Photo: TrentStrohm, Flickr, Creative Commons. Bruno Colmant, New Head of Macro Research at Bank Degroof Petercam
Bruno Colmant will join the executive committee of the group that will result from the merger between Bank Degroof and Petercam, subject to regulatory approvals.
He will be appointed Head of Macro Research at Bank Degroof Petercam and will also perform some specific assignments as Group Economic Advisor.
Bruno Colmant holds a PhD in applied economics sciences and is a commercial engineer from the Solvay Business School Economics & Management (ULB). He is a member of the Académie Royale de Belgique. He holds a Master of Sciences from the Purdue University (USA) and a Master in Fiscal Sciences (ICHEC-ESSF).
Bruno Colmant began his career at Arthur Andersen, Dewaay and Sofina. He was managing director at ING (1996-2006), Cabinet head of the Belgian Finance ministry (2006-2007), CEO of the Brussels Stock Exchange, member of the management committee of NYSE Euronext and chairman and CEO of Euronext Brussels (2007- 2009) and Deputy CEO at AGEAS (2009-2011). Since 2011 he is academic advisor AGEAS and partner of the consulting firm Roland Berger.
He is a member of the Central Council for the Economy and lecturer in finance at the Vlerick Management School, UCL and at the Solvay Business School Economics & Management (ULB).
Foto: ChemaConcellon, Flickr, Creative Commons. Casi un tercio de las entidades de banca privada en Suiza desaparecerán del mercado en los próximos 3 años
A recent study conducted by KPMG Switzerland and the University of St. Gallen has shown that the gap between Swiss private banks is widening. While many private banks are in the process of adapting their business models to the changing environment, very few have succeeded in increasing their profitability. Only a small group of private banks have been able to pull away from the rest of the industry and make lasting improvements to their managed assets, efficiency and profitability. Meanwhile, smaller financial institutions in particular have felt increasing pressure this year.
As the study «Clarity on Performance of Swiss Private Banks – The widening gap» shows, the pressure on smaller banks in particular continued to increase this year. For many, the decision is clear: either they must leave the market or they must make fundamental changes to their business model so that they can continue to operate their business profitably and sustainably. «However, they don’t have much time left to make the necessary changes», warns Christian Hintermann, Head of Advisory Financial Services at KPMG Switzerland. «In general, many banks still appear to be undecided on which path to choose. We can expect the face of the industry to change significantly over the coming years.»
Banks must decide: Flight or fight?
According to the study, smaller financial institutions in particular have felt increasing pressure this year. They face a stark decision: either leave the market or adapt their business models. However, not much time remains to make the necessary changes. In general, many banks still haven’t decided and lack a clear strategy despite the continued decline in their development. The further decrease in the number of banks in Switzerland can be attributed to M&A transactions and – to an even greater extent – liquidations and the withdrawal of primarily Anglo-American private banks from the market. “We anticipate that around a further 30% of Swiss private banks will disappear from the market over the next three years through acquisitions and liquidations. This will reduce the number of private banks from 130 at the last count to fewer than 100″.
The study also shows a pause in mergers and acquisitions for 2015 despite driving forces remaining strong: The first seven months of this year saw a pause in M&A transactions, in contrast with 2014’s flurry of activity. This is largely due to a lack of sellers as well as potential buyers’ concerns about unforeseeable risks related to undeclared client funds and business practices that are no longer accepted. However, we expect M&A activities to regain momentum, in part thanks to the increase in settlements between banks and the US Department of Justice. The study shows that, even within the first two years of undertaking a major acquisition, banks see a significant increase in return on equity and revenue per employee.
The gap
«While private banks are attempting to adapt their business models, only a small group of very strong institutions have managed to increase their profitability», says Philipp Rickert, Head of Financial Services and Member of the Executive Committee at KPMG Switzerland, summarizing the results. He also points to the falling number of banks that still rely on undeclared legacy assets, predicting that «this concept will not survive in the medium term.»
