Deutsche Bank’s Global Social Finance Group announced the closing of the Essential Capital Consortium (ECC), a five-year USD 50 million social enterprise fund, which is part of its family of social impact funds first launched in 2005.
With a list of investors including Church Pension Fund, MetLife, Agence Française de Développement, Deutsche Bank, Calvert Foundation, Prudential Financial, the Multilateral Investment Fund, member of the Inter-American Development Bank Group, Left Hand Foundation, IBM International Foundation, Tikehau Capital, Salvepar, Cisco Foundation and the Posner-Wallace Foundation, the ECC will provide debt financing to social enterprises in the energy, health and Base of the Pyramid financial services sectors. The Swedish International Development Cooperation Agency is also providing ECC with crucial credit enhancement support.
The ECC, which will finance 25 social enterprises including microfinance institutions expanding their offerings of financial products, has made its first round of loans to three organizations: Sproxil, a developer of a patented text message-based drug authentication system; Tiaxa, a provider of “nanocredits” to poor consumers in developing countries via mobile phones using big data analytics; and Arvand, a Tajikistan-based MFI providing innovative “green loans” to finance solar panels, clean cookstoves and other energy efficient products.
“The Essential Capital Consortium is a pioneering fund that aims to finance the growth of social enterprises as vehicles to achieve measureable benefits in improving the lives of the poor, bringing together well-respected and similarly motivated investors to fill an existing capital gap,” said Gary Hattem, Head of the Global Social Finance Group at Deutsche Bank. “As part of Deutsche Bank’s ongoing commitment to microfinance and the impact industry, the ECC provides responsive debt capital to support the next generation of social entrepreneurs globally who are redefining a market approach to addressing fundamental humanitarian challenges.”
Deutsche Bank was the first global bank to establish a socially motivated microfinance fund in 1997, managed by its Global Social Finance Group. Since then, the Bank has partnered with more than 130 MFIs in more than 50 countries, benefiting as many as 3.8 million low-income entrepreneurs through USD 1.67 billion in financing.
Global investors have significantly pared back U.S. equity allocations as belief grows that the U.S. Federal Reserve will raise rates in the second quarter, according to the BofA Merrill Lynch Fund Manager Survey for March.
A net 19% of global asset allocators are now underweight U.S. equities – the biggest underweight since January 2008 and a big swing from a net 6% overweight in February. The proportion of investors saying U.S. equities are overvalued has reached its highest since May 2000 at a net 23%.
Allocations to eurozone and Japanese equities have both increased, but investors have indicated that the shift to Europe has only just begun. A net 63% of respondents say that Europe is the region they would most like to overweight in the coming 12 months – a record since the question was first asked in 2001. The reading has spiked from a net 18% preferring Europe in January.
The move out of U.S. equities is also set to continue. A net 35% says that the U.S. is the region they would like to underweight the most, the most bearish reading in nearly 10 years. The spread between Europe and the U.S. has soared to 98 net percentage points – also a record.
The March survey indicates that investors have started to bring forward the date of the Fed’s first rate hike, rather than continue to push it back. The proportion of investors expecting the Fed to raise rates in the second quarter has risen to 34%, from 28%. The number expecting a rate rise in the third quarter has fallen. Accordingly, a net 2% of the panel has taken the view that the U.S. dollar is overvalued – the first overvalued reading since 2009.
“Investor consensus suggests that the strong dollar will act as positive rather than a negative for the global economy and markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. “Bullishness towards European stocks has reached uncharted territory. Demand for financials highlights confidence in domestic growth, while belief in European exporters is building on gains seen last month,” said Manish Kabra, European equity and quantitative strategist.
Inflation and rate expectations up sharply
Investors’ expectations of higher inflation and higher interest rates have risen sharply, according to the Global Fund Manger Survey. A net 52% of the panel expects high global consumer price inflation this month, up from a net 29% in February and a net 14% in January. Furthermore, increasing numbers take the view that global monetary policy could tighten. A net 34% say that policy is currently too stimulative, up from a net 26% a month ago.
