With increasing concern over China’s growth, investors are significantly less confident in the global economic outlook, according to the BofA Merrill Lynch Fund Manager Survey for January. Allocations to equities have fallen sharply, while cash holdings have risen.
A net 8% of fund managers see the global economy strengthening over the next 12 months, the survey’s lowest reading on this measure since 2012.
Despite this, just 12% believe a global recession will occur in the next 12 months.
Slowdown in China now stands out as the panel’s biggest “tail risk” by far.
More respondents now think global profits will decline over the next 12 months than increase, the first negative reading in over three years.
Over half of respondents expect no more than two Fed hikes in the next 12 months, up from 40% a month ago.
Long U.S. dollar remains the most crowded trade, but bullishness on the currency is waning.
Average cash balances are up to 5.4%, the third-highest reading since 2009. A net 38% of investors are now overweight cash.
Net overweights in equities have halved to a net 21% from December’s net 42%, while bond underweights have retreated.
Bearishness towards Global Emerging Markets equities has increased to a record level. Europe and Japan remain the most favored stock markets.
“Investors are not yet ‘max bearish’. They have yet to accept that we are already well into a normal, cyclical recession/bear market,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Investors’ bullishness towards Europe remains intact, but conviction is rooted to the floor. The positioning gap between the most and least preferred sectors is the lowest in two years,” said James Barty, head of European equity strategy.
CC-BY-SA-2.0, FlickrPhoto: Achim Hepp
. LVMH, Catterton and Groupe Arnault Partner to Create a Global Consumer-Focused Private Equity Firm
Catterton, the leading consumer-focused private equity firm, LVMH, the world leader in high-quality products, and Groupe Arnault, the family holding company of Bernard Arnault, announced today that they have entered into an agreement to create L Catterton. The new partnership will combine Catterton’s existing North American and Latin American private equity operations with LVMH and Groupe Arnault’s existing European and Asian private equity and real estate operations, currently conducted under the L Capital and L Real Estate franchises. Under the terms of this agreement, L Catterton will be 60% owned by the partners of L Catterton and 40% jointly owned by LVMH and Groupe Arnault.
L Catterton will become the largest global consumer-focused investment firm with six distinct and complementary fund strategies focusing on consumer buyout and growth investments across North America, Europe, Asia and Latin America, in addition to prime commercial real estate globally. L Catterton, a firm with a 27-year history and more than 120 investment and operating professionals in 17 offices across five continents, expects to grow its assets under management to more than $12 billion after various successor funds are closed.
L Catterton’s headquarters will be in Greenwich, CT and London, with regional offices across Europe, Asia and Latin America and will be led by Global Co-CEOs J. Michael Chu and Scott A. Dahnke, currently Managing Partners at Catterton. Each fund will continue to be managed by its own dedicated team in their respective locations across Europe, Asia and the Americas.
“We are delighted to partner with Catterton and its team,” said Mr. Arnault, Chairman and CEO of LVMH and Groupe Arnault. ” Having been investors in Catterton’s funds since 1998, we have participated in its growth and success, evidenced by its strong track record and its distinctive culture. I would also like especially to thank Daniel Piette whose entrepreneurship and leadership have been instrumental in creating and developing the L Capital franchise over the past 15 years. I very much look forward to continuing to collaborate with him at LVMH.”
Mr. Chu said, “We look forward to benefitting from the strength and global reach of the team at L Capital and L Real Estate as we continue to seek out investment opportunities with significant growth potential.”
“The globalization of media and technology, combined with increasingly permeable geographic borders, is driving rapid consumer growth on an unprecedented global scale,” said Mr. Dahnke. The transaction is expected to close early in 2016, subject to customary regulatory and certain investor approvals.
According to the latest Investment Funds Industry Fact Sheet, released by the European Fund and Asset Management Association (EFAMA), the main developments in November 2015 can be summarized as follows:
Net sales of UCITS increased to EUR 55 billion, up from EUR 51 billion in October. The increase in UCITS net sales can be attributed to a rise in net inflows into money market funds.
Long-term UCITS (UCITS excluding money market funds) registered net sales of EUR 27 billion, down from EUR 28 billion in October.
Equity funds registered EUR 17 billion in net sales, down from EUR 19 billion in October.
Bond funds suffered from net outflows of EUR 2 billion, compared to net inflows of EUR 0.3 billion in October.
Multi-asset funds finished the quarter with net sales of EUR 10 billion, up from EUR 8 billion in October.
UCITS money market funds experienced an increase in net inflows to EUR 28 billion, from EUR 23 billion registered in October.
