Photo: Ged Carroll. Emerging Market Currencies Face Renewed Pressure
The outlook for emerging market debt (EMD) is two-sided, said INM IM in its las market analysis. On the one hand, the global liquidity environment remains benign, thanks to low developed-market bond yields and a limited risk of rising yields, particularly in Europe and Japan. On the other hand, EM endogenous factors remain weak, as growth continues to struggle and reforms are still unconvincing.
Global liquidity still very supportive
The liquidity environment for EMD has remained supportive in the past few months. Even in the past weeks, when US bond yields rose by around 40 basis points, the search for yield remained strong. Hard-currency debt (EMD HC) benefited, as did high yield credits in developed markets. “As US bond yields rose and market expectations for the first Fed rate hike moved from autumn to summer, hard-currency debt clearly outperformed local-currency debt. A lot of this outperformance can be explained by the rebound of the oil price since the last week of January, as EMD HC had suffered relatively strongly from the sharp drop in oil prices. But the deteriorating prospects for EM currencies have also played a role”, explained Jacco de Winter, senior financial editor at the Dutch firm.
EM growth momentum has deteriorated
Two things have changed in the past few weeks, said de Winter. Firstly, EM growth momentum has deteriorated sharply. “Our own EM growth momentum indicator has declined sharply in the past weeks, after being stable at the neutral mark for several months. Of the 18 markets in the index, only Thailand, Chile and Mexico have a positive growth momentum now. The other 15 are negative or neutral. The worst momentum can be found in China, Indonesia and Russia”.
Secondly, monetary easing in the emerging world has become more pronounced, with recent interest rate cuts by Indonesia and Turkey. Twelve of the main 16 emerging economies are now on an easing path. This is the result of weak growth and falling inflation, and because policy makers want weaker exchange rates to compensate for lower raw material prices and/or lost competitiveness. Lower raw material prices continue to put pressure on many emerging economies, particularly the fundamentally weak ones. “This explains why in the past weeks Nigeria stopped defending its currency and Azerbaijan decided to devalue its currency (by 33%!) for the first time since 1999”, stated ING IM expert.
Volatility in EM currencies has increased
“The combination of weaker growth and overconfident central banks is a bad one for EM currencies, which have become more and more volatile recently. The fear that we have had for years now – that EM exchange rates eventually will have to depreciate much more to fully reflect deteriorated EM fundamentals – is becoming more relevant”, argued de Winter.
“In our view, EM central banks are counting too much on carry- trade-related hot money inflows. With the first Fed rate hike now only half a year away – this is what the Fed fund futures have priced in – countries like Turkey and Indonesia, with their high current account deficits and fragile domestic banking systems, should be more cautious. Especially since recent capital flows to the emerging world have already been weak”, afirmed ING in its analysis.
“Policy makers see no end to the growth slowdown. At the same time, inflation is declining. This probably makes them think that more currency depreciation is desirable, instead of a risk”, concluded.
Greg Jones, head of retail distribution for EMEA and Latin America at Henderson Global Investors. Courtesy photo.. Henderson GI: “Our Plans Over the Next Five to Six Years, are a Fivefold Increase in Latin America, to Reach 10 billion in Assets”
If we compare today’s Henderson Global Investors with the one of a few years ago, the image is almost unrecognizable. Since its origins as a UK based management company dedicated almost exclusively to the management of European assets, and focused on a more local (or, at most, continental) investor, the company has been immersed for the past few years in a process of strong changes which have transformed it into a global manager with a base of international investors and a distribution footprint that spans the globe, from Chicago to Singapore or Hong Kong (with a few exceptions, such as the African market). In fact, it has more than 900 employees in 19 locations around the world, spread across Europe, USA and the Asia-Pacific region.
Its acquisitions led it down this path of growth, internationalization, and business diversification: it bought Gartmore in 2011, providing it with a powerful basis for managing alternative assets; in 2013 it acquired a holding in 90 West AM, the Australian management company which specializes in natural resources; That same year it bought H3 Global Advisors, specialist in alternative raw materials and also Australian; and a year later it acquired the American company Geneva Capital Management, (specializing in growth stocks of small and mid cap). All of the above acquisitions aimed at not only diversifying their assets, but also at becoming a truly global player.
And in that vein, its medium-term objective is to build an investment infrastructure and also a global front office, as was explained by Greg Jones, head of the management company’s retail distribution for EMEA and Latin America, during an interview with Funds Society. “About five years ago we hardly had any business at all outside the UK,” he says; but now things have changed a lot.