More investors are forecasting increases in both long- and short-term interest rates. A net 66% of respondents believe short-term (three-month) rates will be higher in 12 months’ time, up from a net 53% in February. A net 63% expect long-term (10-year) rates in 12 months, up from a net 57%.
European bulls rush into banks
Investors inside Europe have echoed their global colleagues’ bullishness towards the region and made big allocations towards financial services. The proportion of European investors overweight banks has surged to a net 22% from a net 26% underweight last month. The proportion of investors overweight insurance has risen to a net 31% from a net 3% underweight in February
Belief in a rebound in profits is strong. A net 38% of respondents to the regional survey say that they expect double-digit earnings growth in Europe in the next 12 months, up from just a net 3% in February and negative net 43% in January. A net 88% of the regional panel says that Europe’s economy will be stronger in a year’s time, up from 81%.
Investors mindful of China default threat
With questions hanging over China’s debt levels, concern of default has moved to the forefront of more investors’ minds. China debt defaults is now seen the second-largest tail risk in world markets – 19% of investors rank it as their greatest risk, compared with 14% a month ago. “Geopolitical crisis” remains the most voted for tail risk.
Furthermore, the proportion of asset allocators underweight global emerging markets has risen to a net 11% from a net 1% in the past month. A net 57% of the global panel say that global emerging markets is the regional asset class they most want to underweight in the coming 12 months – down from a net 63% but remaining close to historic survey highs.
Some six and half years on from the onset of the global financial crisis, it’s not just Irish eyes that are smiling. With St. Patrick’s Day festivities in full swing, Ian Ormiston, manager of the Old Mutual Europe (ex UK) Smaller Companies Fund, celebrates the investment opportunities that abound the Emerald Isle.
“For the last 20 years Ireland has been a source of alpha for us. It is interesting that across those two decades Ireland has arguably seen the wildest fluctuations in its fortunes among European countries and yet we have been consistently able to find companies that have delivered returns to our investors”, said Ormiston. The reason for this, explained, is that “we focus on the micro, not the macro, and look to quality businesses with strong management teams to deliver returns to our investors”.
“If we think of the Irish story over this period it has been constantly evolving. We started with the macro domestic growth story of the Celtic tiger, through the debt fuelled property development binge culminating in 2008 with the collapse of the banks, to the austerity dominated recession post financial crisis and now back to strong domestic growth and international expansion”.
Layered on top of the economic cycles we have seen exaggerated market cycles which have provided even greater return opportunities. To capture these returns, one has had to seize a variety of growth drivers, explained the manager of the Old Mutual Europe. “At the time of the tiger, you could buy upstart smaller companies like Ryanair, CRH and Kerry Group who quickly outgrew their small, albeit fast growing domestic market to become multinational leaders in their sectors. During the bubble investors were largely passengers unless they chose to back the banks heavily, but growth and outperformance was available through companies like DCC, UDG Healthcare, Greencore and Grafton, all of whom eventually shifted their main listings to London reflecting the shifting emphasis of their operations. The bust and the austerity that followed saw all stocks becoming far too cheap and several of the companies that I have already mentioned enjoyed the benefits of a survivors party as many of their competitors withered or disappeared”.
Which brings us to today. Irish GDP grew by 4.8% in 2014 which is phenomenal by any standards, but is in stark contrast to the stagnation in the rest of the eurozone. Within the Old Mutual Europe (Ex UK) Smaller Companies Fund the most direct exposure to the recovery in the domestic economy is through real estate investment trust Hibernia, which has rapidly built up a portfolio of high quality, high yielding, and predominantly commercial property assets. Elsewhere in the portfolio, Old Mutual are approaching the end of the road for our investment in Smurfit Kappa as excellent execution of strategy by management has converted a debt-riddled basket case at the bottom of the cycle to a highly-rated international mid cap now. Where opportunity still abounds is in secular growth stories like Kingspan, which should see sales and margins augmented by the cycle, and Origin which is all about increased penetration and market share gains in the agronomy sector, explained Ormiston.
