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BNY Mellon Investment Boutique Sees Ways to Develop More Environmentally-Friendly Portfolios

Investors can help reduce their exposure to heavy emitters of greenhouse gasses and fulfil their fiduciary objectives by adapting a green beta investment approach, according to a white paper from Mellon Capital Management.

“Generating a return on capital that meets a benchmark set by institutional investors, while reducing the carbon intensity in a portfolio requires a more nuanced approach than simply eliminating or underweighting business sectors that are heavy carbon emitters,” said Karen Q. Wong, managing director and head of equity portfolio management at Mellon Capital and co-author of the report.

The Mellon Capital paper, Green Beta: Carbon Efficient Investing, notes that investors can take steps to make their portfolios more environmentally friendly even if they retain their exposure to the carbon-intensive sectors of the stock markets. The key, according to Mellon Capital, is to underweight the companies within those sectors that have the highest carbon intensity.

Carbon intensity measures the amount of carbon emitted per unit of revenue. Utilities and energy and materials companies account for more than 75 percent of the overall carbon emissions intensity of the Russell 3000 index, yet just over 16 percent of the index composition, the report said.

“One potential pitfall in pursuit of reducing carbon emissions exposure is to significantly underweight these three sectors, which can introduce unintended sector tilts,” said Wong. “We think it’s better to underweight companies within these sectors that have higher carbon intensity. We would maintain exposure to the sectors as a whole by overweighting companies within the same sectors that are taking a more proactive approach to reducing their carbon emissions.”

The report notes that a truly robust strategy goes beyond the sector level and neutralizes exposures at the industry level. This is particularly important when considering a sector as diverse as consumer discretionary, where an unintended bias can be created between the auto (heavier emissions) and apparel industries (lower emissions), according to the report. Many high carbon intensity companies tend to have lower volatility, larger market capitalizations, relatively high yields and tend to be oriented toward value instead of growth, according to Mellon Capital.

“It’s important to compensate for these exposures if such companies are underweighted to achieve lower carbon exposure,” said William Cazalet, managing director and global investment strategist at Mellon Capital and co-author of the report. “Also, portfolio managers must guard against introducing different types of risks into the management of the portfolio that could occur by lowering exposure to companies with these characteristics.”

BNY Mellon offers a wide range of products and services that help investors meet their return/risk goals, while considering the environmental, social and governance impact of their investments.

Santander AM Reaches €12.4 Billion in Assets in its Range of Profiled Funds

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La gama de fondos perfilados de Santander Asset Management duplica activos superando los 12.000 millones de euros — Foto: Petar Milošević (Own work). Santander AM Reaches €12.4 Billion in Assets in its Range of Profiled Funds

Santander Asset Management (SAM), a global company dedicated to managing assets internationally and 50% owned by Banco Santander and 50% by Warburg Pincus and General Atlantic, has attracted a total of 6.169 billion euros to its range of profiled funds, which are aimed at customers in the Banco Santander Select and private banking segments, representing 99% growth, in the last twelve months. As such, assets managed in these products were around 12.388 billion euros by the end of February while the number of Bank customers holding exceeded 220,000.

Profiled funds include Select, which combines the bulk of assets in this range of funds, along with private banking profiled funds in Spain (Santander PB Portfolio), Portugal (Santander Private), Chile (Santander Private Banking) and Mexico (Santander Elite). The Select range of funds, which has already been exported to eight countries, is a global investment solution aimed at adapting to both different market environments and each local customer’s risk profile. Select profiled funds invest in a very broad universe of assets, selected through suitable asset allocation, providing access to the best domestic and international asset managers and allowing for dynamic investment management and rapid adjustment of positions based on each scenario.