Total AIF registered net inflows of EUR 9.5 billion, down from EUR 12.5 billion in October.
Net assets of UCITS stood at EUR 8,430 billion at end November 2015, an increase of 2.5 percent during the month, while net assets of AIF increased 1.5 percent to stand at EUR 4,467 billion at month end. Overall, total net assets of the European investment fund industry increased 2.2 percent to stand at EUR 12,897 billion at end November 2015.
Bernard Delbecque, Director of Economics and Research at EFAMA, commented: “Net sales of UCITS remained sustained in November, which suggests that investors were still confident about economic outlook late last year.”
Nuveen Investments, announced early January that it has entered into an agreement with Incapital to acquire Incapital’s Unit Investment Trust (UIT or Unit Trust) platform.
Since early 2014, Nuveen Investments has partnered with Incapital to provide marketing and distribution support to several of Incapital’s Unit Trusts for which Nuveen’s boutique investment affiliates have also served as portfolio consultant.This transaction builds on that successful partnership.
The acquisition reinforces Nuveen Investments’ commitment to strengthening its growing leadership position in the retail marketplace by providing investors with access to the investment ideas of premier asset managers recognized for high-quality results in their distinct areas of investment expertise. According to a press release, Incapital’s Unit Trust platform is similar to Nuveen Investments’ multi-boutique model and “is consistent with the firm’s strategy of working with a variety of asset managers to bring highly differentiated and institutional-caliber investment capabilities to clients.” Going forward, Nuveen Investments will sponsor UITs that utilize the portfolio consultant services of unaffiliated asset managers, including those currently involved with Incapital UITs, while also developing new Unit Trust strategies leveraging the expertise of its seven investment affiliates and the capabilities of TIAA Asset Management.
Nuveen Investments will be acquiring Incapital’s Unit Trust distribution platform. Key Incapital personnel currently supporting the Unit Trust platform in the areas of sales, product development and management, marketing, IT and operations will join Nuveen Investments. Together with Nuveen Investments’ own recently enhanced Unit Trust sales and distribution team, the Nuveen Investments Unit Trust platform will have significant and dedicated resources to ensure continuity of coverage for existing broker-dealer and IBD relationships. The Unit Trust team will work closely with Nuveen Investments’ national accounts team to introduce and expand the use of Unit Trusts by dealers not presently doing UIT business with Incapital, yet looking for investment products to address their clients’ particular investment needs.
“We are pleased to formally bring together Nuveen and Incapital’s UIT teams to build on our excellent work together and enhance our ability to deliver quality investment solutions and service to our clients. We are also pleased to add the high-quality investment capabilities of Incapital’s portfolio consultant partners to the investment capabilities of Nuveen’s investment affiliates and TIAA Asset Management that will enable us to offer a compelling array of UIT portfolio strategies,” said William Adams IV, Nuveen Investments Senior Executive Vice President, Global Structured Products.
Inapital Chief Executive Officer John DesPrez added, “As we move forward to focus more sharply on our core business of providing risk-managed investment solutions, we are pleased to partner with Nuveen Investments to transition our dynamic UIT business to their team. Nuveen has been an outstanding partner in building our UIT platform and developing a strong and diversified array of strategies for the benefit of our shared clients. I am also extremely proud of the team we have built. They are experienced professionals with a proven record of success. I am happy for them, too, as they will be joining a firm respected throughout the industry.”
The transaction, while subject to customary closing conditions, is expected to close in the second quarter of 2016. Nuveen was advised by Wells Fargo Securities, LLC. Incapital was advised by Grail Partners. Terms of the transaction were not disclosed.
“We know that large amounts of money all over the world are kept “elsewhere”, or “other where”, and go untaxed as Taxpayers fall short of complying with their tax obligation in their home jurisdictions,” says Foodman CPA’s & Advisors. “We also know that FATCA was established to fight tax evasion from U.S.A. individuals and entities via the use of foreign accounts. FATCA has a long reach and a substantial sign-up sheet.”
However, the U.S.A. is not the only jurisdiction looking for tax evaders. Tax evasion is a global problem. FATCA has served as the catalyst in propelling the Organisation of Economic Cooperation & Development (OECD) to introduce the Common Reporting Standard (CRS). Net net, the CRS will facilitate the automatic exchange of tax information between non-U.S.A. countries, the firm explains. The OECD is known for its quest to promote tax cooperation and improve all forms of information exchange – on request, spontaneous and automatic. Currently, there are 61 signatories that belong to the elite Early Adopters Group, and a total of 94 jurisdictions that have made the commitment to exchange information.