Market drives growth in managed assets while net new money inflows remain negligible: The 7.3% growth in managed client assets last year is attributable to positive market developments and a strengthening US dollar. In contrast, net new money inflows made up a modest 0.5% of assets. There were marked differences between the various banks: those in the groups «Strong Performers» and «Turnaround Completed» achieved net inflows of 24.9 billion Swiss francs in total in 2014. Meanwhile, banks in the groups «Decline Stabilized» and «Continuing Decline” saw net outflows amounting to 17.9 billion Swiss francs. Overall, the median for managed assets among the «Strong Performers» group has increased by 146% since 2008 thanks to higher net new money inflows, inflows from mergers and acquisitions, and returns on managed assets. Consequently, the ability to grow is a critical success factor.
«Strong Performers» stay in the fast lane while the rest grapple with poor returns on equity: The private banks in the study had more to contend with than just weak growth. With a median value of 3.5%, returns on equity stayed at modest levels and saw little improvement in 2014. 80% of the private banks surveyed achieved returns of below 8% for the year. Only «Strong Performers» generated returns of above 9%, while most banks in the «Continuing Decline» group posted operating losses. Smaller financial institutions with less than 10 billion Swiss francs in managed assets are feeling the pressure in particular, with 41% of these falling into the «Continuing Decline» group. Returns on equity for the smaller banks were less than half those achieved by banks with more than 10 billion Swiss francs in managed assets.
Significant differences in efficiency within bank clusters
Increased operating efficiency and economies of scale have a positive effect on returns. Last year, «Strong Performers» achieved revenues of 585,000 Swiss francs per full-time employee, with this figure only reaching 357,000 Swiss francs for banks in the «Continuing Decline» group. The «Strong Performers» had just under 15 full-time employees per billion Swiss francs of managed client assets, with other banks had almost twice as many at 26 full-time employees. The «Strong Performers» appear to owe their success to their stronger focus on core markets, their increased operating efficiency thanks to outsourcing and economies of scale, and their strong growth rates.
A new CEO does not improve financial results
More than one third of the private banks in the study have replaced their CEO at least twice in the last nine years. In many cases, this has done nothing to improve their financial position in the two years after the changeover. Therefore, there is little to suggest that private banks can improve their results only by making changes to the upper echelons of management. Financial institutions that had kept the same CEO for the last nine years or only changed CEO once achieved higher returns on equity than banks that changed CEO two or more times.
CC-BY-SA-2.0, FlickrFoto: Yi Yuan Ma. China: ¿Estallido de la burbuja o exceso de pánico?
China’s slowdown has been going on for five years now. After the extensive stimulus measures that kept China safe during the U.S. credit crisis of 2008 (and that benefitted the whole world), a growth decline was simply inevitable, points out Maarten-Jan Bakkum, Senior Strategist, Emerging Market Equities at NN Investment Partners. “Policy makers and economists agreed that China should rebalance its economy, with less dependence on investment and export growth and greater importance for consumer spending. In this process, overall growth would decline, but that would obviously be fine if growth would be more balanced and sustainable.”
It soon became clear that Chinese policy makers were only marginally interested in rebalancing the economy in the short term. The credit-driven investment model, in which the primacy for the most important economic decisions lies with the government, remained intact. The sectors with the largest excess capacity were rarely addressed, as local governments had major economic interests in those sectors. Overcapacity became even more significant in industries like steel and aluminum, and in parts of the housing market as well. “It gradually became clear that the economy only became more dependent on credit. So the most urgent measure – reducing the debt level in the economy – came to nothing. Since the massive stimulus package in 2008, the debt ratio has increased by 85 percentage points. This is unprecedented anywhere in the world, and leads to a significant risk of a credit crunch,” reminds Bakkum.
With the recent correction on the Shanghai stock exchange and the mini-devaluation of the renminbi, NN Investment Partners has clear that the confidence in the Chinese government is declining significantly, leading to stronger outflows and further increasing economic problems. “For the first time in decades, people begin to realise that the government in Beijing no longer has complete control over the economy. The capital flight is very difficult to stop.
Over the past sixteen months, China has faced outflows of about 700 billion euros. The authorities have clearly been overtaken by developments. Their monetary stimulus has not been enough to offset capital outflows. This makes an economic recovery increasingly unlikely, which in turn leads to more capital flight and makes further rate cuts necessary. In this process, the renminbi needs to depreciate further. But this would have undesirable effects on the financial system, as companies have accumulated a foreign debt of roughly 3 trillion US dollars during the years of renminbi appreciation,” explains the senior strategist.