One of the clearest pillars in that desire for globalization is in the US: “The United States is the market with the greatest savings; we started 12 years ago through a purely organic growth built around three equity strategies. It is a market where it is difficult to compete, so you have to offer something different, and therefore, we focus on the international stock market.” Currently, their plans are not just to maintain strong organic growth, but also to build a true “management factory” in the country, in line with the strategy set in recent years to build distribution capabilities on a global basis and aligned with the management company. “We want to build front offices and have local distribution capabilities,” he explains. In this regard, Jones anticipates that they will shortly hire a person in Miami to develop their plans and cover the US offshore market.
The fact is that Henderson GI is strongly committed to the US offshore market, one of its major areas of interest. “For a Latin American entrepreneur, these markets are more stable from a political point of view, and therefore, it’s natural to mobilize towards offshore centers in the US, and not just in Miami” the expert points out.
Overall, their plans are to hire over twenty people during the next few years, most of whom could join between 2015 and 2016, in order to meet the objectives of its strategic plan, which aims to double the company’s assets under management in 2018 (assets under management in 2013 amounted to 76.6 billion Euros). The company aims to have a balanced base and grow both institutionally and in distribution.
Latin America: another key element of this journey
Besides the US, Latin America is another key point in this global journey, where GI Henderson’s business, which they seek to increase fivefold in approximately the next five years, has evolved considerably since attracting its first client, whose fortune was generated in the region’s railroad business. “Two and a half years ago we had no assets in South America and we now have 2 billion. In five to six years, our plans are to have 10 billion,” he explains, very confident in the growth potential offered by the region.
What are the reasons behind such confidence? “It is an attractive market because it is very open, to me it is more attractive than Asia,” says Jones. “It is more modest in terms of assets under management, but the investor base is more Europeanized, due to its history. Furthermore, the time horizon of investment in Asia is shortsighted, and turnover is higher than in Europe or South America,” he explains. Other factors supporting Latin American history reside in demographics and compulsory private pension savings in some countries; and also in their lack of capabilities. “The capabilities in equity management, especially in European and global equities, are still very low in the region and there we see an opportunity to present our range of international equities at a very early stage,” says Jones.
Within the pension market, Chile is the management company’s greatest client and its priority, due to its attractive policy and regulatory framework, market size, and openness. Jones also highlights the exciting opportunities in Peru and Colombia: in Peru, Henderson GI is the active management company with the greatest presence in their pension funds. Yet, the interest in passive management, which is taken strategically when in their opinion it should be tactical, is increasing in these markets. Their plans also include the Mexican Afores. However, taking into account that the institutional and pensions market in LatAm is a more volatile market than retail, the success of the management company is to also reach that distribution client and achieve sustained growth within this segment, which is something they are accomplishing.
To continue growing in LatAm, the company has partners in different markets such as Santander, which through its Select range distributes Henderson funds in countries like Mexico or Brazil. And, according to Jones, Brazil has now been completely sidelined in its list of priority markets: “There are many management companies which are closing down; in order to succeed in that market you have to compete with high domestic interest rates and if you can’t, there is no point. Moreover, it is a very closed and complicated market; we are in no rush to get there”.
An array of unique products and a diverse range
In order to achieve his objectives, the expert does not lose sight of the idiosyncrasies of their investors and their various demands. “In Latin America the investor primarily seeks growth, used to investing in their local markets and with the emerging bias: growth will be the theme that dominates during the next five to ten years.” Meanwhile, in Europe, the issue of income is stronger, like in the US, where there is high demand for vehicles that offer high dividends, as the population ages. “But in Latin America the investor is younger, has to save for a mandatory pension fund, and there is a large structural support for investments that seek long-term growth,” explains Jones.
The fact is that another of Henderson Global Investors’ major changes in recent years has been the diversification of its product range: from equities (which accounted for 99% of its assets in 2009) to a much wider range (in which the weight of equities representing around 60%, and wherein the fixed income products (with around 22% and strengthened capacities), multi-asset, and alternatives have gained weight, a trend that will continue in the coming years). Therefore, Henderson GI has gone from a phase in which they were more focused on investment at European level (and equity) to another in which they are seeking to add value by investing in all types of markets from global equities to bonds or emerging market debt.
“There are management companies which, with the good performance of a fund, they gain trust and are given the benefit of the doubt when launching new products, even though there may not be a history of returns. We are not at that point yet, although 83% of our funds beat their benchmarks with a horizon of three years and we are building the distribution infrastructure required” said Jones, who aims to be given the benefit of the doubt when innovating. Something they do often through a process which has changed in recent years (the generation of the idea can come from managers or the sales team, and before its release has to pass through the Product Strategy Group as well as through an implementation committee) .