“Under the single global Standard, jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions”. It consists of two components:
the CRS, which contains the reporting and due diligence rules to be imposed on financial institutions; and
the Model Competent Authority Agreement, which contains the detailed rules on the exchange of information.
The new Standard draws extensively on earlier work of the OECD in the area of automatic exchange of information. It incorporates progress made within the European Union, as well as global anti-money laundering standards, with the intergovernmental implementation of FATCA. CRS has been designed to prevent Taxpayer avoidance. It has three fundamental pillars:
The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income), account balances and sales proceeds from financial assets.
The financial institutions that are required to report under the CRS include banks, custodians, brokers, certain collective investment vehicles and certain insurance companies.
Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the Standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.
“It is clear that tax compliance is a global priority. Finding a place to hide is becoming increasingly difficult for those taxpayers that try to outsmart the authorities” says Foodman CPAs and Advisors. FATCA is already 5 years old, alive and kicking. Electronic files have already beenexchanged with the I.R.S. CRS has an implementation timetable of 2017 or 2018.
CC-BY-SA-2.0, FlickrPhoto: pedronchi
. Lazard Launches US Fundamental Alternative Fund
Lazard Asset Management announced the launch of the Lazard US Fundamental Alternative Fund. The Fund, which is UCITS compliant, is a liquid and diversified portfolio primarily focused on US securities, with the flexibility to invest across the whole market cap spectrum. Utilising bottom-up stock selection, the Fund seeks to take long positions in equities of companies believed to have strong and/ or improving financial productivity and attractive valuations, and short positions in companies with deteriorating fundamentals, unattractive valuations, or other qualities warranting a short position.
The Fund will be managed in New York by portfolio managers Dmitri Batsev and Jerry Liu, who leverage a dedicated and highly experienced US equity investment team. The team, which is made up of 23 investment professionals, has an average of 18 years of investment experience and 12 years at LAM.
“In our view it is financial productivity that ultimately drives the valuation of companies.” said Dmitri Batsev, portfolio manager of the Lazard US Fundamental Alternative Fund. “We believe that forward-looking fundamental analysis is key to valuing these opportunities, both when stocks rise and when stocks fall.”
Jerry Liu said: “Expanding the US opportunity set to both longs and shorts allows us to create a differentiated portfolio of investments, seeking to provide investors with strong down-market protection, up-market participation, and lower volatility than the overall market.”
The Lyxor Hedge Fund Index was down -0.7% in December. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor Merger Arbitrage Index (+1.5%), the Lyxor LS Equity Variable Bias Index (+1.1%), and the Lyxor CTA Short Term Index (+0%) were the best performers.
ECB and Fed related reversals in December. Disappointment following the ECB meeting and worsening concerns about credit and oil kept pressure on risky asset in early December. After the confirmed Fed’s rate hike, the bottoming in prices by mid-month paved the way for a year-end equity rally of small magnitude. It unfolded in low trading volumes and with scarce fundamental data. These intra-month reversals were overall detrimental to the performance of trend-followers and macro funds. By contrast, it supported the L/S Variable and Merger Arbitrage funds.
In retrospective, 2015 remained macro driven, dominated both by monetary policies and the shifts in deflation scares, themselves function of the stance regarding the Chinese transition and oil prices.
Hedge funds finished 2015 with marginally positive returns. Overall, they produced strong alpha relative to traditional assets until Q4. They lost about half of their advance during the rally, heavily dragged by the Special Situations’ underperformance.
In December, L/S Equity proved resilient after the ECB meeting and got boosted by a small year-end equity rally. Once again L/S Equity Variable funds proved very resilient during stress episodes. They had not rebuilt their net exposures. In particular, European funds refrained from playing the expectations building up ahead of the ECB meeting.
While the long bias funds felt the heat early December, they remarkably outperformed markets (which dropped nearly -5% post ECB). They were cautiously exposed, with higher allocations in the more resilient US markets. The bulk of their losses came from their sectors overweights.
Market Neutral endured minor losses after the ECB disappointment, but did not participated in the year-end rally, rather hit by unsettling sector rotations.
Merger Arbitrage thrived on higher deals spreads and completing acquisitions. Merger Arbitrage funds outperformed in December. They benefited from tightening spreads down from elevated levels. They also locked in P&L out of several acquisitions coming to their final stage, including BG vs. Royal Dutch Shell, Pace vs. Arris, and Altera vs. Intel deals.
There were a limited number of idiosyncratic events in the Special Situations space. Their returns tended to mirror that of broad markets: a detracting post-ECB correction, followed by a small upward trend after the Fed’s first hike.
