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ING IM Stresses Impact of Human Capital on Long Term Risk Adjusted Returns

The portfolio managers of ING Investment Management’s (ING IM) EUR 1,5bn Sustainable Equity strategies regard human capital as an important value driver to achieve better long-term risk adjusted returns. Human capital – which encompasses factors such as talent, training, employee satisfaction, working conditions, labor relations and diversity – is probably an organization’s most valuable intangible asset, says Nina Hodzic, Senior ESG (Environmental Social and Governance) specialist at ING IM.

Research suggests that physical and financial accountable assets on a company’s balance sheet traditionally comprise less than 20% of the true value of the average firm. The remaining 80% consists of intangibles such as human capital, stakeholder capital, strategic governance and environment. ING IM’s approach combines financial analysis with a rigorous analysis of the hidden investment risks and value drivers that determine which companies will be long-term winners.

Nina Hodzic comments: “Human capital – especially employee satisfaction – is one of the key drivers of value creation in many sectors. Happy employees are more engaged and loyal. Low turnover means that good employees stay and are more productive. This has, generally speaking, a positive impact on company’s performance long term as it leads to higher expected future cash flows and lower risk. This is supported by an increasing number of academic studies. For example, Edmans [2011] shows that companies that were ranked as best-to-work-for in America produce an alpha of 3.5% annually above the risk-free rate. Best-to-work-for companies exhibit also substantially more positive earnings surprises and stock price reactions than their industry peers.”

Hodzic continues: “As economies in the West move from capital intensive firms – often combined with unskilled labor – to human capital-intensive firms, using high skilled innovative labor, investors will need new methodologies to assess the intellectual and creative strengths of companies and their constituent human capital.”

In order to maintain human capital advantages, ING IM believes that companies should look to increase training and development and build passion and purpose as young people look more and more for “meaningful work” benefiting the broader society. Diversity is also viewed as an increasingly important strength if companies are to understand the needs of those they look to provide services for, the asset manager highlights.

Hodzic points out: “The number of young people classified as NEETs (not in formal education or training) is a huge problem for governments and private sector companies. Universities, governments and companies will have to work together to ensure young people gain access to the training and skills needed to succeed in an increasingly human-capital focused environment and competitive employment market.”

ING IM launched its first Sustainable Equity Strategy in April 2000, making it one of the first global SRI (socially responsible investment) strategies available in Europe.

Schroders Multi-Asset Business Appoints Henriette Bergh as Head of Europe Product and Manager Solutions

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Schroders has announced the appointment of Henriette Bergh in the newly created role of Head of Europe Product and Manager Solutions (excluding the UK). Henriette joins the team this month reporting to Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions. She will have a functional reporting line into Justin Simler, Global Head of Product Management for Multi-Asset.

In her role Henriette will be responsible for the Multi-Asset product management and strategy in Europe. This will involve creating and implementing product strategy, management of the product range in Europe and consultant ratings, product development and client support.

Henriette joins Schroders from Morgan Stanley & Co. International where she was most recently, Head of Sales, Private Wealth Management for EMEA based in London. During her seven years at Morgan Stanley & Co. International she was also Head of Manager Selection Strategies, Private Wealth Management. Prior to this she was Executive Director, Global Manager Strategies at Goldman Sachs Asset Management International (GSAM). She has an MBA from Chicago’s Booth School of Business.

Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions: “Henriette is a key addition to our team. She has eighteen years investment experience advising both institutional and private clients across multiple asset classes and overseeing manager selection strategy teams. Henriette will work alongside our senior fund managers in London and Zurich, to enhance the investment service we provide to our clients”.

Institutional Investors Forecasting Strong Returns from Their Latin American Private Equity Investments

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Almost two-thirds of investors in Latin America private equity are forecasting annual net returns of over 16% in the next 3-5 years, according to the annual Coller Capital/LAVCA Latin American Private Equity Survey. This compares with just 23% of investors that expect this level of return from their global private equity portfolios (according to Coller Capital’s Global Private Equity Barometer).

