investors’ major concern at this time, but it’s still in the Top 3 and, according to Hogan, will remain in the list of concerns for a long time, as it is after all the second largest economy in the world and still undergoing a process of major change. The country is in the throes of a difficult process, from being purely an exporter of inexpensive products produced by cheap labor, to becoming a net consumer at the hands of its emerging middle class. What we do not know is how effective they will be at orchestrating a soft landing -as they are new in what they do and, inevitably and as part of the process, they will make mistakes -or how disruptive this will be if they don’t succeed. They will improve in the process, however, as well as improving their communication.

US Politics
US politics, which although is not usually on his “list” does appear now because it’s in the midst of the electoral process. It is another issue that Art Hogan follows closely. At the start of the primaries, when Trump and Sanders both looked promising, Hogan commented that it was easier to be well positioned for the less moderate candidates, although it is more likely that the more moderate ones finally win the elections. Neither option -Trump, with his protectionist proposal, calling for import taxes on products imported by China, Mexico and Japan, among many other measures, nor Sanders, leaning towards socialism, with anticipation of higher taxes, unfriendly to Wall Street, and planning to spend a lot of money- seems the most “market friendly”. For now, markets are allowing the process to continue and will react when the candidate for each party is known. So, can’t we predict the market reaction to a possible Democrat or Republican victory? “Exactly”, says Hogan, “that will depend on who the candidate is for each of the options. The best performing markets over the past 15 years, regardless of whether the President is either Democrat or Republican, have had either a mixed senate or one with a majority from the president’s opposing party, which balances decisions”.

Geopolitical Risks Abroad
When asked for his opinion on the political situation in other countries, Hogan points out that India is moving in the right direction according to the markets, while Brazil does so in the opposite direction, although because of cycles, “we must monitor the movements well”. His biggest concern in the geopolitical sphere is the low price of commodities and reminds us that the situation in Nigeria, Venezuela, Iran and Iraq. Also, Russia and Saudi Arabia are stable when prices are high, but not so much when the lack of revenue caused by the fall of those commodities begins to cause economic problems within the country.

Europe is another region facing its own challenges, with somewhat distant positions between the EU and the UK. “If the European Union wants to keep the UK among its members, it will have to make some reforms. Its departure could encourage other countries to follow suit and produce great instability in the region. In the short term, the UK must be kept within the European Union,” said Wunderlich’s Research Analyst and Strategist, pointing out that just  a few months ago it seemed that Greece could be the first one to exit the EU, and advising not to forget that country. Europe also faces another major challenge which will leave a mark on its future, which is the operational, financial, and economic management of immigration, the resolution of which will not be as fast as decision making in the UK. But there are still other issues outstanding: the establishment of a single monetary policy and stimulating the economy, something to which the strong dollar has contributed towards in recent months, improving competitiveness.

Will There be Contagion?
Another issue that seems to worry the markets, “although I do not share it” is that the slowdown in global economic growth could end up leading developed economies into recession. One of the most frequent conversations these days is whether the slowdown in emerging countries, will end in recession and then cross the border to spread to the United States; the Chief Market Strategist says he still believes that there will be no recession in the United States. “Although it is now more likely than before, the possibility remains at around 20%.” According to Hogan, the US economy is moving in the right direction: the GDP is growing between 2 and 2.5%, and the rate of employment, consumer confidence, car sales, etc. are all increasing. In short, if it does happen, it would be more the result of contagion than of country fundamentals.

 

Gesconsult’s Most Emblematic Strategies Make the Jump to the International Stage

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Gesconsult recibe luz verde por parte de Luxemburgo: sus estrategias más emblemáticas dan el salto internacional
CC-BY-SA-2.0, FlickrPhoto: JimmyReu, Flickr, Creative Commons. Gesconsult's Most Emblematic Strategies Make the Jump to the International Stage

Gesconsult has announced the launch of two of its star funds: Gesconsult Renta Fija Flexible and Gesconsult Renta Variable, in the Luxembourg market. This venture is a significant step towards the internationalization of the independent Spanish Asset Management firm specializing in flexible active management in both Spain and Europe.

In this way, Gesconsult aims to continue its growth outside of its home territory. With the approval of the Luxemburg regulators, as of now, these investment strategies are already available for sale not only to national clients but also to international clients.