That innovation was very strong in 2014, with the launch of a global equity fund focused on income (a segment where they could generate more products), another of global natural resources (under the belief that long-term inflation and growth of the population will increase the demand for natural resources); and several credit funds, including one focused on the emerging world, an area “that still offers value.” Looking ahead, according to Jones, product innovations could focus on segments of global emerging debt, equities (both in Europe and Latin America) and liquid alternative products (in the institutional space).
And, all through active management. “Active management does not try to beat a benchmark every single day … it’s about strategic long-term investments, while passive management is more tactical and short-sighted. We have to educate investors in this,” he adds.
The March 2015 issue of The Cerulli Edge – U.S. Monthly Product Trends Edition explores regulations in the United States. The March Monthly Spotlight analyzes alternative avenues for alternative managers.
Some of the big money market fund players are beginning to implement their plans to comply with reform, which becomes effective October 2016. It is important for firms to determine their institutional versus retail client base and weigh respective options because eligibility requirements differ for each segment.
Mutual fund assets surged past the $12 trillion threshold in February, ending the month at $12.4 trillion. This growth is primarily a result of performance, especially among global equities. ETFs ended February with assets in excess of $2 trillion, an increase of 5.5% from January. Flows into both vehicles were healthy during February, with mutual funds taking in $34.6 billion and ETFs gleaning $29.8 billion.
Transparency is a major concern for some active portfolio managers since disclosing their holdings every day leaves them susceptible to having their trades front-runned. Data from a recent Cerulli survey found that ETF sponsors felt transparency matters more to institutional investors rather than retail investors.
Photo: Stepstone Group. Capital Strategies Partners Announces an Agreement to Cover the LatAm Institutional Market for Stepstone Group
Capital Strategies Partners has announced this week an strategic agreement to cover the LatAm institutional market for the international firm Stepstone Group.
StepStone Group is one of the most important platforms in the private markets global industry, with more than USD 60B in advisory and above USD12B in assets under management. The company operates on four continents with its 8 offices (San Diego, New York, San Francisco, London, Seoul, Beijing, Hong Kong and Sao Paulo) and has 150 employees of whom 23 are partners.
The platform is made up of four integrated pillars: Infrastructure, Real Estate, Credit and Private Equity, and includes Primary, Secondary and Co investments capabilities. The group prioritizes the importance of research, with a proprietary database covering 19,500 companies, 18,000 funds and 6,500 GPs.
Shannon Bolton, country head of CSP for Chile and Peru adds that “StepStone is one of the most powerful houses in the industry of private markets and, in particular, the world of private equity. The significant amount of annual primary capital (USD 7-8B) is paramount to driving co-investments (individual investments alongside a GP) and secondary opportunities. We believe this unique approach can provide much value to Latin American institutions. “
Capital Strategies Partners is a Spanish broker dealer specialized in representing international managers with a niche profile with local presence in Spain, Italy, Switzerland, Portugal, Germany and Latin America.
Foto: Kevin Doyle. Mercer Appoints David Anderson President of Growth Markets
Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly owned subsidiary of Marsh & McLennan Companies (NYSE:MMC), today announced the appointment of David Anderson to President, Growth Markets region including Latin America, Asia, Middle East and Africa. He will report to President and Chief Executive Officer, Julio A. Portalatin, and will relocate to New York. Previously Anderson was Managing Director and Market Leader for Mercer in the Pacific region based in Sydney, Australia.
“Our Growth Markets region is a strategic driver as increased global growth comes from these economically important countries,” said Mr. Portalatin. “Mercer’s capability to meet the needs of local, regional and multinational clients is a key element of our value. David brings proven expertise in leveraging marketplace shifts that impact our clients and their employees — such as increased individual accountability in investments, retirement and health care decisions – and that leadership helps us create sustainable business advantage.”
“This opportunity comes at a critical time when we can learn from the innovation in emerging markets across the globe,” said Mr. Anderson. “The ability to bring the depth of our local and regional insights to our powerful global reach allows us to create better health, wealth and careers for individuals as well as the organizations they power.”
Mr. Anderson has more than 25 years of experience working in the financial services and insurance industries in Australia, New Zealand, the South Pacific, Asia and Africa. He has advised multinational companies and governments on investment and retirement savings strategies and has been with Mercer since 1998. Mr. Anderson will continue to hold a directorship role with Alexander Forbes in South Africa, of which Mercer became a key strategic shareholder in 2014.