“For a long time, investors considered a sharp slowdown in growth to be the biggest risk in China. In recent months, the focus has slowly shifted to a systemic crisis. This creates great uncertainty in the financial markets. And it’s not just affecting emerging markets. Finally, the realisation begins to dawn that there is a real risk of a Chinese credit crisis” concludes Bakkum.
Within internationally invested portfolios, currency fluctuations can have a significant impact on overall risk and return. Investors seeking purer exposure to the underlying investments of any international market can potentially reduce risk with a currency-hedged investment. Deutsche X-trackers currency-hedged, international equity ETFs offer investors a variety of potential investment solutions from broad core international holdings to targeted investments in specific countries. The ETFs seek currency-neutral market-cap exposure to designated international markets.
“As a European-based bank, we have been able to leverage our local insight to offer the most comprehensive suite of currency-hedged international equity ETFs in the US,” said Fiona Bassett, Head of Passive in the Americas. “We will continue to strategically expand our suite, providing strategies that meet the demands of investors.”
Offering the broadest suite of currency-hedged ETFs in the US, Deutsche’s X-trackers US platform has experienced breakthrough success. With assets totaling USD 20 billion as of August 7, 2015, the Deutsche X-trackers platform has increased by approximately 365% since year end, and continues to be among the fastest growing exchange-traded fund (ETF) franchises in the US.
Earlier this month, the Deutsche’s X-trackers US platform improved its market share position to a top-10 ETF provider in the US. The firm’s global exchange traded products platform is now the world’s fifth largest, with approximately USD 76.9 billion in assets under management as of June 30, 2015.
Photo: Any Fuchok. Latin American Corporates Under Pressure: Downgrades Outpaced Upgrades by a Ratio of 3.5x
Fitch Ratings expects operating cash flows of Latin America credits to remain under stress during 2015. Governments have increased taxes on consumers and corporates in response to falling revenues. External conditions also remain weak, especially for oil, copper and iron ore.
‘Fitch foresees another tough 12 months for Latin American corporates and that the ratio of downgrades to upgrades will not reach a level of parity until the second half of 2016,’ said Joe Bormann, Managing Director at Fitch. ‘During the first seven months of 2015, downgrades for Latin American corporate issuers outpaced upgrades by a ratio of 3.5x; this compares with a downgrade ratio of 2.4x in 2014; 1.6x excluding Argentina.’
Refinancing risk is elevated for small, high-yield corporates rated ‘B+’ or lower that have issued bonds of less than US$ 400 million. Positively, exposure to this risk is light in 2015 and 2016. Posadas (Mexican hotel chain owner of Fiesta Americana) was the only high-yield issuer with a bond due in 2015, and it repaid its bond in January. Arendal (Mexican company specialized in the construction of pipelines and industrial plants, US$ 80 million), Ceagro (Brazilian commodities trading company, US$ 100 million) and Marfrig (Brazilian food processing company, US$ 375 million) are the ‘B’ rated issuers with non-benchmark-sized bonds maturing in 2016.
While there was only US$ 6 billion of Latin America debt amortization during 2015, this figure rises to US$ 14.2 billion in 2016 and to US$ 27.6 billion in 2017. High-yield issuers’ debt accounts for US$ 4.8 billion of the 2016 debt and US$ 14.1 billion for 2017. During 2017, nine issuers in the speculative ‘B’ and lower categories face US$ 11 billion of debt maturities. About US$ 9.2 billion of this is PDVSA debt, which is subject to high repayment risk.
Photo: Philippe Put. Loomis Sayles Joins UN’s Responsible Investment Initiative
Loomis, Sayles & Company, a subsidiary of Natixis GAM, announced that it is a signatory to the United Nations-supported Principles for Responsible Investment (PRI) Initiative. The PRI is recognized as the leading global network for investors who are committed to integrating environmental, social and governance (ESG) considerations into their investment practices and ownership policies.