Juan Lladó, president of Gesconsult, emphasizes that,“we are very proud to announce the leap into Luxembourg and in this way, take our business beyond our borders. Starting now, our strategies are available not only to any investor who does business in Spain, but also to international clients, who had shown interest in investing in our strategies of flexible active management in Spain and Europe. Luxembourg is the most efficient point of entry for many international investors so that they can gain access to local specialized asset management firms”.

The asset management firm has established a master-feeder structure (that is to say, principal-subordinate) in which the core funds will be Spanish and the subordinate ones will be Luxembourgish. The subordinate funds will have a specific classto invest in core funds. This structure makes it possible to maintain the historic excellence of the funds’ profitability and to benefit the participants from the very first moment they join this fund, which already has asset under management.

Gensconsult has decided to launch these vehicles in response to the international investor’s appetite and has plans to continue launching more of its investment strategies on an international level.

“We are convinced that an important part of our growth will come from international business, now that investors are starting to look towards Spain and Europe and there are hardly any active fund management firms that are as specialized as ours. We have a lot to contribute to the investor by boosting our presence in the International asset management industry,” concludes Juan Lladó.

Gesconsult flexible active management strategies beat their rates

The most emblematic Spanish equities fund of the fund management firm is the Gesconsult Renta Variable which has beaten the Ibex 35 in the last few years. Managed by the managing director of Gesconsult, Alfonso de Gregorio, it invests at least 75% of the funds’ asset in Spanish stock exchanges, independently of its capitalization and it can invest up to 10% in foreign companies of OECD. They avoid exposure in emerging markets and see opportunities in the medium and small caps sector.The investment has a long-term vision. It has the highest Morningstar 5-star rating and a qualitative bronze rating.

On the other hand, Gesconsult Renta Fija Flexible fund, managed by the deputy managing director of Gesconsult, David Ardura, is a mixed fixed-income fund which reflects the company’s philosophy of flexible active management, which controls risks in volatile market scenarios. One can invest a maximum of 30% in equities, mainly in the Euro Area, which can be adapted to better market conditions. Its portfolio focuses on Spanish assets and European ones when the environment requires it. Its exposure to equity depends on the economic prospects of the market of the team, and can be completely divested whenever the market circumstances demand it. Management is focused on the medium term.

GAM Acquires Taube Hodson Stonex

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GAM Acquires Taube Hodson Stonex
Foto: Flazingo. GAM, propietaria de Julius Baer Funds, compra Taube Hodson Stonex

GAM, the pure-play asset manager that owns Julius Baer Funds, is to acquire THS, a global equity investment firm based in the UK, renowned for its successful, thematic, bottom-up and benchmark-agnostic investment approach.

At completion, the THS investment management business will transfer to GAM. The acquisition is expected to close in the third quarter of 2016, pending customary regulatory approvals. The investment team, led by the four principals Cato Stonex, Mark Evans, Robert Smithson and Ali Miremadi, will subsequently relocate to the GAM offices in London and their strategies will be marketed under the GAM brand. THS currently manages approximately GBP 1.78 billion of assets (CHF 2.5 billion) as at 31 March 2016

THS has a long track-record managing institutional mandates investing in global and European equities, following a long-term, unconstrained and active investment approach based on proprietary company research. THS has also been the sub-advisor to one of GAM’s oldest global equity strategies, launched in 1983.

Group CEO Alexander Friedman said: “With their proven track-record and deep expertise, the THS team is a great strategic and cultural fit for GAM and we are delighted that they have chosen to join us. We have a multi-decade relationship with the founders and this acquisition is consistent with the growth agenda we set out in 2015, which includes targeting opportunities that substantially deepen our global equity capabilities.”

THS Founding Partner Cato Stonex said: “We are excited to join GAM – one of our oldest clients and a firm with such an impressive track-record as a home for active investors. We think this is an excellent deal for our clients. GAM’s global client network and its operational infrastructure will allow us to remain focused on our investment priorities and to build on our strengths. We look forward to joining the team.”

Free Cash Flow Is King

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No luche contra los mercados de hoy con el dinero de mañana
CC-BY-SA-2.0, FlickrPhoto: Pictures of Money. Don't Fight Today's Markets With Tomorrow's Money

Given the strength of the dollar — though it has weakened some of late — multinational companies have seen their earnings per share pressured. If you compare the EPS growth rate of US-focused companies with that of their multinationally focused counterparts, there is a very wide gap, points out MFS.

According to the firm, US-focused firms are dramatically outperforming their foreign-focused peers. Revenues, profits and margins are still growing, which is something skeptics would not expect in the seventh year of an economic expansion.