The Spanish market has seen the greatest growth in this period, after increasing assets under management of 4.355 billion euros and reaching 7.213 billion euros, representing a 152% increase compared to March 2014. The Santander Select Prudent fund is notable, with assets reaching 3.449 billion euros, as is the Santander Select Moderate fund with 2.546billion euros. In Mexico, the Santander Asset Management profiled funds together total 1.073 million euros (the Santander Select Conservative fund has been the most popular offering, making up 350 million euros) after growing 92%, while 459 million euros have been reached in Chile (84% growth) with Santander Select Prudent being the largest at 226 million euros. Germany has recorded a 558 million euro volume (+80%) and Brazil 82 million euros (+91%). Assets are around 2.262 billion euros in the United Kingdom.

The Select fund range was launched in Spain at the end of 2010. The range was launched in Chile and Mexico in 2011 and 2012 respectively while they have been sold in Brazil and Germany since 2013. The most recent launches took place in 2014 in Portugal and Poland, with great commercial success in both countries with assets of 537 million euros and 206 million euros, respectively.

The three risk profiles on which the Select range relies (Prudent, Moderate and Determined/Dynamic) each investor the profile choice that best suits their needs and risk tolerance levels. The Prudent fund, aimed at more conservative investors, represents 42% of the total Select range assets. The Moderate fund, which have a greater weight in equity, represents 39% while the Determined/Dynamic fund, which has a more risk tolerant profile, represents 19%.

OppenheimerFunds Completes Private Client, Trust & Family Office Team

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OppenheimerFunds has fully staffed its team covering private clients, bank trusts and family offices, reinforcing the Company’s strategic drive to expand its core retail base and increase its capabilities in the ultra-high-net-worth market.

Most recently, OppenheimerFunds hired Nancy Bong as Strategic Account Manager on the team. She and fellow Strategic Account Manager Josean Fernandez have primary responsibility for managing the Company’s relationships with the private banks, national trust companies and regional and super-regional banks that make up OppenheimerFunds’ Strategic Account list.

“Nancy’s addition enhances our strong, experienced team that provides robust service and value for this critical client sector,” said Ned Dane, Head of Private Client, Trust & Family Office.

In addition to Nancy and Josean, there are five Sales Directors who cover trusts, family offices and the local offices of several Strategic Account clients: Joe Stellato (Northeast), Tom Winnick (Mid-Atlantic), Justin Goldstein (Southeast), Chris Saul (Central) and Matt Brown (West).

Nancy joins OppenheimerFunds from Neuberger Berman, where she managed relationships with clients in the Private Bank and Trust channel. Previously, she worked at Lehman Brothers and Goldman Sachs. Nancy received her undergraduate degree from Queen’s University School of Business in Canada and her MBA from Harvard Business School. She is a CFA^® charterholder and has her CAIA designation. Nancy is based in New York.

“Under Ned’s leadership, OppenheimerFunds is well positioned as a trusted, consultative advisor, aligned to meet the evolving needs of this essential client group,” said John McDonough, Head of Distribution.

Wells Fargo and Blackstone Sign a Mega Deal to Acquire a Real Estate Portfolio of $23 Billion From GE Capital

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Blackstone and Wells Fargo announced that they had signed agreements to purchase most of the assets of GE Capital Real Estate in a transaction valued at approximately $23 billion.

The transaction breaks down as follows:

Wells Fargo has agreed to purchase performing first mortgage commercial real estate loans valued at $9.0 billion in the United States, UK and Canada.
Blackstone’s latest flagship global real estate fund, BREP VIII, has agreed to purchase the US equity assets for $3.3 billion. These assets are primarily office properties in Southern California, Seattle and Chicago.
Blackstone’s European real estate fund, BREP Europe IV, has agreed to purchase the European equity real estate assets, for €1.9 billion. These consist of office, logistics and retail assets, largely in the UK, France and Spain. The logistics assets will be integrated into Blackstone’s European logistics platform, Logicor, and the retail assets into its European retail platform, Multi.
BREDS, Blackstone’s real estate debt fund, has agreed to purchase performing first mortgage loans in Mexico and Australia for $4.2 billion.
BXMT, Blackstone’s publicly traded commercial mortgage REIT, has agreed to purchase a $4.6 billion portfolio of first mortgage loans primarily in the US with Wells Fargo providing the financing.