Ben Walsh will move into the Managing Director and Pacific Market Leader role for Mercer. Mr. Walsh currently leads Mercer’s financial services business in Australia and New Zealand and has more than 20 years of experience at Mercer/MMC providing superannuation investment, administration, insurance and member services to more than 1.2 million customers leading a team of nearly 1,400 colleagues.
Mr. Anderson succeeds Gaurav D. Garg who is pursuing other interests outside of Mercer. Mr. Walsh will remain in Melbourne and report to Simon O’Regan, President of Mercer’s EuroPac region which includes Europe, Australia and New Zealand. Both appointments are effective immediately.
Photo: Ronald O'Hanley, new CEO and President at SSGA/CED Admin en YouTube
. Scott Powers to Retire from State Street Global Advisors in 2015
State Street Corporation announced today that Scott Powers (age 56), president and chief executive officer of State Street Global Advisors, intends to retire later this year after more than seven years leading the firm and three decades in the investment management industry. Ronald O’Hanley (age 58) will succeed Powers at the beginning of April.
He and Powers will work together over the next several months to ensure a smooth transition of responsibilities. O’Hanley will report to Jay Hooley, chairman and chief executive officer of State Street, and will join the company’s Management Committee, its senior-most strategy and policy-making team.
“Although it is bittersweet to be retiring from SSGA, I know I leave the firm on a very solid footing, with even greater prospects ahead. It’s been a privilege to work with such a talented team of professionals and global clients.” said Powers.
Hooley said, “Scott has been a highly effective leader for our asset management franchise and I thank him for everything he has done to strengthen SSGA’s leadership position, talent and culture. We’re extremely fortunate to have such a strong successor in Ron, someone I have known personally for many years, as well as the talented and experienced management team at SSGA. Ron has a proven track record and extensive experience running a global multi-asset class investment management business.”
O’Hanley has nearly 30 years of experience in leadership roles within the industry and most recently served as president of Asset Management & Corporate Services for Fidelity Investments. Prior to joining Fidelity, O’Hanley spent 13 years in leadership positions at Mellon Bank and Bank of New York Mellon ultimately as president and chief executive officer of BNY Mellon Asset Management in Boston, vice chairman of Bank of New York Mellon Corp and a member of its Executive Committee.
Photo: Diego Torres Silvestre. Paulo Sampaio Named Head of Latin America Southern Cone for S&P DJI
In support of its role as a leading index provider in Latin America, S&P Dow Jones Indices has today announced that it has named Paulo Sampaio as head of Latin American Southern Cone. Mr. Sampaio will be based out of S&P DJI’s newly opened office in Sao Paulo, Brazil.
Over the past six months, S&P DJI has announced several landmark exchange relationships within the Southern Cone of Latin America – in particular with the BM&FBOVESPA – that have led to the development of a wide range of new and representative benchmarks, as well as greater index based investment solutions for investors inside and out of Latin America. Mr. Sampaio will primarily focus on advancing S&P DJI’s business in the region and strengthening its local, strategic relationships.
Mr. Sampaio has over 22 years of experience (15 as Managing Director) leading one of Brazil’s largest financial associations, ANDIMA (National Association of Financial Institutions). Here he focused on developing ANDIMA’s strategic direction within Brazil as well as its product development. Mr. Sampaio comes to S&P DJI with significant experience managing institutional relationships, particularly at the government level. He began his career as an Economic Research Manager in 1989, and has a B.A. in Economic Sciences from Catholic Pontifícil University of Rio de Janeiro.
“We are very excited to bring someone with such a high level of industry expertise and proven success to the S&P DJI Latin America team,” says Antonio De Azpiazu, Head of Latin America for S&P DJI. “Paulo comes to our organization with a myriad of skills, particularly at the institutional level, that will allow S&P DJI to not only further its existing strategic exchange relationships within the Southern Cone of Latin America, but allow it to bring its world-class indexing capabilities to more investors and markets within South America.”
Coupling the appointment of Mr. Sampaio as head of Latin America Southern Cone with last year’s selection of Mexico-based Manuel Gonzalez as head of Latin America North Cone, S&P DJI now has complete Latin America coverage. Both Messrs. Sampaio and Gonzalez report into Antonio De Azpiazu, Head of Latin America for S&P DJI.
The Dreyfus Corporation, the mutual fund arm of BNY Mellon Investment Management, and CenterSquare Investment Management have launched the Dreyfus Global Infrastructure Fund which provides individual investors with the opportunity to invest in the growth potential of infrastructure assets that connect people, resources, trade, goods and services and information around the world.