For Latin American private equity investments outside Brazil, investors’ outlook is even more positive, with three quarters of them expecting net returns of over 16%. In terms of individual countries, Limited Partners (LPs) are most optimistic of all about returns from Colombia and Mexico, closely followed by Peru.

The pace of new commitments to Latin American private equity will remain strong in the coming year, with 78% of LPs maintaining or accelerating their commitments to the region.

More Latin America-based investors plan to increase than to reduce their target allocations to alternative assets (private equity, real estate and hedge funds) – and private equity receives the strongest vote of confidence, with 61% of Latin America-based LPs planning to increase their allocations to the asset class in the coming year. These plans are reflected in LPs’ hiring intentions; nearly half of investors will recruit new staff for their Latin America-focused private equity teams in the next 12-18 months. (Almost no investors expect to reduce the size of their teams).

The risk-reward equation for Latin American private equity as a whole is also improving, according to a majority of LPs. On the other hand, the risk-reward equation for Brazil specifically is seen as worsening, with almost twice as many LPs (42%) seeing a deterioration, compared with the 23% who believe the country’s risk-reward equation is getting better. (Interestingly, international investors are somewhat more optimistic about Brazil than their Latin American counterparts).

Coller Capital’s CIO Jeremy Coller commented: “Investors are signalling continued growth for private equity in Latin America. Their positive outlook is reflected in the attractive returns they expect, both from the region as a whole and especially from the less developed private equity markets of Colombia, Mexico and Peru.”

LAVCA President Cate Ambrose said: “The private equity and venture capital community in Latin America has become increasingly sophisticated in recent years. Not only are international investors growing their Latin America teams, but local investors are increasing their allocations to alternatives creating a dynamic environment for fundraising and investing.”

Both Latin American and international investors expect trade sales to become even more dominant as an exit route in the next couple of years. They think the second most common exit route will be secondary buyouts – followed in third place by IPOs. All these exit routes are expected to become somewhat more common.

You can find the whole report in the attached document.

Guggenheim Securities Agrees to Acquire Lazard Capital Markets’ London Operations

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Guggenheim Securities compra el negocio de Lazard Capital Markets en Londres — London skyline. Guggenheim Securities Agrees to Acquire Lazard Capital Markets' London Operations

Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners, has announced the execution of a definitive purchase agreement to acquire the London operations of Lazard Capital Markets (LCM), expanding the firm’s international presence. Consummation of the transaction is subject to approval by the Financial Conduct Authority.

The acquisition, upon approval, would allow Guggenheim to conduct a range of sales and trading operations, with an initial focus on European corporate and sovereign debt and U.S. and foreign equities.

Guggenheim plans to operate the business under the new name of Guggenheim Securities International Ltd.

“We are excited to have the opportunity to extend Guggenheim’s products and services to clients in Europe,” said Alan Schwartz, Executive Chairman of Guggenheim Partners and CEO of Guggenheim Securities. “At a time when many European clients are looking to restructure and find funding in the capital markets, we believe that the client-focus partnership model that has served us so well in building our business in the United States will allow us to extend our growth throughout Europe, and this is an important step toward that.”

As part of the acquisition, Guggenheim is welcoming LCM’s team of 10 professionals, led by Duncan Riefler, who ran the LCM London office. He will report to Ronald Iervolino, Senior Managing Director and Head of Fixed Income, based in New York.

“My colleagues and I are looking forward to joining the Guggenheim team and providing the same world-class client service in Europe that has long been the firm’s hallmark in the rest of the world,” Mr. Riefler said.

Joining Mr. Riefler from LCM are David Corney, Phillip Bloch, Jay Larkin, Nannette Bax-Stevens, Piero Greco, Samir Patel and Alison Kilsby. In addition, Dennis McKenna and Tomas Mannion will also be joining the platform in high-yield trading and research roles, respectively, marking the start of the growth commitment from Guggenheim.