“So as the Irish celebrate St. Patrick’s Day we should congratulate them for surviving austerity and thriving now. We should also raise a toast to a small country with a disproportionately large number of quality businesses and hope that they will continue to deliver returns to us in the years to come”, concluded.
After a weak December the European mutual fund industry returned to its growth pattern in January, enjoying net inflows of €25.7bn into long-term mutual funds, according to Lipper Thomson Reuters data.
Single fund market flows for long-term funds showed a mixed but positive picture for January; 10 of the 33 markets covered in this report showed net inflows. The single market with the highest net inflows for January was Switzerland (+€4.1bn), followed by Germany (+€3.6bn) and Italy (+€3.3bn). Meanwhile, the United Kingdom (-€3.2bn), the Netherlands -€0.6bn), and Denmark (-€0.2bn) stood on the other side. BlackRock, with net sales of €6.1bn, was the best selling group of long-term funds for January, ahead of UBS (+€3bn) and State Street (+€2.2bn).
The majority of these flows (€25.7bn) were again seen into mixed-asset funds (+€15.6bn), followed by bond funds (+€7.6bn), equity funds (+€2.5bn), alternative/hedge products (+€1bn), and commodity funds (€0.7bn). In contrast, property funds (- €0.4bn) and “other” products (-€1.3bn) suffered net outflows for January.
In line with the long-term products money market products also enjoyed net inflows for January. In fact, money market funds (+€17.5bn) posted the highest net inflows of all asset types, while enhanced money market funds (+€0.8bn) also enjoyed net inflows.
These inflows lifted the overall net inflows for January to a healthy €44.1bn.
According to the overall net flows, asset allocation (+ €10.6bn) was the best selling sector with regard to long- term funds, followed by bonds EUR funds (+€4.7bn) and bonds EUR corporate investment-grade funds (+€3.7bn). At the other end of the spectrum equities emerging markets suffered net outflows (-€2.8bn), bettered somewhat by bonds USD corporate high yield funds (-€2.1bn) and bonds global high yield funds (-€1.7bn).
Early indicators for February activity
Looking at Luxembourg- and Ireland-domiciled long-term mutual funds, bond funds—with projected net inflows of around €24.3bn—should be the best selling asset class for February, followed by mixed-asset funds (+€12.1bn) and equity products (+€9.6bn). Even though these numbers are estimates, it seems European investors are again favouring bond funds.
Financial Express (FE) has rated Mansfield Mok ‘FE Alpha Manager’ for his exceptional track record, including investment management of the New Capital China Equity Fund. Mansfield is one of 181 managers recognised by FE as the top 10% of managers with funds registered in the UK. In the China/Greater China sector, Mansfield is one of only two managers with this rating. The FE rating is based on manager track record and three key components: risk-adjusted alpha generation; consistency of outperformance versus the benchmark; and outperformance in rising and falling markets. The New Capital China Equity Fund has beaten its benchmark, the MSCI China Index, by 28% since its inception in August 2012, and delivered a total return of 51.8% over the same period.
Hong Kong-based Mansfield, who has over 20 years of investment experience, joined EFG Asset Management (EFGAM) in 2012 to launch the New Capital China Equity Fund. He previously co-managed the $1.5 billion GAM Star China Equity Fund, which outperformed the MSCI China Index by over 72% during his five year tenure at the firm. In 2011, Mansfield was awarded ‘Best Fund Manager Over 3 Years’ and ‘Best Equity China Fund Over 3 Years’ by Professional Adviser and Lipper respectively.
Moz Afzal, Chief Investment Officer, EFGAM: “We are delighted that Mansfield has been recognised for his exceptional performance and expertise in this asset class. The exemplary performance of the New Capital China Equity Fund is the result of strong long-term macroeconomic fundamentals and Mansfield’s skill in selecting great companies. We believe the strategy will continue to be a great source of value for our clients.”