With developed nations looking to improve or replace aging infrastructure assets, and many emerging markets countries building out their infrastructure to grow their economies, the World Economic Forum estimates that $100 trillion will be invested in global infrastructure between 2010 and 2031. Traditionally, most infrastructure projects have been financed by the public sector. However, with public debt historically high versus GDP, more private capital will be required to fund future investment, giving investors increasing opportunities to benefit from an infrastructure allocation in their portfolios.
CenterSquare Investment Management, the sub-adviser for the fund, is a BNY Mellon Investment Management boutique specializing in real asset investing. CenterSquare cites a number of factors driving the need for infrastructure investment globally, including new sources of renewable energy, the discovery and utilization of new oil and gas deposits, and technological advances in communications, among others. Underpinning the demand for these assets is a growing and increasingly urban population and an expanding middle class, adding more consumers and increasing world trade.
Todd Briddell, chief executive officer and chief investment officer for CenterSquare, said, “We expect that there will be tremendous global demand for infrastructure assets over the next few decades. Companies that build and operate infrastructure assets are likely to see a significant benefit from the economic and secular trends to rehabilitate aging infrastructure and create new infrastructure to meet growing demand. As a result, listed infrastructure companies will increasingly take on a more significant role in the development and ownership of these assets.”
Briddell added, “Our investment focus will be on companies managing real assets with strong cash flow visibility, low direct commodity exposure, long duration contracts, and a steady long-term demand outlook. The Dreyfus Global Infrastructure Fund will give investors exposure to this dynamic and expanding sector, while seeking to provide a growth alternative which may complement other equity asset classes.”
Managing an infrastructure strategy is a natural extension of CenterSquare’s expertise in listed real estate and real assets, said Briddell, who added, “As in listed real estate, the return and risk characteristics of global infrastructure securities are based on the underlying real assets.”
The launch of the Dreyfus Global Infrastructure Fund follows the December 2014 launch of CenterSquare’s infrastructure strategy for institutional investors.
The primary portfolio managers for the fund are Maneesh Chhabria, who was instrumental in the development of CenterSquare’s global real estate investment trust (REIT) platform in 2006, and Joshua B. Kohn, a real assets investment specialist with more than 13 years of investment experience.
Photo: Ricardo Mogrovejo. Ricardo Mogrovejo Is the New Head of Alternative Investments at HMC ITAJUBA
Following his departure from AFP Capital, the pension fund management firm from Grupo SURA in Chile a few months ago, economist and MBA Ricardo Mogrovejo has now joined HMC ITAJUBA, a Latin America financial services and advisory firm born in a partnership between HMC and Itajuba.
Mogrovejo, as CIO of AFP Capital, led the team responsible for the pension funds with 37 Billion USD of assets under management.
Partner Ricardo Morales told that the choice of Mogrovejo has to do with his knowledge and experience on fund management and portfolio construction. “The key to success is selecting the best managers but also those that are willing to commit time and resources to the region. We have a regional approach and we have learn that to have a leadership position we need to attract the best talent, we need to understand that each country is constantly developing new trends and developments and that each client segment requires different type of information. HMC ITAJUBA has developed long term relations with the institutional market on the region, and we reinforce this commitment by the recruitment of Mogrovejo, who will help us to bring the best alternative products to our clients and to develop a business strategy for them adapted to each country.”
Partner Leonardo Camozzato adds “Mogrovejo will add significant experience to our platform and we are proud to attract the second former CIO of a large Pension Fund in the region in the last 24 months. The first one was Daniel Dancourt, previously CIO of Integra in Peru. Together, they managed approximately USD 50 bn of AUM, roughly 50% in Latam assets and 50% in international instruments, including alternative investments”.
Ricardo Mogrovejo will start in April, 2015 and be based at HMC ITAJUBA office in Santiago, Chile.
. Columbia Threadneedle Investments Brand Launched
Threadneedle Investments has now unveiled its new brand: Columbia Threadneedle Investments, representing a combination of resources of UK-headquartered Threadneedle and US-based affiliate Columbia Management.
The collaboration, which was first announced in January 2015, aims to strengthen both groups presence in the UK, Europe, North America, Middle East and Pacific. All existing investment strategies, teams and products will remain unchanged.
Campbell Fleming, CEO EMEA for Columbia Threadneedle Investments, said: “For Threadneedle it builds on our established businesses in EMEA and Asia Pacific. Under the banner of Columbia Threadneedle Investments we now also have a brand presence in North America, the largest investment market in the world.”
The firms, with combined assets of $505 billion, are owned by U.S. financial services company Ameriprise Financial and together form the world’s 30th biggest asset management group.