Credit strategies suffered from the sell-off in HY markets, though by a smaller magnitude. Credit funds continued to produce strong alpha relative to their operating markets. The redemptions and gating in few US credit funds continued to feed concern among credit investors. Meanwhile E&P fundamentals steadily continued to deteriorate, in tandem with plunging oil prices. Credit funds remained cautiously positioned. They also benefitted from their allocations on European credit markets, which displayed better stability. The environment was calmer after mid-month.
The bulk of the December underperformance of CTAs LT models was endured in the aftermath of the ECB meeting. They suffered on their Euro crosses and in UK rates, as well as in their equity holdings (rebuilt back in October). Losses were partially offset by their short commodity exposures. Returns were mixed over the rest of the month, with offsetting gains and losses across markets.
Global Macro funds also suffered from the reversals unfolding over the month. As markets adjusted their positioning after the ECB meeting, Global Macro funds lost on their long USD crosses and US bonds, as well as on their equity exposures. Returns were flat over the rest of the month with, like for CTAs, offsetting gains across markets.
“The trading backdrop will probably remain similar to last year, with frequent rotations, hovering liquidity risk, erratic flows amid rich valuations, and markets overshooting fundamental changes. Within the hedge funds space, this is leading us to favor relative-value, tactical and macro styles.” says Jean-Baptiste Berthon, senior cross asset strategist at Lyxor AM.
CC-BY-SA-2.0, FlickrPhoto: Astiken, FLickr, Creative Commons. Niall Quinn: New Global Head of Institutional Business at Pictet AM
Leading asset manager Pictet Asset Management is pleased to announce the appointment of Niall Quinn as the Global Head of Institutional Business (excluding Japan), based in London, at the end of February 2016. He replaces Christoph Lanter, who retires after 17 years with Pictet Asset Management.
Niall has over twenty years’ experience in the industry, most recently as Managing Director of Eaton Vance Management International, responsible for all their operations outside North America. His focus was institutional business development.
Niall is an Irish national with a BA in Economics and Philosophy from Trinity College, Dublin.
Laurent Ramsey, Managing Partner of the Pictet Group and Chief Executive of Pictet Asset Management, said, “Niall is a great hire for us and we are delighted that he is joining the team. His appointment marks a step up in our institutional business effort globally.”
The Pictet Group
Founded in 1805 in Geneva, the Pictet Group is one of the premier independent asset and wealth management specialists in Europe, with EUR 381 billion in assets under management and custody at 30th September 2015. The Pictet Group is owned and managed by seven partners with principles of ownership and succession that have remained unchanged since foundation. Based in Geneva, the Pictet Group employs more than 3,800 staff. The Group has offices in the following financial centres: Amsterdam, Barcelona, Basel, Brussels, Dubai, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan, Munich, Montreal, Nassau, Paris, Rome, Singapore, Turin, Taipei, Tel Aviv, Osaka, Tokyo, Verona and Zurich.
Pictet Asset Management includes all the operating subsidiaries and divisions of the Pictet Group that carry out institutional asset management and fund management. Pictet Asset Management Limited is authorised and regulated by the Financial Conduct Authority. At 30th September 2015, Pictet Asset Management managed EUR 134 billion in assets, invested in equity and bond markets worldwide. Pictet AM has seventeen business development centres worldwide, extending from London, Brussels, Geneva, Frankfurt, Amsterdam, Luxembourg, Madrid, Milan, Paris and Zurich via Dubai, Hong Kong, Taipei, Osaka, Tokyo and Singapore to Montreal.
CC-BY-SA-2.0, FlickrPhoto: Francebleu. Private Equity Investors in General do Not Have the Skills, Experience and Processes Needed for Proper Co-investing
According to Coller Capital’s Global Private Equity Barometer, 84% of LPs believe that private equity investors in general do not have the skills, experience and processes needed to do co-investing well. This is not only because meeting GP deadlines is hard (though 71% of investors acknowledge this) or because they are unable to recruit staff with the necessary skills (acknowledged by half of LPs) – but also, 55% of investors say, because Limited Partners have an insufficient understanding of the factors that drive the performance of co-investments.
Investors also expect a divergence in the returns that different types of Limited Partner will earn from the asset class. They believe small investors are increasingly being disadvantaged by the volume of money being committed by their large peers to individual funds (because small LPs have limited access to, and less negotiating-power with, the best GPs, for example). They also think that investors with a higher degree of operational freedom (to embrace direct investing, or open overseas offices, or set their own compensation levels, say) will achieve higher returns from private equity than more constrained investors.
The proportion of LPs with special (or managed) accounts attached to private equity funds has risen dramatically in the last three years or so – from 13% of LPs in Summer 2012 to 35% of LPs today. 43% of investors believe that this growth in special accounts is a negative development for the industry, on the grounds that it creates potential conflicts of interest.