Mansfield Mok, Senior Portfolio Manager, New Capital China Equity Fund: “I am very happy to receive this prestigious award. China could easily be the leading economic superpower in the next five to 10 years but is hugely underrepresented in investors’ portfolios. Drawing on more than 20 years of investment experience in Asia, I look forward to building on our proven track record and continuing to deliver robust returns.”
LFF Real Estate Partners acquired the first German asset, a €20 million transaction, for an SCPI managed by La Française. The newly completed office building was purchased from Groß & Partner Grundstücksentwicklungsgesellschaft mbH. The building is fully leased on a long term contract to Saint-Gobain, a major French multinational corporation, for occupation as their German headquarters.
The 6,030 square meter building, comprised of six stories, is well located on the Main river in “Hafenplatz”, part of the new Hafen Offenbach development that borders Frankfurt. The asset offers both flexible office and storage facilities and includes a cafeteria that opens directly on to the river. A 120 car parking lot, recently built by Groß & Partner, is located within a short walk.
Jens Göttler, Managing Director-Germany, LFF Real Estate Partners, said that “We are delighted to be able to acquire such a Core asset, offering secure income leased to a strong tenant on a long term lease. We have a pipeline of further deals and will be looking to deploy over €160m of equity during the course of the next 12 months.”
Jens Hausmann, Groß & Partner, said that “We are convinced, that with the French investor LFF Real Estate Partners and its local team we found an excellent long-term-partner for our tenant Saint-Gobain, one of the leading French groups.”
LFF Real Estate Partners is giving new investment perspectives to La Française SCPIs (collective real estate investment vehicles). Active in the UK, German, French and Swedish commercial real estate markets, LFF Real Estate Partners is capable of sourcing unique diversification opportunities for parent company La Française and their French domiciled SCPIs.
PH REAL Peter Holtz Real Estate Services, Hogan Lovells and Turner & Townsend advised LFF Real Estate Partners, Groß & Partner has been advised by Hauck Schuchardt.
CC-BY-SA-2.0, FlickrPhoto: Dinesh Cyanam. Sucessfully Riding the Thematic Reversal
The Lyxor Hedge Fund Index was up +1.7% in February. 10 out of 12 Lyxor Indices ended the month in positive territory, led by the Lyxor Special Situation Index (+5.3%), the Lyxor CTA Short Term Index (+3.5%), the Lyxor Convertible Bond Arbitrage Index (+3.1%).
The gradual stabilization in oil prices, sparks of economic improvements in Eurozone and multiple evidences of central banks efforts all contributed to ease deflation fears. It triggered a broad and rapid rotation in most of the assets and sectors tied to the themes which dominated over the last few months. Recovering risk appetite supported strategies most exposed to risky assets, in particular the Event Driven and the L/S Equity Long Bias funds. Short term CTAs’ models also strongly benefitted from the market trends rapidly emerging. Conversely, L/S Equity Market Neutral and longer term macro funds endured temporary turbulences.
The Lyxor L/S Equity Variable and Long Bias funds were up +0.5 and +2.6% respectively. US funds outperformed and generated the greatest alpha, in particular through their exposure to the energy, financial and healthcare sectors. European focused funds remained cautious. Following a number of false dawns and real scares, they only gradually participated in the rally in Eurozone. Over the month they materially raised their allocation to industrials and mid caps, while taking profits on the consumer sectors and to some extent on financials. These changes were consistent with greater confidence toward the economic dynamic in the region, while taking profits on the oil and QE trades. EM focused funds produced returns in line with their underlying market, flat over the month. By month-end their aggregate exposures displayed a dominant allocation on Asian cyclical sectors.
The Lyxor L/S Equity Market Neutral index was down as much as – 0.9%. The reversal in themes which dominated these last months (the oil scare, the deflation fear and EU de-risking) resulted in a substantial and rapid sector rotation out of the defensive sectors into cyclical stocks. The ones without sector neutrality underperformed the most.
The recovery in Event Driven funds accelerated in February. The drivers that played so severely against the strategy in the second half of last year were powerful contributors to their recovery in February. Merger arbitrage funds were the first ones to rally, primary beneficiaries of resuming investors’ risk appetite. A meaningful deal spread tightening and completion of some operations contributed to the strong returns. An honorable load of new announcements allowed funds to refresh their portfolios.