Eastdil Secured/Wells Fargo Securities acted as advisor to Blackstone and Wells Fargo. Simpson Thacher & Bartlett LLP acted as legal counsel to Blackstone and Dechert LLP acted as legal counsel to Wells Fargo.

GE Capital was advised by Kimberlite Group and BofA Merrill Lynch and represented by Hogan Lovells.

Mark Myers, Head of Commercial Real Estate for Wells Fargo, said, “This is an important transaction in the commercial real estate industry and Wells Fargo is pleased to be working with our colleagues at GE Capital and Blackstone. The portfolio of performing loans we’ve purchased is a strong addition to our commercial real estate platform in the United States, the United Kingdom and Canada, which are all active lending markets for us.”

Jon Gray, Global Head of Real Estate for Blackstone, said, “We are delighted to partner with GE on another major transaction and we thank them for their confidence in us. We also thank Wells Fargo for our longstanding relationship, and for their swift execution on this investment. This transaction clearly demonstrates the unique scale and reach of our real estate platform.”

These transactions are subject to normal regulatory and other approvals. The initial closings will take place in the second and third quarter of the year.

Do-It-Yourself Investment Culture Takes Steady Upward Path, Says Cerulli

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European distribution is entering a new era, but the pace of change differs considerably from one market to the next. In the United Kingdom the low-margin business of fund distribution is being standardized, innovative digital propositions are flourishing, and layers of distribution are being removed.

According to Cerulli’s European Distribution Dynamics 2015 report, more than 82% of the international asset managers expect the marketshare of direct-to-consumer and D2C platform distribution in the United Kingdom to grow over the next five years. 54% of them think that it will grow significantly.

But they seemed to be also optimistic about the outlook of these channels in the rest of the continent. Roughly half of asset managers think their marketshare will grow in Germany, France, Italy, Spain, and Sweden. The rest expect theirs to stay roughly the same and only a tiny minority counts on its fall. Managers were less bullish about Switzerland, though. Only one-third of those surveyed anticipated that marketshare will “grow somewhat.”

Angelos Gousios, associate director with Cerulli in London, and one of the main authors of European Distribution Dynamics 2015: Preparing for a New Era said, “Managers can benefit from the digital revolution in various ways: by renovating their proprietary D2C distribution facilities, by becoming a key partner of an ‘online’ distributor or taking a financial stake in one, or finally go it alone and try selling their funds directly to the general public themselves.”

Barbara Wall, Europe research director at Cerulli added: “There’s a global trend toward robo-advice that should not go unnoticed. It started in the United States, with companies like Wealthfront gaining traction and it is spreading in Europe –Nutmeg in the United Kingdom and MoneyFarm in Italy– and also in Asia, with 8 Securities in Hong Kong.”

Afore Banamex Funds Two BlackRock Mandates for Global and European Equities

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Afore Banamex fondea dos mandatos con BlackRock en renta variable global y europea — Photo: Manuel. Afore Banamex Funds Two BlackRock Mandates for Global and European Equities

BlackRock has received an estimated almost US$500 mn from Afore Banamex to execute the global and European equities mandate granted in October 2013.

Thereby, the North American Fund Manager becomes part of the select club of foreign asset managementc firms to receive funds from this Afore, which is the only one which has funded its mandates since the “Comisión Nacional del Sistema de Ahorro para el Retiro” (CONSAR), a national commission for the retirement savings system, allowed these transactions.

Afore Banamex said in a statement that of the four mandates awarded, one is for US$220 mn in global equity granted to Blackrock (Global), and the other three totaling almost US$600 mn in European equity were granted to BNP Paribas, Franklin Templeton, and Blackrock in Europe, respectively.

“Through this strategy, workers affiliated to Afore Banamex will be able to maximize their returns. These four mandates bring to seven the total number of mandates which have already been funded,” said Grupo Financiero Banamex’ Retirement Funds Administrator.