“A huge amount gets written about the shifting dynamics of the private equity industry,” said Jeremy Coller, CIO of Coller Capital, “but the vast majority of it looks at it from a General Partner’s point of view. This edition of the Barometer provides valuable food-for-thought on the evolution of the industry for the trustees and CIOs of pension plans and other investors.”
Direct private equity investing has been a growing focus for many investors. The Barometer suggests this trend will continue: just over a third of investors plan to recruit investment professionals with skills and experience in directs over the next 2-3 years.
Investors also remain committed to expanding their emerging markets footprints. Over the next 3-4 years, the proportion of LPs with more than a tenth of their private equity exposure in emerging markets will rise from 27% to 44% (notwithstanding the 41% of investors who report that their private equity commitments in emerging markets have underperformed their expectations to date.) And on balance, Limited Partners remain positive about the prospects for China – with 37% of LPs saying China will be a more attractive destination for private equity investment in five years’ time, compared with only 17% who say it will probably be a less attractive destination.
With many investors having backed debut funds from newly-formed GPs since the financial crisis, the Barometer probed what LPs are looking for in these investments. Investors said several factors influenced them, but one factor in particular was cited by almost all LPs (94%), namely, that the new GP team in which they had invested contained individuals with an outstanding investment track record in other roles.
Investors’ medium-term return expectations remain strong, with 86% of Limited Partners forecasting net annual returns of 11%-plus from their private equity portfolios over the next 3-5 years. (They are almost unanimous that the biggest risk to this picture is today’s high asset prices.) Indeed, the majority believe it should be possible – at least for switched-on Limited Partners – to continue earning returns at this level even beyond a 3-5 year horizon, because they think new investment opportunities will open up even as established parts of the private equity market mature.
The Barometer also probed investor views on the implications of a ‘Brexit’ (an exit by the UK from the European Union) for the performance of European private equity as a whole. Very few investors (just 6%) think a Brexit would have positive implications for their European private equity returns, while one third of LPs believe it would reduce their returns.
The growing attraction of alternative assets shows no sign of diminishing, with 41% of Limited Partners planning to increase their target allocation to these asset classes over the next 12 months. Almost half of LPs (46%) plan to boost the share of their assets in infrastructure, with over one third (37%) planning an increase in their allocation to private equity.
The Winter 2015-16 edition of the Barometer also charts investors’ views and opinions on:
The importance of corporate brand for GPs
Expected returns from different regions and types of private equity
The implications of potential changes in the transparency and tax treatment of PE fees
LPs’ ongoing appetite for private debt funds
LPs’ plans for, and expected benefits from, upgrading their back office technology
CC-BY-SA-2.0, FlickrPhoto: Charlie Awdry, China portfolio manager at Henderson. How to Invest in a Changing China?
Charlie Awdry, China portfolio manager at Henderson, looks back at 2015 and discusses where investment opportunities can be found in a country that is undergoing significant economic, political and social change.
What lessons have you learned from 2015?
First, the Chinese currency can depreciate but we find it odd to call August’s 2% move against the US dollar a devaluation, given other emerging market currencies have fallen as much as 35% during the year. Second, President Xi’s reform programme is reaching a critical stage and his vision of market forces includes both the invisible hand of the free market and the state’s visible and powerful hand working towards stability. Third, when markets move in an extreme fashion, correlations between stocks increase − this lack of discrimination is a reliable source of investment opportunities for our strategy.
Are you more or less positive than you were this time last year, and why?
We have been downbeat on the Chinese economy, but upbeat on the stocks we hold for quite a few years; that stance continues into 2016. Overall, economic activity continues to be squeezed by the competing needs of reform and deleveraging and challenged by a loss of competitiveness in the manufacturing sector. Rebalancing is taking place but declining commodity prices illustrate how significant the ‘old part of the economy’ is. Unfortunately, the vibrancy of the ‘new consumer economy’ is probably underrepresented in official growth measures. The tough macroeconomic situation means we should expect more volatility in markets.
What are the key themes likely to shape your asset class going forward and how are you likely to position your portfolios as a result?
We will continue to see diverging valuations between consumer-driven businesses, such as technology, consumer services and healthcare. These sectors will generally be generating profit growth, while sectors dominated by state-owned enterprises (SOEs), like energy, telecommunications and financials, will struggle to react to the tougher economic environment, and will most likely continue to be ‘inexpensive’.We do not own any banks and continue to strongly favour privately-managed consumer-driven businesses with strong profit margins and cash flows.