The Lyxor L/S Credit Arbitrage index was up +1.4%. Most funds were supported by a recovery in global credit markets. Substantial inflows poured back into the space. Easing concerns on deflation and a stabilization in oil prices gave some air to both IG and HY markets – especially in the non-energy segments. Funds focusing on European markets outperformed. They benefitted from the ECB’s QE prospects being priced in periphery spreads. They also extracted alpha out of the Greek situation, though with volatility. The intensifying Fed debate ahead of the March FOMC weighted on EM credit in the early part of the month.
The drivers for the strong performance of the Convertible Arbitrage Strategy were similar. The easing pressure on liquidity, tightening spread and rallying equity markets provided strong tailwinds. The stabilization in oil prices had a strong impact on HY convertibles. Primary markets rebounded after several months of poor activity, positively contributing to the strategy’s return. Funds focusing on Europe also benefitted from the ECB reflation being priced in.
The Lyxor CTA Long Term Index was down -0.2% over the month. The thematic reversal in oil, inflation and growth stances resulted in substantial losses in their fixed income and commodity exposures. These were only partially offset by their long equity positions. A pause in the USD strength also detracted performance. The last week of February saw renewed weakness in oil and yields. This allowed LT models to recoup most of the lost ground.
In contrast, ST models quickly captured the trend reversals unfolding over the month and outperformed not only their long term peers, but all other hedge fund strategies.
Global Macro funds tend to be adversely impacted by turning macro themes. However, they were only marginally unsettled by that of February. A majority of them were adequately positioned for an inflection in yields. Their long equity positions balanced losses recorded in commodities (both in energy and precious metals).
“It’s now time to be selectively directional, in reflation zones especially. Global FX and rates , likely to be the most active playing fields, would also offer appealing trading opportunities.”, says Jean-Marc Stenger, Chief Investment Officer for Alternative Investments at Lyxor AM.
Photo: Evan Bench. Who Do the Markets Really Want to Win 2015 UK General Election?
One of the few certainties in financial life is that political uncertainty will unsettle the currency markets – and the 2015 UK General Election is looking like the toughest to call for decades. Investec foreign exchange trader Demitri Theodosiou offers his take on the potential scenarios for Sterling in the run-up to May 7.
2015 election – more uncertainty, more Sterling volatility?
Now we face, on May 7, the country’s most wide-open election in more than 40 years. If the past is anything to go by, the pound will respond poorly for as long as the outcome remains in doubt. The only way to stabilise Sterling would be for one party to emerge as a clear favourite. But, who do the markets really want to win?, asked Theodosiou.
“The key thing, as we’ve seen is that markets hate uncertainty and tend to sit out political skirmishing with as little exposure as possible. The less clear the view of the future, the antsier traders get”, said Investec foreign exchange trader.
But while the markets don’t really play favourites politically, some outcomes would clearly be more favourably received than other:
Outcome 1: Strong lead for the Conservatives. Big thumbs up from the markets. A likely Tory victory would be certain to have a nice stabilising effect on the pound.
Outcome 2:Strong lead for the Labour Party. Maybe just one thumb up. Markets might well view a future Labour government as rather less pro-business than a Tory one, and perhaps more likely to tax the foreign owners of Sterling assets. Whatever you think of that idea, you could hardly blame overseas investors for reducing their holdings of such assets.
Outcome 3: Polls show potential for Conservative/UKIP coalition. No thumbs. The possibility of the Tories getting into bed with Nigel Farage & Co would be a negative point for investors, at least in the short term, because it could potentially bring forward a referendum on EU membership. Whatever you think of the pros and cons of EU membership, it’d be bound to generate loads of uncertainty – currency market kryptonite.
Back to the future: lessons from 1974
Perhaps the best way to get a feel for what actually might happen this year is to take a quick time-machine trip back to the last election that was as uncertain as this one is promising to be – February 28 1974.