Before joining LCM, Mr. Riefler was a co-founder and partner of Sonas Partners in London, an independent brokerage focused on trading fixed-income securities. Prior to that, he had a 19-year career at Merrill Lynch with a number of roles within fixed income in New York and London. He holds a BA from Denison University.

It’s Time to Play Defense in the European Stock Market: Downside Risks May Outweigh the Upside Potential

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Es el momento de ser defensivos en bolsa europea: los riesgos bajistas podrían superar al potencial alcista — Phil Webster, senior portfolio manager for the European Equities team at Aberdeen AM. Courtesy photo. It’s Time to Play Defense in the European Stock Market: Downside Risks May Outweigh the Upside Potential

Since the crisis of 2008 left valuations at a minimum, it has been highly fertile ground for investing in European equities, and in any case, they have been the trendy asset in portfolios since last January. But the momentum is losing steam due to the high valuations achieved, at least in some names, the disappointing macroeconomic data, the lower than expected profits, some geopolitical risks, such as the conflict in Russia, and the impact of future interest rate hikes in the USA, although these could be offset by the accommodative attitude of the ECB.

Aware that downside risks may outweigh the upside potential, Phil Webster, senior portfolio manager, and Angus Tester, manager and analyst for the European Equities team at Aberdeen AM, opt for caution and consider that this is a favorable time to invest from a defensive position, which they embody in a concentrated portfolio of about 36 names with quality DNA in their European Equity flagship strategy.

“There is still much interest in this asset class, and we are cautiously optimistic about growth in the continent, but valuations are too high in some cases, even generating some bubbles, and profit growth should have to be evidenced in order to justify those numbers”, Webster explained in an interview with Funds Society, adding that the deterioration of expected profits in European companies, something which could continue to happen, hasn’t surprised him.

In this environment, in which investors are also more cautious after years of earnings, both in the bond and in the stock markets, he believes that a good answer might lie in quality assets. “Our fund has done worse than the index in recent months in the absence of more cyclical stocks that have been puffed up in these recent months of generalized increases,” he explains. But now the situation could begin to change and the market could begin to reward higher quality values, the most stable businesses. Now that there is cause for concerns and uncertainties about political issues and geopolitical crisis, among other things, “the time is right for quality assets, the markets do not like uncertainty,” he added. And, in that regard, he believes there will be volatility. A volatility, which, in any case, will give them the opportunity to invest selectively.

Cautious Optimism

They are cautiously optimistic with regard to European macroeconomic conditions, believing that there will be growth, but also problems that have not been solved, and that there are still major challenges ahead that will take time. They explain that this is not an insurmountable problem for investing in the asset class, however, due to the geographical diversification of companies, in fact, in their portfolio, firms have a balanced exposure to different markets, divided between North America (23%), Asia (22%), and Europe (36%, including UK), along with other emerging markets. They explain that, “the portfolio is well balanced in terms of countries, sectors and other factors.” The reason for its concentration, in about 36 positions at present, from more than 50 in the past, is the confidence and conviction that they want to place on their stakes, which they select after a thorough analysis which requires meeting with the companies. The team, consisting of 17 managers who are also analysts, and who manage different strategies of European and British equities for Aberdeen AM, holds 700 such meetings.

The European stock market’s flagship portfolio currently gives greater weight to countries like the United Kingdom or Switzerland (also by the currency effect), but is the result of a fundamental analysis rather than of the country itself. Names such as Linde, Roche, Rolls Royce, Nestle, Unilever, Nordea Bank, and Prudential, appear amongst the top 10 and are selected using criteria such as the fact of having a competitive advantage and the power to set prices, strong balance sheets, a clear business strategy that aims towards growth, a good management team, and a commitment to deliver value to shareholders. According to Tester, a good dividend policy is also a good sign for the evolution of the business.