“And perhaps even more important than expanding profit margins are expanding free cash flow margins”, explains in its latest analysis.

“The free cash flow generation of large cap companies, if you strip out energy, materials and industrials, is running near all-time highs. For that reason our outlook for US equities remains strong compared to Japan, where Abenomics does not appear to be working well, and Europe, where labor costs remain persistently high and return on equity is subpar”, write the experts of the firm.

The United States has consistently generated post-dividend free cash flow margins that have exceeded every other region of the world. The composition of the US market — with its emphasis on technology companies and companies that use technology to increase efficiency, its rapid asset turnover and low capital intensity ratio and its use of capital outside the US’s borders as large cap companies globalize — lends itself to robust cash flows that should reward equity investors in 2016, said MFS´ experts.

MFS highlights that in an environment where it exists the possibility of somewhat looser global financial conditions for the foreseeable future, the asset manager is generally more constructive toward higher-risk assets. Equities and high yield debt should be a focus for investors looking to re-risk portfolios, and strong fundamental, bottom-up analysis is critical to that re-risking process.

“Free cash flow generation, which is not a Fed-driven phenomenon, remains the key, and we see that most clearly in US markets”, concludes MFS.

 

Is China Losing Control of its Economy and Currency?

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According to Chi Lo, Senior Economist, Greater China, Hong Kong at BNP Paribas Investment Partners, concerns that an economic hard landing in China could force Beijing to massively devalue the renminbi have receded since the start of the year but remain in the background. “Such a development would send shockwaves through global financial markets. Some investors continue to wonder whether Beijing is losing control of its economy and currency.” He writes on his blog.

Lo mentions that traditional macroeconomic indicators, such as growth in industrial output, electricity consumption, freight volume and steel and cement output, do paint a hard-landing scenario for China by showing either anaemic growth rates or outright contraction. However, the new economy, represented by the service-based tertiary sector became the largest category of GDP in 2013. “This development suggests to me that creative destruction is underway. The traditional macroeconomic indicators have failed to capture the structural changes. The fact that China is going through a difficult transition from the old to the new economy with some setbacks in financial reforms does not necessarily spell an economic crisis.”

While the new economy is neither large enough nor strong enough to offset the contraction of the old economy, electricity consumption and railway transport have been growing in the new economy. Lo argues that there should be a policy-easing bias until economic momentum stabilises. He also mentions the setbacks in China’s financial reform, “notably the bursting of asset bubbles and a clumsy renminbi policy shift. All this has led to an exodus of capital recently. However, setbacks do not mean crises. Beijing is walking a fine balance between sustaining GDP growth and implementing structural reforms. The resultant creative destruction is dragging on growth and creating volatility. This situation should not be seen as a sign of Beijing losing control of the economy.”

What about the currency? Some market players have used the Impossible Trinity theorem to argue that with capital fleeing China, it is not going to be possible to maintain a stable renminbi and ease monetary policy at the same time. If Beijing wants to cut interest rates to stabilise domestic GDP growth, it would have to allow a sharp devaluation in the currency, the pessimists argue.

“However, the application of the Impossible Trinity analysis to China is flawed. I do not see signs of capital flight. Otherwise, one should have seen a significant depletion in domestic deposits, which has not been the case. More crucially, the Impossible Trinity is not as pressing a constraint on China as many have claimed. Despite the seemingly big strides that China has taken in recent years, its capital account is still relatively closed. Most of the liberalisation measures have been aimed at institutional and official institutions’ investments. Beijing has only been opening up the capital account in an asymmetric fashion by allowing capital inflows but still restricting capital outflows.”

Sure, China lost about USD 700 billion in currency reserves last year, despite a surplus in its basic surplus (current account balance + net foreign direct investment inflows). But a big chunk of the decline came from the valuation effect, Chinese companies repaying their foreign debt and a one-time transfer to recapitalise the policy banks (three new “policy” banks, the Agricultural Development Bank of China (ADBC), China Development Bank (CDB), and the Export-Import Bank of China (Chexim), were established in 1994 to take over the government-directed spending functions of the four state-owned commercial banks). “There is no denial that there are capital outflows from China, but they do not signify Beijng losing control of the renminbi. Since there is still no full capital account convertibility, China’s monetary policy will only be partly compromised if the People’s Bank of China wants to keep the control of the renminbi in the medium-term.” Lo concludes.