Afore SURA and Afore Banorte, two other major pension fund managers in the country, have granted mandates, BlackRock has mandates from both, but have not as yet funded any of them.

“We are thrilled to confirm that we have funded two mandates for Afore Banamex, which will promote the diversification of their investment strategy. Through the mandates, Afore Banamex hired BlackRock in order to offer its clients access to global and European equities’ investment markets,” said Samantha Ricciardi, CEO of BlackRock Mexico.

“These are the first two investment mandates which we fund in the Mexican market, and we believe that the valuable experience we have established throughout this process, coupled with the dedicated local team, and our commitment to bring to Mexico a local supply of global investment resources, is essential in order to continue offering Afores the best active investment solutions,” continues Ricciardi. “ These factors will contribute to the funding process for other mandates for which we have been selected as managers and which are in the pipeline, positioning ourselves as the leading international asset manager in the active investment sector in Mexico “

The management company, strongly committed to the Mexican institutional market, reinforced its team about a year ago with the appointment of Roque Calleja as the new Head responsible for developing the list of Afore mandates. These institutions currently manage a total of US$200 bn and, so far, have been awarded about US$5.5 bn in mandates. Since it is expected that up to 10% of its assets shall be granted in mandates, the potential for management companies is very high. On the other hand, one would expect that, given that there is a real breakthrough in terms of mandates and funding, Afores will shortly begin to consider other types of assets, such as commodities, for example, as so far they have opted for simple assets (global, European, and American equities).

CONSAR authorized Afore Banamex to carry out a transaction through investment mandates for the first time in SAR’s history in August 2013. The mandate was granted to Schroeders, and although it was for US$200 mn initially, it was ultimately extended to US$400 mn. Schroeders also funded its second mandate, amounting to US$470 mn for European equities, in April 2014. In September 2014 Pioneer Investments received funding of $ 400 million for European equities.

There are further transactions pending, as in January this year Afore Banamex reported that it had awarded a new international investment mandate for an amount between US$500-600 mn in separate accounts to four international management companies: Wellington Management, BlackRock, Pioneer Investments, and Nomura Asset Management.

Pemex and First Reserve Announce Substantial US$1 Billion Cooperation Agreement

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Petroleos Mexicanos (“Pemex”) and First Reserve, the largest global private equity and infrastructure investment firm exclusively focused on energy, announced a US$1 billion agreement to mutually invest in energy infrastructure for Mexico.

The two organizations recently announced the first of such investments – the Los Ramones pipelines – which are expected to consist of 744 kilometers of natural gas pipelines, creating an essential energy connection for Mexico. Construction of the projects has already begun, with full commercial operations expected in mid-2016. Additional projects the two companies are pursuing include other large-scale essential infrastructure opportunities across the energy value chain.

The joint venture represents a significant milestone for both parties towards continuing to invest in energy infrastructure projects in Mexico and a statement of foreign confidence in the Mexican energy industry. With this landmark partnership established, Pemex and First Reserve plan to invest capital in energy infrastructure projects throughout Mexico, combining the financing, structuring and industrial and operational experience needed to bring these critical projects to fruition. These investments are expected to enhance the country’s energy profile, lowering electricity prices and supporting Mexican industry.

William Macaulay, Chairman and Co-CEO of First Reserve, commented, “As global investors, First Reserve is excited to be expanding our existing portfolio in Mexico, where we have believed there to be attractive investment opportunities for some time. Through formal collaboration with Pemex, we feel we have gained substantial access to a region with strong supportive macro dynamics alongside a motivated and accomplished partner. First Reserve looks forward to mutually exploring multiple investment opportunities throughout the country’s vast energy value chain on behalf of our investors and the country of Mexico.”

Serbia: Now, It’s All About Walking the Talk!

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Emergentes: Serbia sienta las bases para volver al crecimiento — CC-BY-SA-2.0, FlickrPhoto: Pedro Layant. Serbia: Now, It’s All About Walking the Talk!