Positive about Spain, and yet investing little in that country

As far as Spain is concerned, both managers feel positive regarding the last reforms, particularly in contrast to countries like Italy or France, although they warn about the possibility that reforms will slow down due to the general elections, expected for late next year, and the, as yet unresolved, debt problems. But this, “optimism to a certain degree”, is not enough to fill their portfolios with securities from that country, which don’t hold any positions in their European stock strategy, although in the past they had BBVA and names such as Amadeus in some portfolios. In the small caps portfolio, they do bet on names such as Viscofán or Barón de Ley.

Northern Trust Announces Leadership Changes to Global Family Office Group

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Northern Trust has appointed Lesley Hodgson as senior director of its Global Family and Private Investment Offices (GFO) group in Europe, Middle East and Africa (EMEA).

Based in London, Hodgson will manage the client service teams in both London and Guernsey and will also support business development across the region. She will report to Daniel Lindley, managing director of GFO for EMEA.

Hodgson, who joined Northern Trust in 1995, was most recently managing director of Northern Trust’s GFO business in Guernsey where she was responsible for oversight of client servicing and fiduciary and asset administration in the context of Northern Trust’s offshore client offering.

“Lesley has been instrumental in developing our Guernsey business and we are pleased to appoint her to this broader role,” said Lindley. “Through the structuring of her new role we not only maximize efficiencies and best practices across our Guernsey and London offices, but ensure we are well positioned for future growth.”

The GFO group is a boutique practice within Northern Trust’s Wealth Management business. Established over 30 years ago, it provides customised solutions to ultra-high net worth families, their family offices and private investment offices. It currently provides asset servicing, fiduciary, investment advisory and credit services to more than 375 families and their family offices across the globe, with average assets under custody per client in excess of US$850 million.

BNP Paribas Appoints Yann Gérardin as Head of Corporate and Investment Banking

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BNP Paribas has announced the appointment of Yann Gérardin as Head of Corporate and Investment Banking (CIB). In this role, he will have responsibility for implementing the 2014-2016 development plan and continuing the process of adapting CIB to its environment.

Currently Head of Global Equities and Commodity Derivatives (GECD), he will take on hisnew role on 1 October 2014, reporting to Alain Papiasse.

Alain Papiasse, Deputy Chief Operating Officer for the BNP Paribas Group, in addition to supporting the development of CIB, will represent the Group General Management in North America, particularly in terms of implementing the remediation plan and new regulatory requirements. With his wealth of experience and knowledge of the region, he will also help reinforce coverage for large clients in order to support BNP Paribas’ North American development plan.

Jean-Laurent Bonnafé, Director and Chief Executive Officer of BNP Paribas, said: “In asking Yann Gérardin to take on these new responsibilities, I have full confidence in his managerial capability, which has been ably demonstrated within GECD since these activities were established. He has helped make BNP Paribas GECD a global leader in theequity derivatives industry. I would particularly like to thank Alain Papiasse for the key role he has played in successfully developing BNP Paribas Corporate and Investment Banking since 2009. His commitment will be a major asset in North America, a region of strategic importance to our Group.”

Hitting the Target with Factor-Based Equity Stratgies

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As greater numbers of institutional investors turn to equity strategies that capture style factors such as volatility, value, momentum or yield, most continue to lack clarity on the factor exposures across their combined equity portfolios, according to new research by Northern Trust Asset Management.

A survey of 139 global institutional investors found that just 18 percent of global investors said they were “very certain” of the actual risk factor exposure across their listed equity portfolios, while 51 percent were only “moderately certain” and 31 percent were either “fairly uncertain” or unaware of their exposures.

Based on the survey results and in-depth analysis of three pension funds in the United Kingdom, Europe and United States, the study finds that institutional investors incorporating a wide range of active and passive equity strategies in their overall portfolio end up with a neutral factor exposure – despite intended tilts to one or more factors – so that portfolios do not always reflect the investors’ goals and objectives.