As a signatory to the PRI, Loomis Sayles volunteers to work towards a sustainable global financial system by adopting the PRI’s six aspirational Principles for Responsible Investment, which includes incorporating ESG issues into investment analysis and decision-making processes; including ESG issues into ownership policies and practices; and reporting activities and progress towards implementing the six Principles.
“In 2013, Loomis Sayles senior management resolved to establish company-wide integration of ESG considerations into every team’s investment process. We did this independently and proactively, in order to ensure our business practices reflect the environmental, social and governance values that we, as an organization, believe are essential to creating a viable and enduring global financial system,” said Kevin Charleston, Chief Executive Officer.
Loomis Sayles adopted a set of guidelines and principles that articulate the interaction of its principal goal of providing superior investment results for its clients, as well as the satisfaction of its fiduciary duty under ERISA, and the use of easily accessible high quality inputs on ESG matters by its investment professionals. These inputs are meant to be used by the investment professionals in the benefit and risk analyses that inform their investment recommendations and decisions.
“We are delighted to welcome Loomis Sayles to the PRI,” said PRI managing director, Fiona Reynolds. “By putting ESG matters at the heart of their business, they have already demonstrated their commitment to responsible investment. Joining the PRI further underscores that commitment.”
Foto: Luis, Flickr, Creative Commons. ¿Falsas promesas? Dudas en Europa sobre la protección de los UCITS
The ‘protection’ afforded by the rapid redemption rights of a UCITS-compliant structure is of limited value, if the fund’s investments cannot be easily liquidated or only at fire-sale values, according to the latest issue of The Cerulli Edge – Europe Edition. With illiquidity fears mounting, Cerulli Associates, a global analytics firm, says the UCITS brand faces a denting if the professed safeguards of regular and speedy withdrawals prove of limited worth to redeemers if markets dry up.
One Genevan house directing insurers’ cash into UCITS-compliant hedge funds, told Cerulli that illiquidity risk is already evident in the investments of some liquid vehicles. It contends that given some of this sector’s largest portfolios grew so rapidly, and bought into mid- and small-caps, some of their equities positions “could take up to two years to unwind.” This, says Cerulli, could make it very difficult to sell some holdings at reasonable prices, to honor redemption requests in a matter of days.
It seems that portfolio managers in the UCITS hedge fund sector are not blind to the illiquidity risks sometimes attached to their strategies. At periods during last year, for instance, up to 40% of assets in onshore directional equities hedge funds were in portfolios that were closed to new business.
“It seems somewhat contradictory to deploy a liquid hedge fund vehicle, but then to restrict investors’ entry to it in any way,” says David Walker, European institutional research director at Cerulli. “However, limiting subscriptions to a fund makes good sense overall for the manager and clients, if the manager’s ‘alpha’ is threatened by fund size, or if shallow markets would stop significant withdrawals being met readily.”
Many European institutional investors Cerulli Associates speaks with at present express concerns that fixed income instruments right across the spectrum of credit worthiness could face illiquidity problems if holderstake flight.
Institutions are faced with a conundrum, says Barbara Wall, Europe research director at Cerulli. “Not only is the fixed-income complex they are most familiar with worthless as anything but a cushion or safe harbor. Now it threatens to turn illiquid.”
. Receding Systemic Risks, But Cautious Risk Appetite
The Lyxor Hedge Fund Index was up +1.3% in July. 8 out of 12 Lyxor Indices ended the month in positive territory, led by the Lyxor CTA Long Term Index (+4.6%), the Lyxor Global Macro Index (+2.6%), and the Lyxor Variable Bias Index (+2.3%).
“Receding systemic risks following the Greek deal and the stabilization of the Chinese stock market haven’t opened a risk-on period. Instead the focus has shifted on the implications from the Chinese slowdown and from the Fed’s normalization.” says Jean- Baptiste Berthon, Senior Cross-Asset Strategist at Lyxor AM.