In February 2015, Global Evolution visited Serbia for an extensive due diligence. Significant fiscal disappointments over the last year were recently reversed with prudent fiscal policy reforms in the context of a new IMF program.

However, the persistent recession and the unappealing business climate were key worries that Global Evolution addressed during the trip. It is now all about walking the talk – i.e. actually implementing the plan; with institutional capacity constraints being the main worry for the team!

Ahead of the trip, the investment management team conducted in-depth review of the Serbian economy through video- conference with the World Bank Mission Chief; and a pre-trip Debt Sustainability Analysis (DSA) was prepared to generate preliminary guidance to its investment process. During the trip the experts of the firm met with the National bank of Serbia, EBRD, Ministry of Finance, the Fiscal Council and the World Bank.

Fiscal anchor established with IMF precautionary program

Serbia is facing serious fiscal imbalances, and protracted structural challenges. The new government appointed in 2014 has a window of opportunity to address these issues, with support from a new IMF program. Strong fiscal consolidation over the program period – largely based on curbing mandatory spending and reducing state aid to state-owned enterprises (SOEs) – is needed to put public debt on a downward path.

In terms of program modalities, the IMF program supports the authorities’ medium-term policy goals to restore fiscal sustainability, bolster growth, and boost financial sector resilience by providing a precautionary 36-month Stand-By Arrangement with access of €1,122 million.

Ampliar

“We concur with the Serbian authorities and the IMF that the program will underpin Serbia’s resilience against adverse shocks that could give rise to a balance of payments need. The program structure is based on fiscal, monetary, financial sector, and structural reform pillars”, wrote Global Evolution in its reserch.

“The nominal reductions already legislated on – and budgeted with – with regard to wage levels and structures and pensions reforms combined with the real reduction coming from natural downsizing of the public sector labor force is likely to generate the required fiscal consolidation and we expect the government to strenuously follow this track of fiscal pain. It is now all about implementation which is challenged!”, continued the analisys.

The debt sustainability issue is also key for Serbia and the few- days-old IMF DSA reveals a flattening of the debt/GDP trajectory by 2016-2017 after which numbers start slowly improving. The debt/GDP ratio peaks in 2018 at 78.4% – a level that we see being rather optimistic.

“We believe that the number will exceed 80% and that the downward turn in the trajectory will last more than just to the end of 2016; rather we expect two more years of program implementation time for the consolidation process to be completed due to weak institutional capacity. But we categorize the degree of debt sustainability as Moderate since no dire threat to sustainability is present despite elevated levels”, point out Ole Hagen Jorgensen, research director at Global Evolution.

“The lack of institutional capacity is, in our view, a key obstacle to implementing the fiscal consolidation and structural reform program. With a reduction in the quantity of public sector human resources, an uplift in the quality should compensate. This is likely to be a very slow process, but the World Bank is supporting the Government with Development Policy Loans (DPLs) to enhance wide-spread public sector management practices”, said Jorgensen.

In addition, loans have been granted but not disbursed due to severe institutional shortcomings – leading to no implementation of projects and, thus, no disbursements of already approved loans with the World Bank. For example, approximately $1bn in infrastructure financing was signed off by the World Bank, but only 8 km of highway was built so very little was disbursed; the rest was missed out on.

This is a general tendency with public sector projects and a key worry for the team- a development we will follow closely as the IMF program unfolds; thus the title of this.

Structural reform key for economic and fiscal efficiency

Broad-based structural reforms, notably to improve the business environment and resolve loss-making SOEs, should foster Serbia’s medium-term growth potential and reduce fiscal risks. There are 502 SOEs to privatize/restructure with 118 filing for bankruptcy.

“As a consequence, our view on Serbia’s outlook is that the coming 2-3 years will entail a process for paving the way for growth by fiscal and structural reform that enables growth. This will provide a platform from which growth can take off over the medium term—though expectedly not over the short term”, conclude the research.

Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Stragtegies in the Americas Region.

Man GLG Launches European Mid-Cap Strategy for Moni Sternbach

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Man GLG lanza una estrategia de renta variable mid-cap europea gestionada por Moni Sternbach — Photo: Giuseppe Milo. Man GLG Launches European Mid-Cap Strategy for Moni Sternbach

Man GLG, the discretionary investment management business of Man Group, is pleased to announce the launch of a new UCITS compliant fund, Man GLG European Mid-Cap Equity Alternative fund.

The Fund will be domiciled in Ireland and managed by GLG Partners LP. The portfolio manager is Moni Sternbach, who joined Man GLG from Cheyne Capital in January 2015. It will seek to provide attractive risk-adjusted returns through both long and short investments primarily in European securities with a market capitalisation of €500m to €10bn.

Moni Sternbach, a mid-cap specialist, joined Man GLG after almost three years as lead manager of the Cheyne European Mid Cap Long/Short strategies. Prior to Cheyne, Sternbach was head of European smaller companies at Gartmore Investment Management, where he worked from 2002 to 2011.

The Fund will seek to deliver returns through stock selection and active portfolio management driven by meeting management teams and undertaking rigorous research. Research forms the bedrock of the investment process, and will leverage the expertise within the GLG business.

Man GLG’s co-CEO Teun Johnston said: “Moni is a very experienced portfolio manager who has been investing in this segment of the European market since 2002. We believe that his expertise, combined with our robust infrastructure, will create a compelling proposition at a time when the asset class has become more inefficient and the wide dispersion of returns has created opportunities for stock pickers.”

Moni Sternbach said: “The new strategy fits very well within the Man GLG investment framework and offers significant synergies with the European stock picking team and its sector specialists. We believe the European mid-cap equity market segment has become an increasingly compelling asset class for stock pickers due to poor and worsening sell-side analyst coverage, which provides the potential for us to generate attractive risk-adjusted returns for investors.”

A European Tactic Could Help Improve U.S. Market Liquidity

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When liquidity in a market dries up, it can contribute to financial disruptions such as the Flash Crash of 2010, when the Dow Jones dropped almost 1,000 points in a matter of minutes.

Traditional thinking has been that natural market forces create enough liquidity to keep markets moving, but an interesting tactic some European companies use caught the attention of Dr. Hendrik Bessembinder, an A. Blaine Huntsman Chaired Presidential Professor in the David Eccles School of Business Finance Department at the University of Utah.

In some European countries, companies will hire what’s called a Designated Market Maker to improve liquidity. Bessembinder detailed his findings in the paper he co-wrote, “Market Making Contracts, Firm Value, and the IPO Decision,” which has been accepted for publication in the Journal of Finance.

“We sat down to do some mathematical modeling of the economics of these markets, and found that indeed there is reason to think that competitive market forces don’t provide as much liquidity as the markets actually need and could benefit from,” Bessembinder said. “In other words, a contract where somebody is hired to improve liquidity can make sense and improve a company’s value by more than what the designated market makers need to be paid.”

Congress is working to improve liquidity through a pilot program that will increase the tick size of certain small stocks from a penny to a nickel to see if that will increase liquidity. The goal of the pilot program is to encourage IPOs.

“Our model and our study actually lead us to be skeptical that this will be an effective mechanism for enhancing IPOs. In fact, our model says that a designated market contract which is intended to decrease the bid-ask spread can enhance IPOs by improving liquidity and encouraging investors to pay more for shares in an IPO,” Bessembinder said. “The U.S. Securities and Exchange Commission is going to implement the pilot program where they widen the bid-ask spread. So, it will be of great interest to see if this in fact improves the liquidity of the stocks.”

Bessembinder thinks DMMs could work in U.S. stock markets, but FINRA Rule 5250 expressly prohibits the use of DMMs.

“We actually think that the situation would be improved if the FINRA rule would be repealed to allow firms to have designated market makers in order to improve liquidity,” Bessembinder said.