The study demonstrates how significant allocations to factor-based equity strategies would achieve the investors’ objectives more effectively and includes case studies of four “early adopter” institutions that have successfully implemented factor-based strategies as a guide for others considering the approach.

“Interest in the blurring space between active and passive management continues to grow, as many investors are less concerned with beating a broad market benchmark and more interested in meeting their particular objective,” said Matthew Peron, Managing Director of Global Equity at Northern Trust Asset Management. “While our research identifies some of the challenges to risk factor investing, it also validates our ‘Engineered Equity’ solutions, which aim to capture exposure to specific factors, either individually or in combination, to meet investors’ specific goals. Engineering exposure to certain factors, while engineering out unintended exposures, are both equally critical to achieving objectives.”

Survey: Global Investors on Risk Factors

Seeking to understand how global institutional investors are using factor-based strategies, Northern Trust Asset Management surveyed 139 investors in the United States, Europe, United Kingdom, Asia, Africa and the Middle East. Approximately 45 percent had more than US$1 billion in assets under management. Of those surveyed:

51 percent said they employ factor tilt strategies in their listed equity portfolios.
The most widely used risk factors were value (33.9%), quality, size, momentum (each 16.9%) and volatility (13.9%).
Within their listed equity portfolios, across managers, the top investor concern was “overexposure to certain factors/regions,” followed by “absolute volatility” and “unexpected factor bias within the overall combined exposure” and “tracking error versus benchmark.”
To assess overall factor exposure, 57 percent use an internal team, 17 percent use consultants and 6 percent use other resources, while 20 percent either don’t assess or don’t consider it a priority.

“If the key concern is overexposure to a certain factor or region, being able to look across the portfolio to understand how that exposure looks is imperative,” said John Krieg, Managing Director of Institutional Distribution at Northern Trust. “The fact that fewer than one in five respondents felt certain of their factor exposures shows the difficulty of monitoring a large, complex institutional portfolio.”

Qualitative Analysis: 3 Pension Funds

The study includes an in-depth examination of the equity portfolios of three substantial, experienced pension funds in the United Kingdom, Europe and the United States. The funds had between four and 25 equity portfolios, tracked up to nine equity benchmarks and employed factor-based strategies to reach investment objectives such as value, low volatility or liability matching. However, Northern Trust’s analysis showed the actual factor tilt for each pension fund was neutral.

“What we found was that, regardless of the approach used to define the asset allocation – asset-liability management, core-satellite, tactical or strategic – the portfolios didn’t always reflect the investors’ goals, objective and intended exposures,” Krieg said. “In each case, the analysis showed how the replacement of some active and passive strategies with an Engineered Equity solution like Northern Trust’s Quality Dividend Focus or Quality Value Strategy would have increased the desired exposures.”

Krieg added: “In general, taking an experimental approach to factor-based investing does not produce the desired results. Investors have a greater likelihood of success if they make a substantial commitment to these strategies.”

Learning from Early Adopters

As a road map to implementation of factor-based strategies, the study describes the successful experience of four large institutional funds in Sweden, Denmark, the Netherlands and Taiwan with combined assets under management of more than US$375 billion. While all four were at different stages of adoption and complexity, the study found three key takeaways that can be applied for any investor:

Taking stock of what is currently in your portfolio before making any future investment decisions is crucial to success.
Failing to base future investment decisions on a strong understanding of your current portfolio can lead to unintended bias or cancel out intended bias.
Using Engineered Equity strategies in your portfolios can provide more risk-efficient and cost-effective outcomes while still achieving your performance goals.

“For all four successful investors, understanding their current portfolios was an essential first step to making investment decisions that achieved their intended exposures while avoiding unintended bias,” Peron said. “Our analysis showed that to realize noticeable results, you need to make a deliberate and substantial commitment to Engineered Equity strategies.”