A macro month with markets left in the passenger seat driven by highly speculative catalysts. They were bound to follow the unpredictable jolts of the intensifying Greek saga ahead of the July 20th repayment deadline. The eleventh hour deal allowed a recovery in risky asset. 3000 km away from there, the Iran nuclear deal was another speculative catalyst with severe implications for the energy sector. Far East, the acceleration of the Chinese stock crash unsettled emerging markets and global assets, with concerns of a domino effect from the unwind of trading margins.
L/S Equity funds were strongly up overall, except for Asian funds. The – temporary – settlement of the Greek saga and the second down leg in commodities selectively favored Europe and to some extent Japan. Both regions also enjoyed a strong earning season. European L/S equity managers outperformed in July, benefiting from a strong beta contribution and exploitable themes. All of them were up in July. By contrast, the US trading environment was more challenging, facing a pending start of the Fed’s normalization and a poor Q2 earning season. However, the drop in US correlations and increased fundamental/company- specific pricing allowed US managers to extract a strong alpha both on their shorts and their longs. Almost all of them ended the month up. The laborious stabilization process in Chinese stock market continued to erode Asian managers’ returns. They were however much better protected than during the first phase of the Chinese de-bubbling.
Event Driven funds returns lagged. Merger Arbitrage underperformed Special Situation funds. The overall US regional bias of the strategy played out adversely. The poor US earning season added volatility in key healthcare, media and tech deals. It offset gains locked on the completion of DirectTV vs. AT&T operation or on the announcement of the Teva vs. Allergan jumbo deal. Such environment was much more challenging to navigate for Merger arbitrageurs. While Event Driven funds’ exposure to the resources sectors was limited, the magnitude of the collapse in energy and base metals in July was unexpected. It hit positions among both Merger Arbitrage and Special Situation funds. Besides the cautiousness building up on illiquid positions ahead of the Fed’s normalization didn’t help. The resilience of the liquid activist stakes allowed Special Situation funds end the month flat or so.
Quite an honorable performance from the L/S Credit Arbitrage funds. Very conservatively positioned, managers dodged most of the accelerating deterioration in the energy sector. They also were little affected by concerns rapidly building up in US credit market, both in IG (mainly from resources issuers) and in HY (factoring in poor earnings). They delivered increased P&L on their shorts. They were also able to benefit from the opportunity window opening in European periphery spreads, following the eleventh hour Greek deal.
CTAs outperformed in July thriving on commodities. They were initially hit by the cross-asset reversals following the surprise referendum announced in Greece. They fully recovered the lost ground thereafter. Their selective directionality paid off. The largest gains were recorded on their short energy, and their long on European risky assets.
They recorded milder gain on their long USD positions and their long US and UK bonds. In balance, gains in these bonds were eroded by losses in European bonds.
Global Macro funds performed well in constrained markets. Unlike CTAs managers, commodities were not key contributors. But they were well positioned to benefit from an environment with lower systemic risk, but concerned by the pace of global growth recovery. Renewed weakness in oil added support to reflation zones. To that regards, their overweight on Eurozone vs. US equities paid off. The volatility during the month was managed through their rate exposure, which provided a hedge. By month end, they held a zero net exposure to European bonds, and a 15% US net bond position.
Photo: Ian Sane
. U.S. On Track To Break $70 Billion In Venture Capital Funding In 2015
After reaching a record high of $56.4B spent in 2014, the U.S. is on track to smash that record and break $70B in Venture Capital (VC) spending by the end of 2015, according to “Venture Pulse Q2´15”, a report from KPMG International and CB Insights. With $36.9B already invested in the first half of the year, the final total money spent by VCs in 2015 could mark a five-year high for the U.S.
According to the report, the U.S. has collectively seen more than $15B invested in four of the last five quarters, including more than $18B in both quarters of 2015 (which contained large deals to airbnb, Zenefits, and Wish, among others). In addition, Q2’15 was a banner quarter for Unicorns – VC-backed companies with valuations in excess of $1 billion. During Q2’15, 24 VC-backed companies achieved Unicorn status (up from just 11 in Q1), including 12 in the U.S. and nine in Asia. Much of the growth in the number of Unicorns can be linked to the availability of late-stage funding.