Labour won more seats than the incumbent Conservatives, but no overall majority.The Tories had more votes, however, and spent the weekend of March 2-3 trying to cut a coalition deal with the old Liberal Party. No deal emerged, so Labour took office as a minority administration on Monday March 4.
“And what happened to Sterling, you ask?” From $2.32 at the start of 1974, the pound had dropped to $2.27 by close of trading on March 1. Once the new government was appointed on the Monday, it rallied to $2.28.
“Bear in mind that this minority government was committed to widespread nationalisation and a wealth tax too. All of which just goes to show that, in the currency markets, the key election battleground is never left versus right – but instability versus certainty“, concluded Theodosiou.
Carmignac has announced several promotions within the European Equities, Cross Asset and Fixed Income teams.
Huseyin Yasar has been appointed co-manager of the €420m Carmignac Portfolio Grande Europe fund, alongside Muhammed Yesilhark with whom he has worked since 2011. Yasar joined Carmignac in 2014 as an analyst.
In addition, Malte Heininger has been promoted to co-manager of the €565m Carmignac Euro-Patrimoine and Carmignac Portfolio Euro-Patrimoine funds, equally alongside Muhammed Yesilhark. Heininger has also recently been appointed as manager of the €440m Carmignac Euro-Entrepreneurs and Carmignac Portfolio Euro-Entrepreneurs funds.
Carmignac also confirmed the re-organization of its Cross Asset and Fixed Income teams, with Julien Chéron being appointed co-manager of the €1bn Carmignac Investissement Latitude and Carmignac Portfolio Investissement Latitude funds, which he will manage together with Frédéric Leroux.
For the fixed income team, which is headed by Rose Ouahba, Pierre Verlé has been appointed head of Credit, a position previously held by Keith Ney. Ney will now focus on the management of the €6.5bn Carmignac Sécurité fund which he managed since 2013.
CC-BY-SA-2.0, FlickrFoto: Kevin N. Murphy. Mujeres y minorías dominarán entre los millonarios del futuro de EE.UU.
New Fidelity research finds 55% of financial advisors plan to target emerging and mass affluent investors in the next five years. According to the results of the Fidelity Investments®7th Millionaire Outlook, emerging affluent investors are well positioned to attain – or even exceed – millionaire status. Most importantly, while these investors look very different than today’s millionaires, with more than two-thirds female and one-quarter non-white, they demonstrate many similar attitudes and behaviors.
For the first time, this year’s Millionaire Outlook study surveyed investors across the full wealth spectrum—emerging affluent, mass affluent, millionaires and deca-millionaires—to assess their ability to accumulate wealth. The study identified the emerging affluent as having the greatest wealth potential based on six wealth-building factors: time horizon, career, income, self-made status, long-term focus and investing style.
Referring to the next-generation of investors is, Bob Oros, head of the registered investment advisor segment, Fidelity Clearing and Custody, says: ”They exhibit many similarities to today’s millionaires—even the deca-millionaires. These should motivate advisors to broaden their client base beyond the traditional millionaire and give all investors confidence in their ability to move up the wealth spectrum.”
According to this research, the emerging affluent –media assets of $250,000- have six wealth-building factors on their side, many of which they share with today’s millionaires and deca-millionaires.
On average, emerging affluent investors are just 40 years of age with 27 years left before they reach the normal retirement age of 67; Many of the emerging affluent have pursued similar professions to today’s millionaires, including information technology, finance and accounting; At $125,000 the median annual household income for the emerging affluent is 2.5X the median U.S. household income and is nearing the income of today’s millionaires; Approximately 80% of emerging affluent investors have earned or increased their assets on their own, what we could call “self-made status”; They share millionaires’ long-term focus, with 75% of both groups focused on the long-term growth of their assets, and 30% focused on supporting the lifestyle they want in retirement; and the Investing Styleis also similar, since the emerging affluent display a willingness to invest aggressively to help maximize returns, as well as a willingness to set aside a significant portion of their portfolio for riskier investments that promise a bigger payoff.