The white paper, entitled Through the Looking Glass: Portfolio Truths. Factor Solutions, is the latest in a series, “The Equity Imperative,” that has previously established the trend toward equity strategies that aim to meet specific investment objectives beyond broad market exposure. In addition to industry surveys, The Equity Imperative series includes research examining the principles underpinning Engineered Equity at Northern Trust Asset Management. The research series and related information can be found at this link.

Liontrust Expands International Distribution with an Office in Luxembourg

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Liontrust Asset Management has recruited James Beddall to work alongside Jonathan Hughes-Morgan as co-head of International Sales. Liontrust is in the process of setting up a Branch Office in Luxembourg, where James Beddall is based, subject to appropriate regulatory approvals.

James Beddall joins Jonathan Hughes-Morgan in selling Liontrust’s Dublin range of funds through global banks, private banks, multi-managers and institutional investors internationally, with the primary focus being on Continental Europe. He will market the funds in France, Germany, Italy, Spain, Switzerland, the Benelux and Nordic regions. Jonathan Harbottle, Head of Institutional Sales, will retain responsibility for some clients in continental Europe.

James Beddall, who has 17 years of experience in international sales, has joined Liontrust from F&C Investments where he was Head of International Wholesale Sales. He moved to Thames River Capital in 2007, which was then acquired by F&C in September 2010.

Prior to Thames River, James Beddall was Vice President and Director (from January 2003) of Credit Suisse Asset Management from 2000 to 2007. He joined CSAM to set up the fund sales and distribution in the Benelux region and later on took on responsibility for France, Spain, the UK, the Nordic region and Eastern Europe.

“I am excited about the challenge and opportunity of helping to grow international sales at Liontrust,” says James Beddall. “I was keen to join an asset management business with the desire and potential to grow significantly its international business.

“Liontrust has a strong range of funds and fund managers and we believe there will be demand for the Global Credit and Asia Income teams in particular. I am also looking forward to working again with Jonathan.”

John Ions, Chief Executive of Liontrust, says: “Expanding our sales effort in Continental Europe is the logical next step after the very strong growth in AuM we have generated in the UK over the past four years.

“With the recruitment of James, we have put together a very strong sales team to market our funds internationally. We are also actively looking for more fund management teams that will appeal to the Wholesale market in Continental Europe.”

Almost Half of Americans Not Planning for Retirement

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Foto: Iñakideluis, Flickr, Creative Commons. Encaje de bolillos

The Federal Reserve Board recently reported that almost half of Americans have not begun planning for retirement. Wilde Wealth Management Group is teaming up with Retirement Consultants to change that, expanding their reach across Arizona to encourage more corporate employees to prepare for retirement.

Both firms are licensed to advise clients on 401(K) accounts in addition to other financial services, and many of their clients work for major Arizona employers such as CenturyLink, Intel, Raytheon, Tucson Electric, and the Arizona universities. Both firms are hosting information sessions and meeting with employees individually at their workplaces to inspire them and help them plan.

Trevor Wildeof Wilde Wealth, based in the Phoenix area, says, “If your employer offers 401(K) matching, that’s a no-brainer. It’s a great place to start. From there, we personalize the rest of your financial plans to prepare for your individual needs and goals. Having a consistent review process with each client is a vital element of our practice.”

Michael Santoroof Retirement Consultants, based in the Tucson area, says, “As they say, most people don’t plan to fail; they fail to plan. For many people, their employer-sponsored retirement plan comprises the largest portion of their nest egg, yet they don’t give it the care and thought it deserves. Most don’t even realize how many choices they have. Then, as employees enter their 50s, it’s like the red zone in football—those last 20 yards where you want to focus on a strategic plan and avoid fumbling. It is critical to plan, coordinating all your financial decisions to work as a team for that final run.”

The Federal Reserve Board, in its latest annual “Report on the Economic Well-Being of U.S. Households” reported, “Almost half of respondents had not planned financially for retirement. . . . 31 percent of respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64, and 25 percent didn’t know how they will pay their expenses in retirement.”