“Activity is high and should remain so, with 2015 shaping up to be a record year,” said Brian Hughes, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice. “This is driven by a number of factors, including low interest rates, strong participation by corporate investors, and new capital sources such as hedge and mutual funds. Companies are staying private longer and growing to an immense size as a result of access to investment and stronger investor interest, combined with a trend toward late stage mega-rounds.”
Hughes added, “While many analysts are predicting a slight decrease in VC investment in the months ahead, we believe the strength of such fundamental growth drivers have created strong conditions for continued investment.”
The reseach also shows that 55 percent of all VCs in Q2’15 were based in either California, New York, or Massachusetts; Deal activity in California continues to top 400 per quarter (488 in Q2 ’15); and New York has now outpaced Massachusetts in 4 of the last 5 quarters (142 to 117 in Q2 ’15), with the exception of Q1’15 when both states had the same number of deals (121).
In the past year, Internet companies have dominated the marketplace of VC-backed deals, and, in Q2 ’15, they have continued to trump all other sectors with 45 percent of the share, followed by Mobile & Telecommunications (16 percent), Healthcare (14 percent), Non-Internet/Mobile Software (6 percent), Consumer Products & Services (3 percent) and all other sectors (15 percent).
According to the report, Internet companies also topped other sectors based on dollar shares, jumping from 34 percent in Q1 ’15 to 51 percent in Q2 ’15. This increase was primarily led by airbnb’s $1.5B financing in late June. Mobile companies’ dollar share followed with 14 percent in Q2 ’15 (a decrease of 13 percent from Q1 ’15). This decrease can be attributed to Uber’s multiple billion dollar financings in Q1 ’15 compared to the largest Mobile financing of Q2 ’15 (Snapchat at $337M).
“Numerous disruptive technologies and applications are also spurring interest and investment from the VC community,” said Conor Moore, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice. “The growth of new on-demand platforms continues to be particularly robust. This trend, which escalated with Uber and airbnb, is now expanding into new verticals and well beyond North America.”
The analysis by KPMG and CB Insights also found that early-stage deals into VC-backed companies remained steady at 49 percent in Q2’15, while seed deal share dropped to a five-quarter low of 24 percent. Average early-stage deals were $5.3M in Q2’15, breaking $5M for the first time in five quarters.
Additionally, mid-stage (Series B – Series C) deal share reached a five-quarter high, accounting for 26 percent of all deals to U.S.-based VC-backed companies. Interestingly, average late-stage (Series D+) deals in North America rose for the third consecutive quarter, with an average late-stage deal size of $56.3M in Q2’15. This can be partially attributed to the rise of mutual funds, hedge funds, private equity firms and corporations in recent mega-financings.
Moore added that “the availability of these late-stage mega-deals continues to delay potential IPO exits. If companies can raise similar amounts of money through private financing, many companies will opt for it.”
Threadneedle Investments has appointed Chris Wagstaff as Head of Institutional Marketing.
Chris will be instrumental to Threadneedle’s effort to further cement its presence in the institutional market and enhance its DB and DC client propositions, through educational & thought leadership initiatives and the development of investment strategies for a post-annuities world. His appointment follows the recent addition of Craig Nowrie to Threadneedle’s Multi- Asset Allocation team, in an effort to expand the firm’s proposition in the multi-asset and solutions space.
Chris joins from Cass Business School Executive Education, where he was Client Director with responsibility for the development, design and delivery of bespoke pensions and investment programmes. Prior to this, he was Head of Investment Education at Aviva Investors.
Dominik Kremer, Head of Institutional Sales at Threadneedle Investments, said: “The fact that the institutional market is a key focus for Threadneedle is perhaps one of our best kept secrets. We are the fourth largest manager of UK retail assets, yet 67% of our global investments and mandates across equities, fixed income, multi-asset and real estate are managed for institutional clients.
Chris is the co-author of “The Trustee Guide to Investment”, published in 2011. He has an Economics degree from Cardiff University and is a graduate of the London Business School Investment Management Evening Programme. Chris holds several certificates and diplomas, including the Chartered Institute for Securities and Investment Diploma, the Chartered Insurance Institute Personal Finance Society Diploma, the UK SIP Investment Management Certificate and the Pensions Management Institute Award in Trusteeship.
